Nearly a third of some 350,000 workers in Malaysia's electronics industry - a crucial link in the international consumer supply chain - suffer from conditions of modern-day slavery such as debt bondage, according to a study funded by the U.S. Department of Labor.
The survey by Verite, an international labor rights group, found that abuse of workers' rights - particularly the tens of thousands from low-wage countries like Nepal, Myanmar and Indonesia - was rife in a $75 billion sector that is a mainstay of the Southeast Asian country's export-driven economy.
Several U.S., European, Japanese and South Korean multinationals have operations in Malaysia, including Samsung Electronics Co Ltd (005930.KS), Sony Corp (6758.T), Advanced Micro Devices (AMD.N), Intel (INTC.O), and Bosch Ltd BOSH.NE.
Some big brands use suppliers such as Flextronics FLEX.UL, Venture Corporation (VENM.SI), Jabil Circuit (JBL.N), and JCY International (JCYI.KL) to make parts for smartphones, computers and printers.
The U.S. government funding adds credibility to a report which is likely to come as a surprise to many consumers.
Malaysia is a middle-income country where labor standards have been seen as better than in some of its Asian neighbors such as China, where questionable labor practices have drawn scrutiny in recent years.
Verite did not single out any companies in its report, released on Wednesday, but blamed a system in which government and industry policies have given Malaysian recruitment firms increasing control over workers' pay and other conditions.
"These results suggest that forced labor is present in the Malaysian electronics industry in more than isolated incidents, and can indeed be characterized as widespread," the group said.
Several U.S. companies with operations in Malaysia told Reuters they could not comment until seeing the full report. An Intel spokesman said most of the chipmaker's 8,200 employees in the country were Malaysian and it did not use contractors. Flextronics said it was aware of issues related to foreign workers and had "rigorous" policies to prevent abuses.
Malaysian government officials did not immediately respond to requests for comment.
The study comes three months after Malaysia was downgraded to Tier 3 in the U.S State Department's annual Trafficking in Persons report, which cited a lack of progress in protecting the rights of about four million foreign workers.
The report, based on interviews with 501 workers, found that 28 percent of employees were in situations of "forced labor", where work is coerced through factors including indebtedness from excessive fees charged by recruiters.
That figure rose to 32 percent for foreign workers, who are often mislead about salary and other conditions when they are recruited in home countries, and are commonly charged excessive fees that lead to indebtedness.
Verite said the numbers were based on conservative definitions. It found that 73 percent of workers displayed "some characteristics" of forced labor.
STABILITY, LOW COSTS
Malaysia's electronics and electrical industry made up 33 percent of exports in 2013. In 2011, foreign investment in the sector accounted for $2.68 billion, or 86.5 percent of the total.
Malaysia has benefited in recent years from a reputation for stability and low costs, gaining fresh investment after floods in Thailand in 2011 crippled factory operations there.
On average, workers in the survey were found to have paid 2,985 ringgit ($925) to brokers in their home country and in Malaysia as payment for their passage and jobs. That is more than the average per-capita annual income in Nepal.
Unable to afford a lump sum upfront, more than two thirds of workers who paid broker fees had to borrow money.
One in five immigrants were working more than the suggested 60 hours of overtime a week - the industry's international standard limit - the group said. Malaysian law allows employees to clock up to 72 hours of overtime.
Malaysian laws have been amended in recent years to encourage the growth of recruitment companies that provide workforce services to multinationals, including paying, accommodating and disciplining employees.
"Liability over violations of worker rights is obscured, creating vulnerability on the part of the worker to exploitation and abuse," the group said.
The group found workers' passports were often confiscated by recruitment firms, which is illegal in Malaysia. Some firms were found to charge more than $1,000 for a worker to "borrow" his or her own passport.
