Case Study 4.1 - Chinese Workers and Forced Labor on the Imperial Pacific Casino Project in Saipan

Summary

The case study examines the construction of the Imperial Pacific casino in Saipan, a US commonwealth in the Western Pacific, by Chinese firms employing Chinese workers. The focus is on the serious labor abuses that transpired and the legal and other consequences faced by the companies as a result. The case sheds light on the structure and operations of these Chinese construction projects, including the layers of subcontracting and how efforts to maximize speed and minimize costs resulted in numerous violations of local laws. The case also examines what actions the abused Chinese workers on such projects may take to enforce their rights and address their mistreatment. The case study therefore provides a useful tool to consider the issues involved in hiring and supervising contractors, such as cost, contract provisions, subcontracting, monitoring, and liability. The case also provides a platform to explore what legal, advocacy, and other tools workers and their advocates can use when legal violations and labor abuses occur. Additionally, this case study provides a uniquely detailed account of the events that transpired in Saipan because the author served as a lawyer representing the abused workers in a lawsuit alleging that they were subjected to forced labor.

1 Overview

The case study examines the construction of the Imperial Pacific casino in Saipan, a US commonwealth in the Western Pacific, by Chinese firms employing Chinese workers. The focus is on the serious labor abuses that transpired and the legal and other consequences faced by the companies as a result. The case sheds light on the structure and operations of these Chinese construction projects, including the layers of contracting and subcontracting. It also explores how efforts to maximize speed and minimize costs resulted in numerous violations of local laws and the severe economic and reputational costs that this had for the companies. In addition, the case examines what actions the abused Chinese workers on such projects may take to enforce their rights and address their mistreatment. The case study therefore provides a useful tool to consider the issues involved in hiring and supervising contractors, such as cost, contract provisions, subcontracting, monitoring, and liability. The case also provides a platform to explore what legal, advocacy, and other tools workers and their advocates can use when legal violations and labor abuses occur. Additionally, this case study provides a uniquely detailed account of the events that transpired in Saipan because the author served as a lawyer representing the abused workers in a lawsuit alleging that they were subjected to forced labor. As a result, the case study draws upon court filings from that litigation, as well as construction contracts and subcontracting agreements, documents from local law enforcement agencies, criminal complaints, media reports, and worker interviews.

2 Introduction

In October 2022, seven Chinese construction workers reported that they recovered more than US$6.9 million through a lawsuit against the Imperial Pacific International (IPI) casino in Saipan, part of the US Commonwealth of the Northern Mariana Islands (CNMI) in the Western Pacific, and the two Chinese contractors who employed them to build the casino, subsidiaries of the Chinese firms Metallurgical Corporation of China (MCC) and Suzhou Gold Mantis (Gold Mantis). The result came after nearly four years of litigation over events that had occurred six years prior. In or around 2016, while in China, the workers had been promised construction jobs in “America” with reasonable hours, high pay, room and board, and good conditions, and therefore paid high recruitment fees for this opportunity to work in Saipan. Instead, upon arrival, they had their passports confiscated, discovered they lacked work visas, worked long hours with no rest days, were not paid, were subjected to verbal threats and physical violence, and faced a worksite less safe than anything they had experienced in China. Each of these seven men also suffered a physical injury on the site, such as a scorched leg, burnt hand, or severed finger. The workers were part of a group of nearly 100 workers who had been directly supervised by Kong Xianghu, an individual with a few registered limited-liability companies, but were provided Gold Mantis T-shirts and hard hats and worked alongside other Gold Mantis workers. A few had also previously been employed by a supervisor working for MCC. The workers lived in dormitories provided by IPI. Between all the various Chinese contractors on the project, there were more than 2,400 Chinese workers with experiences just like those of the seven plaintiffs.

This case study explores the construction of the IPI casino in Saipan by its Chinese contractors, tracing it from the inception of the project until the conclusion of the worker lawsuit. In doing so, the case provides a platform for exploring numerous issues concerning overseas construction projects being carried out by Chinese firms, including relations with local governments; contracting and subcontracting arrangements; compliance with local law; and the criminal, economic, and reputational consequences of noncompliance. The study also provides a window into examining what legal, advocacy, and other tools workers and their advocates can use when legal violations and labor abuses occur.

The case study therefore proceeds in seven sections: the first introduces the political and economic context in Saipan and how the IPI project came about; the second focuses on the structure of the contractor and subcontractor relationships on the project; the third describes IPI’s manpower shortage and the illegal recruitment methods used to solve it; the fourth discusses the various labor abuses perpetrated by IPI and its contractors toward the Chinese construction workers; the fifth reports on the various government and private enforcement efforts to remedy these labor abuses, such as criminal punishment, orders to compensate workers, fines, and a forced labor lawsuit; the sixth discusses how the workers themselves and other civil society actors helped to achieve a remedy for the workers; and the seventh explores the broader ramifications of this case on the companies, the CNMI, and US-China relations more generally.

The author served as the lawyer representing the seven workers in their forced labor suit against IPI, MCC, and Gold Mantis. The case study draws upon many of the court filings from that litigation and also the actual construction contracts and subcontracting agreements, documents from local law enforcement agencies, criminal complaints, media reports, and worker interviews.

3 The Case

3.1 Background on Saipan and IPI

The CNMI is a series of islands in the Pacific Ocean, of which the largest and most populated island is Saipan. After World War II, the CNMI was part of the Trust Territory of the Pacific Islands administered by the United States but later formed a political union with the United States in 1976. At that time, there were no quotas or tariffs on goods shipped from the CNMI to the United States. The CNMI also largely retained control over its immigration system and set its own minimum wage. This combination proved very attractive to apparel manufacturers, who could bring in foreign laborers from various parts of Asia, pay them very little, and export the goods to the US market. This allowed for the development of a garment industry that exported US$1 billion in goods each year and employed tens of thousands of factory workers.

However, after the media exposed the horrible labor abuses engaged in by garment employers in the late 1990s, a series of class action lawsuits brought down the industry. In 2009, pursuant to the Consolidated Natural Resources Act of 2008, Congress ‘federalized’ control over immigration to Saipan, stripping the local government of much of this power.¹ A 2007 law created a schedule for raising the minimum wage in the CNMI to match the federal level by 2018.² The US Department of Labor (USDOL) also established a permanent presence on the island. The intention was that such federal oversight over who enters and leaves Saipan, as well as over employers’ compliance with federal minimum wage and other laws, would ensure that the abuses experienced in the garment industry would not repeat themselves in Saipan.

Despite these reforms, the CNMI still received special treatment from the federal government in other respects, however. In order to encourage tourism to the islands, a program was created in 2009 that permitted Chinese tourists to be paroled into the CNMI for up to forty-five days without needing to obtain a visa.³ Between 2013 and 2016, the number of Chinese tourists to CNMI each year grew from 112,570 to 206,538.⁴ Around the time that immigration was federalized, Congress also created the CNMI-Only Transitional Worker program (or “CW-1” program) in response to the CNMI’s claimed need for foreign workers. While other programs for unskilled guest workers already existed, such as the H-2A and H-2B programs, the CW-1 program allowed workers from a broader list of industries and home countries (such as China) to be legally employed in the CNMI. When first established, the CW-1 program provided a decreasing number of permits each year, as the intention was for this program to be gradually phased out.⁵

After the garment industry more or less dissolved in the mid 2000s, the CNMI never found an economic driver to replace it.⁶ But, around 2014, this changed – or so people thought. During this time, the Chinese government was imposing tighter restrictions on the casinos operating in Macau, the only place in China where gambling is legal. It had become increasingly difficult for wealthy Chinese to get their money to Macau, and many of the junket operators and casinos there were losing money or even closing operations. In this context, one of these Macau junket operators approached a group of Saipan government officials about opening a casino on the island.⁷

On 12 August 2014, the CNMI government executed a Casino License Agreement (CLA) that provided IPI the exclusive right to operate a casino with table games in Saipan. The license was for twenty-five years, but IPI then had the option to extend for an additional fifteen years. In exchange, IPI was obligated to invest a minimum of US$2 billion, construct 2,000 new hotel rooms of at least a four-star quality, and pay an annual license fee of US$15 million.⁸ The CLA also provided that IPI would seek to have 65% of its workforce comprised of US permanent residents, as opposed to foreign guest workers, and IPI agreed to provide the CNMI Department of Labor (CNMI DOL) with quarterly updates on its progress toward meeting this goal.

IPI is the entity that was registered in the CNMI to operate the casino hotel. But IPI is a wholly owned subsidiary of Imperial Pacific International Holdings (IPIH), a holding company registered in the British Virgin Islands and with offices in Hong Kong. IPIH has been listed on the Hong Kong Stock Exchange since February 2002.⁹ The largest shareholder of IPIH was mainland Chinese businesswoman Cui Lijie, although many viewed the project as really driven by her son, Ji Xiaobo. Cui had been listed by Forbes magazine as one of Hong Kong’s fifty richest people in 2017.¹⁰

3.2 Construction of the Casino Project

On 15 January 2015, IPIH executed an “EPC general contract” (EPC总承包合同) appointing MCC International Engineering Co., Ltd. (MCC International) as the general contractor on the casino resort project in Saipan. MCC International is registered in Hong Kong and is a subsidiary of the Metallurgical Corporation of China, a central state-owned enterprise (SOE) mining conglomerate headquartered in Beijing. MCC International then created its own subsidiary in Saipan, MCC International Saipan Ltd. Co. (MCC Saipan), to operate the casino project.

In December 2015, a “General Construction Contract” (施工总承包合同) was then executed between MCC Saipan and IPI to implement the agreement between the parent companies. (In the course of the forced labor litigation, IPI made public both the original Chinese version of this contract and an English translation.) The first pages of the contract identify the parties and the initial contract price of US$200 million. The remainder of the roughly seventy-six-page contract appears to be a standard form, primarily comprised of boilerplate provisions but including very few details specific to the project. Most of the appendices, which are supposed to be tailored to the project, are left blank. The contract basically puts all obligations for compliance onto MCC. For instance, MCC was obliged to comply with all applicable laws, ensure safety on the site, be responsible for the actions of its subcontractors, hire employees locally, and generally be responsible for complying with all labor laws, including those regarding workers’ pay, housing, meals, and transportation.

IPI also engaged numerous other contractors for the project. Although often described as subcontractors of MCC, many of these companies were contracted by IPI directly, not by MCC. For instance, the Suzhou-based construction and design firm Gold Mantis (金螳螂), which is traded on the Shenzhen Stock Exchange, was hired to work on the casino hotel. The firm Nanjing Beilida (倍立达) (Beilida), a privately owned company, was also engaged by IPI. In fact, at least four other Chinese companies, including large firms like Sino Great Wall International Engineering and the Jiangsu Provincial Construction Group, also had contracts related to construction of the casino project.

The contracts between IPI and its contractors took a variety of forms. In contrast to the seventy-six-page contract with MCC, the agreement with Gold Mantis, executed in December 2016, is an eight-page English document with only eighteen sections.¹¹ Interestingly, while Gold Mantis is referred to as the “Contractor,” IPI is called the “Employer/Owner.” Nonetheless, the contract provides that Gold Mantis is responsible for the “labor works” of certain classes of workers, but not those subcontractors directly appointed by IPI. IPI was obligated to assist in applying for manager and worker visas as well as dealing with the government policy or legal problems, while Gold Mantis was made responsible for providing sufficient manpower and performing the contract “in accordance with all applicable laws and regulations.” The contract set a provisional price of US$6 million and provided that a “cost plus pricing mechanism” will be used, which means that the contractor essentially submits invoices and the developer pays an amount equal to those invoices plus some agreed-upon percentage of that amount as the contractor’s profit. It is important to consider what incentives such a pricing structure creates for the contractor.

These contractors often further subcontracted out their work on the casino project. For instance, Gold Mantis worked with an individual, Kong Xianghu, to manage a group of nearly 100 construction workers. Kong operated under at least three different corporate entities. With one of the entities, Gold Mantis executed a two-page contract to provide it with “labor services” on the IPI project for an agreed-upon fee schedule that was not listed in the contract. It stated that “no labor relationship is established” between the parties, and that Kong’s entity is “responsible for all safety accidents of its workers.” MCC, too, engaged in some similar arrangements, whereby it would engage an individual who was in charge of a group of workers and then make periodic payments to that individual. Beilida, too, had individuals who were in charge of a group of workers, and these individuals would receive a lump sum payment from the company based on the labor performed by their workers, which they were then responsible for distributing to the workers. As discussed further in Section 3.3, a critical issue is the extent to which these “subcontractors” were or were not independent of IPI and the Chinese construction firms.

3.3 Recruitment of Workers

Pursuant to the CLA, IPI was required to open the casino resort by January 2017. From the outset, IPI projected that it would need 2,000 workers to complete construction. (The population of the CNMI was just over 47,000 in 2020, which is a 12.2% decrease from 2010.)¹² There is also a CNMI regulation that requires 30% of any company’s workforce to be US permanent residents, as opposed to foreign workers.¹³ However, in January 2016, the CNMI DOL said there were only about 1,000 construction workers in the CNMI, meaning there was an obvious labor shortage. Generally, in order to get US permanent residents from outside the CNMI to come work in Saipan, the employer is required to pay their travel and housing costs as well as a significant wage that is high enough to make this work attractive. Thus, finding US workers to satisfy IPI’s need for labor would have been extremely costly.

Instead, IPI petitioned the CNMI DOL to grant an exemption to the 30% rule for its various Chinese contractors. Documents obtained from that agency show that the CNMI DOL approved IPI’s subcontractors to bring in more than 6,000 foreign workers. (These foreign workers were still required to have proper authorization to work in the CNMI.) However, getting these workers was not so easy. Whereas the cap on CW-1 workers had never been reached before 2016, all 12,999 CW-1 permits for 2016 had already been issued less than halfway through that year.¹⁴ This was primarily due to the IPI project: for instance, whereas only 1,231 CW-1 workers came from China in 2015, more than 5,000 came from China in both 2016 and 2017.¹⁵ IPI fought to meet its deadline with the workers it had by having them perform construction late into the night and even on Sunday, despite regulations forbidding this practice. Nonetheless, IPI later announced it would need to push back the opening. But IPI still needed more workers to avoid pushing it back even farther.

In order to resolve this manpower shortage, IPI, MCC, and the other contractors then began to bring in workers from China who lacked any work visas. The workers would be paroled into the CNMI as “tourists” but then immediately start working on the construction site. Many of these workers were actually defrauded in China, where recruiters told them that they were going to “America”; that they did not need a visa (or sometimes that one would be provided); and that they would only work six days per week, eight hours per day, and earn a large salary paid regularly. In exchange, the recruiters charged workers a recruitment fee, often around US$6,000 – more than the average annual wage of a Chinese construction worker – and sometimes far more. These “tourist workers” then often worked alongside the other construction workers who had proper visas, sometimes under the same supervisor, and living in the same dormitories.

Later on, when this illegal scheme was uncovered, IPI would claim that this plan to bring in these “tourist workers” – often referred to as “heigong” (黑工) – was entirely done by the contractors. The contractors, like MCC and Gold Mantis, argued that they also had hired subcontractors who brought in and supervised these tourist workers. However, evidence later revealed that executives and managers at IPI, MCC, and the other contractors were not only aware of what was happening but actively involved in developing and executing the plan.¹⁶

3.4 Labor Abuses

In the effort to get this project done quickly and cheaply, IPI and its contractors engaged in a series of practices that violated CNMI and federal laws. Some of these practices seem to be clear imports from how construction sites are run in China, such as paying a daily wage rate, but other policies were not simply what employers were used to doing at home – like confiscating worker passports. In this particular instance, there is much evidence that these companies were not ignorant of the different laws in the CNMI and United States. Instead, they knew the law but nonetheless chose not to comply.

There are numerous illustrations of the contractors’ commitment to reducing costs. Documents show that MCC had actually calculated the money that would be saved by hiring Chinese workers and paying a below-minimum wage salary instead of hiring US workers and paying a legal wage. The fact that MCC and other contractors brought in the Chinese workers as tourists rather than go through the expensive and cumbersome process of properly obtaining visas for workers is another example of violating the law to save costs.

The contractors also implemented a management style that included many forced labor-like conditions in an effort to maximize worker productivity and minimize cost. The contractors made workers labor for seven days per week for twelve or more hours per day. The overtime was mandatory. They did not pay workers on time but were always in arrears, meaning a worker could not quit without forfeiting his prior unpaid earnings. The daily wage that the companies promised to pay also violated rules on the minimum wage and overtime. Managers confiscated workers’ passports, also making it hard for them to quit, and overtly threatened that if they complained or quit they would be deported to China without receiving their pay. Workers were also housed in a rat-infested dormitory that even lacked a certificate of occupancy. These conditions were remarkably similar across all IPI’s many contractors.

IPI, MCC, and the contractors also refused to take proper safety measures. Workers received little or no training and often lacked the proper protective equipment. The fatigue from working so many hours with no rest days also made workers susceptible to getting injured. Indeed, many workers described the condition as worse than anything they had seen in China. An affidavit submitted in court revealed that emergency room doctors at the local hospital documented eighty serious injuries on the casino site just in the year 2016, prompting them to contact the relevant federal agency, the Occupational Safety and Health Administration (OSHA), about the dangerous nature of the worksite. The doctors also reported cases where they recommended that a patient be hospitalized and not transported, like a worker with a broken back, but the Chinese employers sent him back to China nonetheless. The contractor generally did not permit any of the tourist workers to receive medical treatment because they feared it might expose the fact that they were employing undocumented workers.

After performing its inspection in 2016 and 2017, OSHA eventually found twenty-four violations by MCC, Gold Mantis, and Beilida.¹⁷ The citations were for hazards related to inadequate fall protection, unsecured scaffolding, unprotected crane operation areas, and unguarded machines. And, in March 2017, one tourist worker died after falling 24 feet from the casino’s scaffolding and breaking his neck.¹⁸ Rather than report all these injuries to OSHA as required by law, IPI and its contractors instead tried to cover them up. It is this incident that prompted the FBI to intervene by raiding the offices of MCC, Beilida, and others, and arresting some of the managers.

3.5 Government and Private Enforcement

The cost-cutting decisions resulted in some serious consequences imposed by various US federal government agencies. First, the FBI and US Department of Justice criminally prosecuted Zhao Yuqing, the MCC project manager, and Qi Xiufang and Guo Wencai, two subcontractors/supervisors for Beilida, for knowingly employing and harboring undocumented workers, resulting in at least three individuals spending time in jail. Court documents show that agents discovered passports of undocumented workers in a drawer at MCC’s office and a list of “visa” and “illegal” workers at Beilida’s office. Another indictment was later issued against an IPI executive and another MCC manager who coordinated for workers to enter as tourists and devised ways to deceive immigration officials.

The USDOL also investigated the nonpayment and underpayments to the workers. This resulted in MCC, Beilida, and other contractors paying more than US$13.9 million to 2,400 workers, including about US$6,000 per person to reimburse the recruitment fees that were paid in China. Although these companies all claimed that they were not actually the ones recruiting the workers in China or collecting those fees, the USDOL found it proper that they be responsible for repaying them. Even IPI, since it too exercised some control over the workforce, was sued by USDOL and eventually agreed to pay US$3.3 million toward compensating the workers.¹⁹

As for the health and safety violations, public records show that OSHA’s inspection of the site in 2016 that found twenty-four safety violations resulted in fines levied against MCC, Gold Mantis, and Beilida in the combined amount of US$193,750.²⁰

In addition to this government enforcement, workers also sued IPI and its contractors in the federal court located in the CNMI. In the most noteworthy case, seven Chinese workers filed a complaint in early 2019 alleging that IPI, MCC, and Gold Mantis subjected them to forced labor, which also resulted in the physical injuries they suffered on the construction site. Under the federal Trafficking Victims Protection Reauthorization Act, not only a recruiter or employer but any individual or entity that “knowingly benefited” from the forced labor may be liable to the victims. After the judge found the workers had a plausible claim, MCC and Gold Mantis paid to settle with the seven workers. IPI continued to fight but refused to hand over the WeChat messages, emails, and other evidence requested by the workers, resulting in the court entering a default judgment against the company and setting damages at US$5.9 million. After roughly eighteen months, the workers were then able to collect the full amount of the judgment from the casino.

In each of these proceedings, IPI initially sought to put all the blame for the unpaid wages, unsafe conditions, confiscation of passports, and dismal living conditions onto its contractors, and would point to the language in their agreements making the contractors responsible for all such labor issues. Similarly, the contractors sought to put the blame on their subcontractors, such as individuals like Kong Xianghu, claiming that they were unaware of what those subcontractors were doing. However, the facts failed to support their arguments. IPI had arranged for the workers to live in the same crowded, rat-infested dormitories that lacked a certificate of occupancy, and transported them from the dorms to the worksite each day. IPI’s general counsel also denied entry to an OSHA inspector when he first arrived at the construction site. As for the contractors, the workers allegedly employed by the different “subcontractors” often lived in the same dorms, rode the same buses, wore the same company uniforms, and were overseen by the managers. Thus, even if the abused workers were technically supervised by a subcontractor to some degree, these facts made it possible to hold IPI and its contractors liable for the abuses that they suffered.

3.6 Worker and Civil Society Efforts

The Chinese workers themselves also took actions against IPI and its contractors to remedy the abuses they suffered. Some of these efforts worked in conjunction with government enforcement efforts to pressure IPI and its contractors to pay compensation, while others were independent of those efforts.

After the FBI raids in March 2017, many of the company managers fled from Saipan, and the Chinese workers were left stranded and unpaid. Despite previously being terrified to speak out due to their lack of visas and fear of employer retaliation, the workers now began demonstrating in the streets of Saipan demanding that they be compensated for the work that they performed. The workers also insisted that they would not return to China, as both the companies and some government agencies were encouraging them to do, until they had been paid. Not only did the local newspapers and TV stations cover the story but so did major international outlets, like the New York Times, which named the contractors and how each one had previously touted their participation in this project as contributing to China’s Belt and Road Initiative (BRI). The workers also wrote a public letter to the Chinese Consulate in Los Angeles (which has jurisdiction over Saipan) discussing how they were abused by these Chinese companies and wanted help.

The workers’ efforts and the international media coverage then prompted other civil society organizations to get involved. Groups like the National Guestworker Alliance and Hong Kong Confederation of Trade Unions made statements calling on IPI and its contractors to pay the workers. China Change released videos profiling the situation, including by documenting the company’s efforts to assuage the protesting workers by buying them cigarettes as well as showing the workers who had been injured on the site but received no treatment and no compensation. The videos also called on people to write to the Chinese contractors insisting that the workers be paid. Adding to the reputational costs for the companies, the IPI project was named one of the “Most Controversial Projects of 2017.” The labor abuses at the site would become a topic at US congressional hearings on the state of Saipan.²¹

The demonstrations by the workers, their insistence on being paid before returning home, and then the attention from the media and civil society put pressure on IPI and its contractors to resolve the issue. (It also likely put some pressure on the USDOL to ensure that the workers were fairly compensated and to ensure that the money was actually paid.) In addition to the contractors’ own interest in preserving their reputation, there have been suggestions that the Chinese government also leaned on the contractors to pay the workers and resolve the case, as it was negatively impacting China’s image. In particular, much of the media coverage about the incident noted that the Chinese contractors described their work in Saipan as part of the BRI. Since this is a signature policy of Xi Jinping, allegations of labor abuses on such a project are particularly sensitive for the Chinese government. Accordingly, it is plausible that the government may have pressured the Chinese contractors to resolve the matter and end the stream of negative attention.

Many of these same dynamics were at play after the lawsuit alleging forced labor was filed against IPI, MCC, and Gold Mantis. Numerous international media outlets reported on the case. The litigation was referenced at a US congressional hearing on forced labor perpetrated by Chinese companies. Advocacy efforts were also directed at the investment community and various financial regulators. For instance, Amnesty International argued publicly that IPI’s parent company and an MCC subsidiary were not in compliance with the environmental, social and governance (ESG) disclosure rules of the Hong Kong Stock Exchange on which they were listed. Both MCC and Gold Mantis, unlike IPI, eventually agreed to settle the claims against them in the forced labor suit. This negative attention, along with raising red flags for investors and regulators, may have contributed to the desire of these companies to settle by compensating the workers.

3.7 Aftermath

After the FBI raids, IPI continued its work on the casino-hotel project. It initially hired a contractor that employed US workers, who ended up claiming it was owed money and sued IPI. IPI then hired workers from other countries under the H-2B guest worker program, until USDOL eventually debarred IPI from the program, thus revoking its ability to do so; this forced IPI to rely again on contractors who would bring in the workers. IPI was able to finish construction of the casino and opened it in July 2017; however, to this day, the hotel portion remains unfinished.

The events that transpired on the IPI project had significant implications beyond just that project. Starting in October 2019, the parole program for Chinese tourists was revised so that individuals could only remain in CNMI for fourteen days rather than the forty days previously permitted.²² Sources suggest that this was driven in large part by the way IPI and its contractors exploited the parole program to bring in workers.

In July 2018, Congress also made changes to the CW program under which many of those construction workers who had visas were working. Although the overall program was extended – it was originally scheduled to phase out in 2018 but was instead extended to phase out in 2030 – no future permits were to be granted to construction workers unless they qualified as long-term workers. Employers would also be required to demonstrate that there were no willing and able US workers in the CNMI before bringing in a CW-1 worker.²³ In addition, employers found to have engaged in human trafficking or serious labor abuses would be barred from the program, which also was largely a result of the abuses on the IPI project.

In short, the massive abuses by IPI, MCC, and Gold Mantis significantly impacted the future of the CNMI’s relationship with China, both by making it harder for Chinese tourists to visit and by making it harder for Chinese workers to get permits to be employed on Saipan. It seems logical that this may also lead to a slowing of Chinese investment into the island.

4 Conclusion

The story of the IPI casino in Saipan provides a detailed illustration of an overseas Chinese construction project. The case highlights how some firms sought to resolve their need for manpower, deliver fast construction, and minimize costs by adopting practices that largely violated federal and local immigration laws, safety rules, wage and hour laws, trafficking and forced labor laws, and other labor rights protections. However, such practices are not unique to Saipan; instead, they are commonly employed by Chinese firms on projects across the globe.²⁴ The Saipan case illustrates how failing to adapt these practices to comply with local laws may have extremely high costs to the companies involved as well as the broader relationship between China and that locality.

5 Discussion Questions and Comments

The case of the IPI casino in Saipan identifies several critical issues that arise with large construction and infrastructure projects involving Chinese firms. This section discusses those issues and raises questions that should be considered by all stakeholders, including policymakers in the host country, executives and managers at the construction firms, and worker advocates.

5.1 For Law and Business School Audiences

5.1.1 Subcontracting Arrangements: When and How to Use Them, as Well as Legal Risks and Their Mitigation

An extremely common component of these Chinese construction projects is the extensive use of multiple levels of subcontracting.²⁵ In Saipan, the developer hired MCC as a general contractor, then engaged other contractors such as Gold Mantis and Beilida, and each of them contracted with supervisors as well as recruiters in China. While there is a business logic to this practice, it is often employed by developers and larger contractors to avoid liability for the labor or other violations taking place. Yet, in Saipan, despite contractual language assigning responsibility to the subcontractors, IPI, MCC, and other larger contractors were still held liable for the recruitment, labor, and safety abuses.

The case therefore offers an important lesson to companies about the importance of carefully considering the structure of their subcontracting arrangements. If not managed properly, this may create serious economic and reputational damage to developers and contractors. As a starting point, companies must make themselves familiar with the relevant legal framework. Companies then must decide whether to engage subcontractors or to handle various functions themselves. In what circumstances should companies use or avoid subcontracting arrangements? If subcontractors are hired, how will such arrangements be structured? What mechanisms will be adopted to allow the company to monitor the subcontractors and ensure their compliance with the law? Or will the company take a “hands-off” approach, risking that abuses may occur and intending to then feign ignorance if they are uncovered?

5.2 For Law, Business, and Policy School Audiences

5.2.1 Finding Redress for Labor Exploitation, Including Legal and Extra-Legal Strategies

Even the most careful planning or detailed set of regulatory measures cannot entirely eliminate the risk of noncompliance and abuse. Therefore, it is critical to consider what legal or other avenues are available to raise and remediate grievances. Many Chinese overseas projects lack a well-developed channel for workers (or other stakeholders) to raise complaints about wages, safety, or other conditions. However, when such mechanisms do not exist, or do not resolve the problem, workers and their advocates need to find other means to exert pressure on employers to remedy abuses. The Saipan case offers some important lessons on how this can be achieved. The workers (and then civil society groups) were able to exert pressure on the Chinese companies to remedy the abuses they suffered through a combination of public demonstrations, engaging the media, and appealing to the Chinese government. Some workers successfully used the local legal system to obtain compensation for being subjected to forced labor and for the physical injuries that were never adequately addressed by the construction firms. However, this was only possible due to legal rules that permitted undocumented workers to access the courts, lawyers to charge a contingency fee (i.e., only receive payment if money is collected for the client), and plaintiffs to participate in the legal process even after returning to China. Of course, the ability of media to operate freely and the rules of civil litigation may vary greatly by jurisdiction. Therefore, it is crucial that policymakers consider creating an environment that permits workers to seek redress, and advocates must evaluate how to best navigate that environment in each case. Thinking broadly, when labor exploitation occurs, what avenues are available to raise and remediate grievances? What legal and extra-legal strategies are available to workers and their advocates?

5.3 For Business School Audiences

5.3.1 Managing the Advantages and Disadvantages of Using Foreign Workers

For many large-scale construction or infrastructure projects, particularly in more remote regions, the local population may lack the manpower or skills to perform the job. However, importing a large number of foreign workers also creates risks and challenges. The migrant workers themselves are often extremely vulnerable to severe exploitation. Like in the Saipan case, the workers are transported far away from their homes to an unfamiliar place where they do not speak the language, do not know the law, and are entirely dependent on their employer. If they do not have a proper visa or legal status, their vulnerability is further heightened. So, what are the advantages and risks of using foreign workers? How should the use of foreign workers be managed? What measures should be put in place to minimize the risk of such labor abuses? The influx of foreign workers may also have a significant impact on the host country that must be considered. What will be the effect on the community or environment of this sudden growth in the population, particularly in a place with limited resources? Will the use of foreign workers create resentment among unemployed or underemployed local residents? Serious consideration must be given to these questions before a plan to bring in foreign workers is set in motion.