Lawmakers tighten scrutiny of Shein, demanding evidence it doesn’t use forced labor after retailer files for IPO

A pop-up store by Shein Group Ltd. in a Forever 21 store in the Times Square district in New York, USA, on Friday, November 10, 2023.

Yuki Iwamura | Bloomberg | Getty Images

Lawmakers are stepping up their scrutiny of Shein after the company confidentially filed to go public last week.

One congressman who sits on a key committee is even threatening to pass a law banning the retailer from trading unless the US Securities and Exchange Commission rejects the request.

Rep. Blaine Luetkemeyer, R-Mo., issued a video address Tuesday in which he said Shein “urges extreme caution from regulators, customers and investors” as the fast-fashion company sets the stage for this to happen as early as March to begin trading on U.S. exchanges next year.

In an interview with CNBC, he claimed the SEC needs to “do its job” and stop Shein from trading on U.S. exchanges because the retailer allegedly uses forced labor and exploits U.S. trade laws.

“Call on the SEC to subject Shein’s business and management to the utmost scrutiny before allowing it anywhere near our capital markets,” Lütkemeyer said in the video viewed by CNBC.

“Access to U.S. markets and capital is a privilege and we rely on the SEC to root out undeserving companies,” he added. “I sincerely hope that Commission officials will investigate Shein to ensure that American capital is not funding crimes against humanity.”

Luetkemeyer suggested to CNBC that Congress could take a number of other measures to crack down on Shein if the SEC allows its IPO to move forward. These include laws that would ban Shein from trading in the United States or importing its supplies into the country.

“Everything is on the table, let’s put it that way, and I think we’ll see what action Shein wants to take,” Lütkemeyer said.

Lütkemeyer sits on the newly formed, GOP-controlled House Special Committee on the Chinese Communist Party. A legislative aide told CNBC the committee’s chairman, Rep. Mike Gallagher, R-Wisc., said: “Shares Rep. Luetkemeyer’s concerns about corporations reaping the benefits of America’s capital markets, despite clear and present concerns about human rights abuses and risks to national security.” Gallagher is also interested in pursuing reforms to the trade loophole known as the de minimis provision and expanding enforcement of the Uyghur Forced Labor Prevention Act, the adviser said.

The committee is investigating Shein for the use of forced labor and petty crimes – the investigation is still ongoing, said Lütkemeyer.

Under the de minimis provision, packages valued under $800 are not subject to import duties and are not subject to the same oversight of U.S. Customs, which is tasked with inspecting packages to ensure items are from prohibited regions not enter the country.

Shein often ships its products directly to American consumers through its network of Chinese suppliers, which typically avoids this oversight. The company has said it supports de minimis reform, but has not detailed what those changes will look like.

“We want to make sure we get to the bottom of it and uncover what’s going on and document it in a way that the SEC can’t ignore,” Lütkemeyer said.

The SEC told CNBC that it does not comment on individual companies.

The Republican push to ban Shein from trading in the U.S. comes as lawmakers from both parties are stepping up their criticism of the China-founded retailer. Rep. Jennifer Wexton, D-Va., also called for greater scrutiny of Shein. She said in a statement last week that lawmakers “must take action to hold Shein accountable” because products made with forced labor “have no place in the American market.”

While the IPO filing has sparked increased scrutiny of Shein, it is unclear whether the full Republican-controlled House of Representatives or the Democratic-dominated Senate would have enough support to pass a bill that would limit the company’s trading and business opportunities in the U.S., Lütkemeyer said concerns about Shein are “not partisan” and he expects legislative action against the company to have broad support.

Last week, people familiar with the matter said Shein had confidentially filed to go public in the U.S. and might be ready to begin trading next year.

The company, most recently valued at $66 billion, has enjoyed a meteoric rise in recent years but is coming under increasing scrutiny from lawmakers who suspect the company is able to offer its low prices because it uses forced labor and exploits de minimis exploitations. She has spent the better part of a year on a charm offensive to reverse that narrative and win over regulators and Wall Street.

Shein has said in the past that its low inventory business model and ability to spot emerging trends are responsible for its low prices. However, the company has acknowledged that some of its raw materials come from forbidden regions where forced labor exists.

“SHEIN has a zero-tolerance policy toward forced labor. We value transparency throughout our supply chain and are committed to respecting human rights. To comply with U.S. law, we require our contract manufacturers to source cotton only from approved regions. “As of November 2023, only 1.7% of our cotton tested positive for unapproved cotton,” a Shein spokesperson told CNBC.

“According to global supply chain tracking company Oritain, these volumes are well below the industry average of 14%,” the spokesperson added. “In the rare cases where cotton from unauthorized regions is detected, we take immediate action such as: E.g., ceasing production, ceasing shipments to the United States, and removing U.S. product listings.”

Asked whether these shipments would also be stopped and removed from product listings in other parts of the world, a Shein spokesman said: “Our policy is to comply with the customs and import laws of the countries in which we operate.”

The US has banned imports of cotton and other products made in Xinjiang, China since 2021 due to evidence of genocide, torture and forced labor against the Uyghur ethnic group in the region. Other countries have not yet implemented the same regulations.

—CNBC’s Chelsey Cox contributed to this report.