Inside the broken audit system of luxury goods

LVMH-owned Dior’s production arm in Italy, Manufactures Dior, relied on formal inspections to assess working and safety standards inside its supply chain last year. In some cases, such certifications missed glaring problems, a Reuters review of unpublished court documents has found.

AZ Operations, a sub-contractor of Manufactures Dior tasked with the production of leather items and based near Italy’s fashion capital Milan, was accused by Italian prosecutors in June of being a front for an operation that exploited workers.

However, AZ Operations passed two environmental and social inspections in 2023, in January and July, according to unpublished audit documents reviewed by Reuters. Widespread Milan investigations have uncovered malpractice inside the Italian luxury goods supply chain of Dior, Giorgio Armani and Alviero Martini this year, Reuters has previously reported.

The audit papers, along with court documents, Reuters interviews with more than two dozen luxury sector workers, auditors, supply chain managers, suppliers, lawyers, industry experts, executives and trade union representatives reveal the pervasiveness of ineffective checks of social and environmental standards inside Italy’s sprawling luxury supply chain.

In the case of AZ Operations, a three-page assessment on letterhead from compliance management company Fair Factories Clearinghouse (FFC), carried out by monitor Adamo Adriano on January 18, 2023, stated that AZ Operations did not have sub-contractors. The audit listed no irregularities.

In July 2023, a further audit by Davide Albertario Milano srl, a large direct supplier of Manufactures Dior that worked with AZ Operations, also found “no non-conformities” and certified the work was carried out to a high standard and in accordance with contractual terms.