Lawmakers urge SEC to crack down on Chinese retail giant Shein over alleged forced labor

WASHINGTON — Bipartisan lawmakers are urging the nation's top markets regulator to require Chinese fast-fashion giant Shein to disclose potential forced labor practices ahead of the company's possible initial public offering in the United States.

The fast-fashion company has come under fire for accusations of mistreatment of Uyghurs, a marginalized group in China, and for allegedly falsifying reports of forced or underpaid labor of its supplier factories, some of which are allegedly located in the Xinjiang Uyghur Autonomous Region of China. Shein said it has no suppliers in the region.

The alleged practices violate the 2021 Uyghur Forced Labor Prevention Act, Reps. Jennifer Wexton, D-Va., and John Rose, R-Tenn., wrote in a letter Monday to Securities and Exchange Commission Chairman Gary Gensler.

"As a global company, Shein takes visibility across our entire supply chain seriously. We are committed to respecting human rights and adhering to local laws and regulations in each market we operate in," a Shein spokesperson told CNBC. "Our suppliers must adhere to a strict code of conduct that is aligned to the International Labour Organization's core conventions. We have zero tolerance for forced labor."

The SEC didn't immediately respond to a request for comment.

The representatives are leading a bipartisan group, including 22 other lawmakers, in demanding the SEC require that Shein independently verify that it does not use forced labor before being allowed to issue securities in the U.S. The $64 billion company is preparing for a potential IPO later this year.

"While Shein claims its products do not utilize Uyghur forced labor and it works with third parties to audit its facilities, experts counter these types of audits are easily manipulated or falsified by state-sponsored pressure," the lawmakers wrote to Gensler. "Other experts argue that it is appropriate to presuppose that any product made in the XUAR is made with forced labor."

Goods manufactured in that area of China are not entitled to entry into the U.S. under the 2021 act.

The lawmakers also asked Gensler to notify national securities exchanges registered under Section 6 of the Securities Exchange Act of the requirement. Section 6 outlines the application process for registration as a national securities exchange.

Shein's business model relies heavily on advertising to Gen Z buyers on mobile apps, such as TikTok, and through social media influencers.

The company, whose de facto holding company is located in Singapore, hired its first federal lobbyists in 2022 with goals to expand its distribution into the U.S. market, according to Politico.

The lawmakers' letter echoes concerns from outside groups. Independent coalition Shut Down Shein has also called on the SEC to deny IPO registration to Shein unless it provides proof of compliance with the Uyghur Forced Labor Prevention Act.

"Access to U.S. capital markets is a privilege, not a right, and should not be given freely to corporations who threaten U.S. national security with nefarious business practices, and who are making Americans complicit in their violation of U.S. law," Chapin Fay, executive director of Shut Down SHEIN, has written.

– CNBC's Gabrielle Fonrouge contributed to this article.

Clarification: This story was updated to note that Shein says it has no suppliers in the Xinjiang region.