The German parliament passed a supply chain law that would hold larger corporations liable for human rights and environmental violations occurring inside their worldwide supply networks.

The law has cleared the path for tougher regulation that would see huge corporations fined up to 2% of their annual global revenue if they violate the rules.

Under the act, Companies above a certain size in Germany must implement due diligence processes to avoid human rights and environmental abuses in their worldwide supply chains, and they must take action if they identify breaches at their overseas suppliers.

Only enterprises with more than 3,000 employees in Germany will be affected starting in 2023. This will be extended to organizations with more than 1,000 employees starting in 2024.

This indicates that around 900 enterprises would be affected in the first stage, and over 4,800 in the second. In such situations, a punishment of up to 2% of global revenue might be imposed, according to the law.

The bill allows the government to temporarily exclude corporations that have been fined 175,000 euros or more under the new rule from participating in public tenders.

The new regulation, according to industry trade organizations and wholesale enterprises, adds to bureaucracy and raises the risk of price hikes.

“Companies face incalculable risks,” warned Joachim Lang, general manager of the German Industry Federation.

Companies would only have to take care of their direct suppliers, according to non-governmental organization Oxfam, and forced laborers would have no legal recourse in German courts.