Supply-Chain Due Diligence Gaps Raise Sanctions Risk

28 September 2026

Executive Summary

A Reuters investigation into clothing supply chains has highlighted how companies can become exposed to sanctions and forced-labour compliance risk through suppliers several levels removed from their direct contractual relationships.

Reuters identified three garment manufacturers in Vietnam that have exported at least $5 million of cotton goods to the United States since November 2024 while maintaining substantial commercial links with Chinese textile group Esquel.

Esquel was placed on a US forced-labour sanctions list in November 2024 over alleged links to forced-labour programmes in China’s Xinjiang region.

Esquel denies those allegations.

Customs data examined by Reuters showed that approximately 70% of the cotton Esquel exported from China between November 2024 and June 2026 went to the three Vietnamese manufacturers.

Those manufacturers also source cotton from other suppliers.

Critically, Reuters said it could not establish that products exported from the Vietnamese manufacturers to the United States actually contained cotton produced by Esquel or originating in Xinjiang.

The investigation nevertheless demonstrates how difficult it can be for companies to establish what sits several layers behind an apparently acceptable direct supplier.

Knowing who manufactured a finished product is no longer sufficient corporate due diligence — businesses increasingly need to understand who supplied the supplier.

UK Impact

The immediate US restrictions are based upon American forced-labour legislation.

However, the underlying exposure is directly relevant to UK businesses sourcing internationally.

Potential risks include:

• Sanctions compliance.
• Customs detention.
• Forced-labour legislation.
• ESG obligations.
• Reputational damage.
• Contractual disputes.
• Product seizure.
• Supplier replacement costs.
• Customer relationships.

UK companies supplying multinational customers may also be required contractually to demonstrate the provenance of materials within their products.

Global Impact

Modern supply chains frequently contain several layers.

A retailer may purchase from a garment manufacturer.

That manufacturer purchases fabric.

The fabric manufacturer purchases yarn.

The yarn producer purchases cotton.

That means the direct supplier can appear compliant while the original raw material creates regulatory exposure.

Reuters reported that retailers including Muji and Rodd & Gunn had sourced from the Vietnamese manufacturers.

Both companies told Reuters they had been unaware of the manufacturers’ links to Esquel.

Rodd & Gunn said its partners were required to source exclusively from the United States, Brazil and Australia and that it collects documentation verifying chain of custody.

Muji said its suppliers had signed commitments not to use forced labour and that an audit of one plant was planned.

The companies’ responses illustrate an important corporate risk:

Documentation provided by the immediate supplier may not necessarily reveal every relationship deeper within the supply chain.

Our View

Businesses should increasingly treat sanctions screening as supply-chain mapping rather than name screening.

Companies should ask:

• Who is our direct supplier?
• Who owns that supplier?
• Has the company previously traded under another name?
• Who supplies its raw materials?
• Who owns those businesses?
• Have any suppliers recently been renamed?
• Have ownership structures changed?
• Are former executives connected to current suppliers?
• Where do raw materials originate?
• Can origin documentation be independently verified?
• Are different raw materials blended?
• Are sanctions checks conducted below Tier One?
• Are supplier declarations independently audited?
• Do contracts permit inspection of upstream suppliers?
• Can goods be traced to batch level?
• What happens if customs detains a shipment?

Companies should also examine corporate history, not simply the current company name.

Rebranding, restructuring or moving production geographically does not necessarily remove connections with an earlier business.

This applies well beyond clothing.

The same principle can affect:

• Metals.
• Electronics.
• Automotive components.
• Solar panels.
• Batteries.
• Critical minerals.
• Food.
• Pharmaceuticals.

The broader lesson is simple.

A company can comply perfectly with its own sanctions procedures and still encounter problems if those procedures stop at the first tier of the supply chain.

Corporate due diligence should follow the product back to its origin — not stop at the company that sends the invoice.

Risk Indicator: HIGH – GLOBAL, SANCTIONS COMPLIANCE & SUPPLY-CHAIN DUE DILIGENCE

Disclaimer

The information contained within these Market Alerts is provided for general market awareness and informational purposes only. It does not constitute financial, legal, investment, regulatory or insurance advice. Whilst every effort has been made to ensure accuracy at the time of publication using multiple reputable and independently verified sources, geopolitical events, legislation, regulation and market conditions may change rapidly. Readers should obtain appropriate professional advice before acting upon any information contained herein.

Invictus Risk Solutions LLP – Helping organisations stay ahead of emerging risks through informed insight and independent analysis.