Tech Factories Luring Migrants Risk U.S. Labor Violations

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Photographer: Goh Seng Chong/Bloomberg

Factory workers wait for their transportation at dawn in the neighborhood of Majestic Heights in Paya Terubong, Penang.

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Photographer: Goh Seng Chong/Bloomberg

Factory workers wait for their transportation at dawn in the neighborhood of Majestic Heights in Paya Terubong, Penang. Close

Factory workers wait for their transportation at dawn in the neighborhood of Majestic Heights in Paya Terubong, Penang.

Photographer: Goh Seng Chong/Bloomberg

A foreign factory worker smiles on a 'worker bus' at the Majestic Heights, Paya Terubong in Penang, Malaysia. Close

A foreign factory worker smiles on a 'worker bus' at the Majestic Heights, Paya Terubong in Penang, Malaysia.

Photographer: Goh Seng Chong/Bloomberg

Factory workers walk along a road after disembarking from a bus in the neighborhood of Majestic Heights in Paya Terubong, Penang. Close

Factory workers walk along a road after disembarking from a bus in the neighborhood of Majestic Heights in Paya Terubong, Penang.

Photographer: Goh Seng Chong/Bloomberg

The Western Digital Corp. logo is displayed outside the company's factory in the Bayan Lepas Free Trade Zone in Penang, Malaysia. Close

The Western Digital Corp. logo is displayed outside the company's factory in the Bayan Lepas Free Trade Zone in Penang, Malaysia.

Photographer: Goh Seng Chong/Bloomberg

A truck drives past the Sony Emcs (Malaysia) Sdn. Bhd. factory in the Prai Industrial Estate in Prai, Penang. Close

A truck drives past the Sony Emcs (Malaysia) Sdn. Bhd. factory in the Prai Industrial Estate in Prai, Penang.

Photographer: Goh Seng Chong/Bloomberg

Workers for Wisconsin-based Plexus Corp., a $1 billion company with four connected plants in Penang, paid some of the highest fees among workers interviewed. Close

Workers for Wisconsin-based Plexus Corp., a $1 billion company with four connected plants in Penang, paid some of the... Read More

Sita Magar is a single mother of four who earns whatever she can wring from six goats and the muscle of a rented water buffalo. After paved roads end, it takes four hours to reach her farm along a trail where felled trunks, like twisted balance beams, span a raging stream. Even so, a recruiter feeding migrant workers into the global electronics industry found Magar in her mountainside Nepalese village last year. He convinced her to borrow more money than she’d ever seen, about $1,000, and pay him to get her daughter a position at a factory in Malaysia.

After a year, the girl was dismissed and sent home when a company-mandated pregnancy test came back positive, leaving the family still impoverished and with years of added debt.

Migrant workers recruited through such practices make electronic components that are critical to companies building defense and aerospace systems, medical devices, industrial technology and virtually everything else incorporating microchips and circuits, according to interviews with workers and supply-chain data compiled by Bloomberg.

An unregulated network of thousands of brokers induces workers into buying their jobs with fees often equal to a year’s wages at home. At the factories, employers often take their passports. If they want to leave, workers often have to hand over months of wages to get them back.

Buying Jobs

The Magar family is one of tens of thousands from some of Asia’s poorest corners who were sold on the idea of going deep into debt to buy jobs on production lines in Malaysia, a manufacturing hub for the global electronics industry. Interviews with 60 Nepalese workers from 22 companies showed that the transnational system for recruiting them is rife with abuses -- and extend far beyond the making of consumer devices, such as Apple Inc. (AAPL)’s iPhone, and into virtually all of the technology running the modern world.

Purna Kumar Tamang, 31, borrowed more than two years of earnings in his Himalayan village to pay a broker for a job at a Western Digital plant on the Malaysian island of Penang. Not long after he arrived, his wife grew seriously ill, trapping him between two grim options inside the hard-drive maker’s factory: leaving her alone so he could stay and work off their debt, or returning to care for her and face financial ruin.

“Those days were very hard,” Tamang said.

Obama Order

The companies that rely on these workers, either directly or through suppliers, include U.S. government contractors who now may be in violation of an executive order signed by President Barack Obama last year. Titled “Strengthening Protections Against Trafficking in Persons in Federal Contracts,” it bans the selling of jobs, no matter how big or small the fees, to overseas workers for companies that provide any goods or services to the U.S. government, according to lawyers who represent federal contractors and those who help trafficking victims. It also applies to subcontractors.

While rules for enforcing the order are still being written, experts said the no-fee provision will be included and could have a dramatic effect on an industry that both touches so many products and relies so heavily on workers paying brokers for their jobs.

“The executive order says no recruitment fees,” said W. Barron A. Avery, who represents government contractors and subcontractors at the Washington-based law firm Wiley Rein LLP.

Jennifer Plitsch, a partner in the government-contracts practice group at Covington & Burling LLP, agreed on the potentially widespread impact. “Most industries have long supply chains,” Plitsch said, “and these rules will apply all the way down.”

Zero Enforcement

The no-fees provision of Obama’s order was “a huge victory for the anti-trafficking community,” said Martina Vandenberg, a former partner at Jenner & Block LLP who established the Human Trafficking Pro Bono Legal Center last year. Enforcement will be crucial, she said, adding that human trafficking provisions have been “on the books for a decade, and there has been almost zero enforcement.”

Electronics makers operating in Malaysia, including Sony Corp. (6758) and the $17.7 billion hard-drive maker Western Digital, rely almost exclusively on foreign migrant workers for production, according to interviews with workers, recruiters, and industry and Nepalese government officials.

Many companies say they try to regulate recruiters’ behavior to mitigate abuses, though interviews with the 60 factory workers show what happens when principles collide with business needs: Even companies with strict human-rights policies can create conditions that worsen the exploitation of migrant workers. As previously reported by Bloomberg News, 40 other Nepalese sent home from a Malaysian plant that made iPhone cameras experienced similar treatment.

Off-Shoring Hub

Malaysia, following its independence from British Colonial rule in 1957, turned itself into a center for the rapidly off-shoring American technology industry. International Business Machines Corp. (IBM) and other semiconductor makers were among the first to build facilities there. By last year, about one-third of the southeast Asian nation’s total exports, or $72.3 billion, came from electronics.

In the past quarter-century, the country’s prosperity has reduced unemployment to 3.1 percent for Malaysian citizens. Their poverty rate sits at 1.7 percent, down from 15.5 percent in 1989. That has meant they’re largely unwilling to take menial jobs, leaving the country’s electronics factories to rely on foreign migrants for production. Other industries, including construction and agriculture, do as well.

Human Exports

Nepal, one of Asia’s most impoverished nations, is the second-biggest source of foreign workers in Malaysia, behind neighboring Indonesia.

Groups such as Verité, a Massachusetts-based nonprofit that conducts audits for Apple in Malaysia and Taiwan, have for years warned that debts and passport seizures can keep migrants entrapped as “bonded laborers” on factory floors.

Purna Kumar Tamang is one of them.

Last year, the promise of foreign wages from an American technology company reached his village, a three-day walk from the nearest drivable road in the Himalayan Mountains of northeastern Nepal. Tamang, his wife and two children were living on the food they could grow and the roughly $50 he made each month doing odd jobs. That put them on the edge of what the World Bank defines as extreme poverty. It wasn’t hard for a recruiter in a neighboring village to persuade him he could do better. Tamang borrowed more than $1,300 to pay for a job at Western Digital (WDC)’s plant in Penang. “I had to earn some money because we’re poor,” he said.

Paying Agents

The recruiters were working with a Malaysian manpower broker, which in turn was working for Western Digital, company officials said.

Tamang was among more than two-dozen men recruited from Nepal and sent to the Penang plant in August and September 2012, according to interviews with Tamang, 13 other workers and Western Digital representatives. Each man said he paid the equivalent of $1,300 to $1,800 to Nepalese labor agents.

The 12-hour shifts at the plant were long, but Tamang was happy with the money he was earning. It supported his family back home, serviced the interest on his broker debt, whittled down the principal and paid some of his expenses in Malaysia. Then, earlier this year, Tamang’s wife, Manika, began to suffer severe uterine pains. By the spring, doctors feared she might need a hysterectomy. She called him in Malaysia two or three times a day, often in pain, never daring to ask him to return.

Daily Calls

“I want to be home,” he said when he first met a reporter in Malaysia in late May. The only thing keeping him in Penang, Tamang said, were the debts from buying his job -- fees that were illegally excessive even under the little-enforced labor laws of Nepal.

By July, he couldn’t bear his wife’s daily calls any longer. He negotiated his return home with the Malaysian manpower broker, which made him pay about $600 (1,400 MYR) for his return ticket. Now back in Nepal, Tamang still owes more than $300, plus monthly interest payments. The principal alone is about six months of earnings in his village.

In an initial interview, Michael Meston, Western Digital’s vice president for human resources in Asia, said the company had eliminated the involvement of Malaysian manpower agents in its recruitment process for the foreign workers among its 24,000 employees in Malaysia. The company also started paying all fees for foreign migrants, he said, giving Western Digital one of the strongest policies against bonded labor in the industry.

‘Difficult Decision’

Meston then said he remembered that the company deviated from those practices after a chain of events beginning with floods in Thailand two years ago that crippled the company’s plants there. Western Digital, based in Irvine, California, moved to quickly boost production for a critical component on a new line in Penang last year.

Because of a tight labor market and “the need to rapidly ramp up the manufacturing facility, we made the difficult decision to make an exception to our newly established process” at the Penang plant, he said, adding that Western Digital hired a Malaysian broker who, in turn, worked with recruiters in Nepal.

Tamang’s case exemplifies what the company wants to avoid, Meston said: “The whole reason that we adopted, why we changed our recruitment practices and our whole process for employing people from overseas, is exactly to avoid the scenario you just characterized, which is employees being charged excessive recruitment fees and effectively having them feel like they can’t leave because they have this massive debt.”

Partial Reimbursement

Meston said the Nepalese men were supposed to have received about $600 extra from Western Digital’s Malaysian manpower broker by the end of June -- almost a year after they arrived -- to reimburse a portion of the fees. He said the company also was examining whether further compensation was appropriate.

Only a handful of European and American electronics companies pay the full cost of recruiting their foreign workers and bringing them into Malaysia, said Shirley Lua, a senior marketing manager for the Kuala Lumpur-based Winbond Group. The few who do in some cases, including Western Digital, do it either because of human-rights concerns, or because they need people quickly, and no-fee offers can get workers on production lines faster, said Lua, whose firm runs worker-outsourcing and recruitment agencies for manufacturers across Malaysia.

Everybody Pays

Much more common, Lua said, is requiring migrant workers to pay brokers in their home countries for their jobs. That way, it’s the workers themselves, not the manufacturers, who pay all costs associated with their own recruitment and importation, as well as the premiums collected by agents at home.

“They have to pay,” Lua said in her office this summer. “Every worker, they come, they will pay.” In Nepal, they’re recruited through more than 750 officially registered foreign-employment agencies and a vast network of unofficial channels. Each registered agency can extend its reach into remote villages through dozens, if not hundreds, of sub-agents who workers say often demand their own fees.

Such agents have helped make the Nepalese people one of their country’s top exports. Nepalis abroad wired home about $5 billion last year, or about one-quarter of Nepal’s gross domestic product, according to World Bank estimates. Although legal caps for how much brokers can charge exist on paper in Nepal, the fees actually collected are virtually unregulated in both Nepal and Malaysia, according to a report this summer from Verité, the Amherst-based nonprofit that runs bonded-labor audits for Apple.

Conduct Code

Nepal and Malaysia have no formal agreement on regulating the trade in workers. Nepal faces severe resource constraints in trying to protect its workers, as well as corruption, Verité, said in a report this year, in part citing 2010 research for the World Bank.

Almost every electronics company today has a code of conduct on the rights of workers, or it subscribes to one established by the Electronic Industry Citizenship Coalition, or EICC, based in Alexandria, Virginia. Its first provision covers “freely chosen employment” and bars “excessive fees” for workers that lead to conditions of bonded labor.

For Apple, any worker in its 250 supplier-factories who is charged more than one month’s net pay is considered a bonded laborer. If violations are caught in subsequent audits, Apple pushes suppliers to compensate the workers -- a policy that spokesman Chris Gaither said is tougher than any of its competitors.

Excessive Fees

Fees paid by all but one of the 60 people working for other companies and interviewed for this story exceeded Apple’s limits. For at least 49 of them, the amounts they said they paid were four times their monthly factory wages in Malaysia.

More than four of every five workers interviewed said they paid fees greater than the most generous definition of “excessive” often relied upon by the industry -- the roughly $800 maximum set by Nepal for workers heading to Malaysia. Even that amount can be a year’s worth of work or more in remote villages like Tamang’s.

More than 7 out of 10 electronics workers in Malaysia interviewed for this story said that in order to pay agents for their jobs, they had to borrow funds. Others used family savings.

The possibility of bonded labor across the global electronics supply chain could be especially troublesome for defense and aerospace contractors, as well as their component makers, if Obama’s order is enforced. That’s because weapons systems, satellites and aircraft are loaded with specially made electronics.

Motorola Workers

Migrant workers in Malaysia for Motorola Solutions (MSI) Inc., which makes walkie-talkies and other communications devices for government and private-sector clients, said they paid fees and had their passports taken. So did workers at two of its local suppliers.

Tama McWhinney, a spokeswoman for Schaumburg, Illinois-based Motorola Solutions, said it will investigate. In e-mailed statements, she said the company pays all recruitment fees for workers, and “is proud of its outstanding commitment to corporate responsibility and is committed to ensuring that its workplaces and those of its suppliers comply with legal requirements and appropriate labor rights and standards.” She also said Motorola Solutions last year found four suppliers in violation of its policy on bonded labor, and took quick corrective actions.

Passports Taken

Workers for Plexus Corp. (PLXS), a U.S. company with $1.3 billion in market capitalization and four connected plants in Penang, paid some of the highest fees among workers interviewed. They also said they had their passports taken. Plexus’s manufacturing operations are anchored in Penang, which accounted for 35 percent of its revenues in 2012, according to data compiled by Bloomberg. Many of its customers sell to the U.S. government, including several whose biggest clients are federal agencies, such as Raytheon Co. (RTN), General Dynamics Corp. (GD), Honeywell International, BAE Systems Plc. (BA/), and Motorola Solutions, Bloomberg Industries data show.

Plexus also provides contract manufacturing for smaller firms, including Minelab Americas Inc., the U.S. unit of an Australian company that sells metal-detecting equipment to the U.S. government. On Sept. 27, 2012, two days after Obama signed his anti-human trafficking order, the U.S. State Department awarded Minelab a contract for mine-detection gear, according to federal contracting data. On Oct. 27 of this year, the company received a shipment from the Plexus Penang complex of more than four tons of “metal detectors and parts,” separate U.S. Customs records show.

‘Serious Problem’

In an e-mail, Angelo Ninivaggi, a senior vice president and the chief administrative officer for Neenah, Wisconsin-based Plexus, said, “We do not believe that any items we manufacture in Malaysia are sold under a U.S. government contract or subcontract.”

He also said that media attention to the issue “has positively raised industry awareness to a serious problem.” The use of brokers “is common in Malaysia and many other countries and, if done ethically, creates positive economic opportunity for individuals,” he said.

Plexus’s own use of labor agents has been “in compliance with laws, including U.S. laws,” Ninivaggi said. “We remain committed to principles of social responsibility, including the fair treatment of all of our workers, and we will continue with a proactive and comprehensive review of our practices in this area to ensure that abuses do not exist with any individuals working in a Plexus facility.”

Brothers Bound

Among those who worked for Plexus, Dambar Adhikari, a 29-year-old father of two boys, said he paid more than $1,400 last year for a job at a Malaysian electronics company called Nationgate Technology. So did his brother, who went with him. Shortly after arriving, the men found they were working for an outsourcing firm. Before long, they said, they were reassigned to Plexus’s complex in Penang. Other Plexus workers said they had paid fees of up to $1,700.

Earlier this year, Adhikari’s youngest son, who is 3, was struck by a motorcycle on a roadway back home in Nepal, where streets are clogged with people, cattle, buses and scooters. After his wife pleaded with him on the phone, Adhikari said he decided to swallow his debt and return home.

He spent more than a week trying to get his passport back. The main challenge was figuring out who had it. It was a man at a firm in Penang that handled his pay for Plexus. He wouldn’t release it until Adhikari paid the man’s firm about $800, Adhikari said, even though he had produced medical reports detailing his son’s condition. Adhikari said his brother is now trapped in Malaysia by both of their debts.

Core Violation

Under corporate and industry standards, as well as U.S. law governing federal contractors and subcontractors, taking and holding passports of foreign migrant workers is a core violation of their human rights.

Yet Lua, the senior marketing manager for Winbond, said it’s standard for her firm. “Our driver will deliver the workers -- 10 workers, 10 passports -- through HR, to human resources,” she said. Employers keep passports, Lua said, so workers don’t become “runaways.”

Hundreds of Sony workers from Nepal also owe debts to labor agents back home, according to interviews with seven workers and the former Nepalese labor attaché to Malaysia, Surya Bhandari, who worked with Sony. The company recruits women from Nepal to work at the Sony EMCS audio plant in northern Malaysia. They are not supposed to make up-front cash payments to get their jobs, the workers and Bhandari said.

Double Dipping

Instead, each woman was required to sign a “foreign worker loan agreement” with the Nepalese manpower agency that sent her to Malaysia. In them, the women agreed “to make repayment for the loan to the agent,” even though they never received any funds from these so-called loans, according to the interviews and a copy of the agreement obtained by Bloomberg News.

Sony then automatically deducted “installment” payments for the Nepalese manpower agents from the women’s monthly checks, according to the loan agreement, Sony payroll records and interviews with workers.

The deductions went up 35 percent this year, according to the workers. Even with the agreements, four of the seven Sony women interviewed for this story said the Nepalese labor recruiters double-dipped by also forcing them to pay from $260 to $300 before leaving.

Female Preference

In an e-mailed statement, Sony spokesman George Boyd said the company was “looking into the matter” and that the company’s policy is to “adopt sound labor and employment practices and to treat its employees at all times in accordance with the applicable laws and regulations of the countries and regions in which it operates.”

Many factory operators in the region prefer to hire women because they are viewed “as more controllable,” said Dionne Harrison, a London-based executive for Impactt, a consultancy that has worked with Apple and other companies on labor issues. “They tend to be more loyal and they make less trouble.”

Women can face special indignities, including harassment and mandatory pregnancy testing that can lead to their firing, Harrison said.

In the case of the Magar family, their daughter was dismissed and sent home to her mountainside village in July after failing a pregnancy test. That happened before her mother had a chance to repay the $1,000 they borrowed to send her.

Because the girl was 16 and couldn’t legally work in Malaysia, her mother said the recruiter persuaded her to borrow $500 more to falsify a passport listing the girl’s age as 21. Each extra year cost $100, she said.

Falsified Documents

The girl went to work for a Malaysian company called JCY International (JCYH), records show. It has supplied hard-drive components to Samsung, Western Digital, Seagate and others.

In an e-mail, Calvin Lim, a spokesman for JCY and its financial controller, said falsified documents make it impossible for the company to detect the true age of a worker. He said the company has “a very clear policy of not hiring underage workers, and this message had been conveyed to all recruitment agents.” He also said JCY would try to further tighten recruiting practices.

He also said that Malaysian immigration authorities won’t allow pregnant workers to renew their annual work permit. “We have no choice but to send her back to Nepal upon finding out that she had tested positive during her mandatory annual medical,” Lim said. “We were at all times not aware that she was underage.”

Lim said JCY didn’t know “the exact amount foreign agents charge, and the way the workers raise their money.” But he said the company would investigate and, “if there is any wrongdoing, we will ask the agent or make other necessary arrangement to refund or compensate the worker and family.”

The firing of Magar’s daughter, now 17, gave her a chance to finally meet the man who had bankrolled the family’s broker fees. After hearing her daughter had been sent home, he showed up at their farm unannounced and demanded his money, with interest. “He threatened us,” she said.

Now that her daughter isn’t working, she has no idea how she’ll come up with the payments.

To contact the reporter on this story: Cam Simpson in London at csimpson13@bloomberg.net

To contact the editor responsible for this story: Melissa Pozsgay at mpozsgay@bloomberg.net

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