An update of the briefing on the requirements of the Modern Slavery Act can be found here.
The Modern Slavery Act 2015 ("the Act") introduces a number of measures to combat slavery and human trafficking. In addition to creating new criminal offences, powers of enforcement and measures to protect victims, it introduces requirements intended to eliminate slavery and trafficking in global supply chains. It gives the UK the same wide-reaching ethical remit as regards slavery and trafficking as the Bribery Act 2010 gives it in the field of bribery and corruption.
By requiring them to publish a slavery and human trafficking statement on their website, the Act is intended to encourage businesses to make greater efforts to identify and combat slavery and trafficking within their own supply chains. It is deliberately intended to make suppliers accountable to consumers, and to use consumer pressure to drive business change. Non-compliance in this area is therefore likely to have adverse consequences for a company's reputation.
To whom does it apply?
Section 54 of the Modern Slavery Act came into force on October 29 2015. It applies to businesses (companies and partnerships) which:
- Are based inside or outside the UK and carrying on business within it;
- Have a turnover of more than £36million; and
- Have a financial year ending on or after 31 March 2016 (companies with a financial year ending before that need not comply with the reporting requirement until next year BUT it may still be worthwhile considering what practical steps can be taken before that to put in next year's statement).
Section 54 applies to any "body corporate (wherever incorporated) which carries on a business, or part of a business, in any part of the United Kingdom"
This wording is the same as can be found in Section 7 of the Bribery Act 2010 (Failure of Commercial Organisations to Prevent Bribery), so the intention is to give the UK a broad international jurisdiction in this area. However, the guidance notes make it clear that a common sense approach will be applied when determining whether a company has a "demonstrable" business presence in the UK. Similarly, a parent company with a subsidiary in the UK will not automatically be caught, as it is possible for a subsidiary to act entirely independently.
On the other hand, parent companies are also advised that ignoring the actions of non-UK subsidiaries would be seen as bad practice, particularly if they operate in high-risk geographies or industries.
In practice, the following examples may be useful to understand the reporting obligations on international companies and group companies:
Eg. 1: A UK subsidiary company, Bigbrands UK, has a turnover of £25million. Its US parent company, Bigbrands Global, has a worldwide turnover of £250million.
- Reporting obligations: Bigbrands Global will have to publish a Section 54 Statement, because it carries on business in the UK. Bigbrands UK will not have to publish a statement because it does not meet the turnover threshold.
Eg. 2: Hugetech UK has a turnover of £40m. Its parent, Hugetech Global, has a worldwide turnover of £400m.
- Reporting obligations: Hugetech Global will have to publish a Section 54 Statement. Hugetech UK will also have to publish a Section 54 Statement, but may simply amend and re-publish that of its parent company.
Eg. 3: Hugetech Global has another subsidiary, Hugetech Risk, which operates in manufacturing in high-risk geographies. It has a turnover of £45m but is an independent business and does no business in the UK.
- Reporting Obligations: There is no absolute reporting obligation on Hugetech Risk, as it does not meet the test of carrying on business in the UK. However it would be seen as good practice either for it to publish its own statement, or for Hugetech Global to include details of its anti-slavery actions in its statement.
How to comply?
In terms of adherence to the Act, the minimum that companies must do is to publish a statement on their website detailing what steps they have taken to combat slavery over the past financial year, in all parts of their supply chain and all parts of their business. The Statement must be approved by the Board of Directors before being published.
The contents of this statement, however, are not prescribed. In the words of the Act it may include details about:
- the organisation's structure, business and its supply chains;
- its policies in relation to slavery and human trafficking;
- its due diligence processes in relation to slavery and human trafficking in its business and supply chains;
- the parts of its business and supply chains where there is a risk of slavery and human trafficking taking place, and the steps it has taken to assess and manage that risk;
- its effectiveness in ensuring that slavery and human trafficking is not taking place in its business or supply chains, measured against such performance indicators as it considers appropriate;
- the training about slavery and human trafficking available to its staff.
The government issued guidance on this issue, under section 54(9) of the Act, on 29 October. The guidance states that it explains "how the Government expects organisations to develop a credible and accurate slavery and human trafficking statement each year and sets out what must be included in a statement" (emphasis added). Although the Act itself is not prescriptive, as explained above, the guidance is in effect likely to be seen by consumers and NGOs as setting out the minimum standard, and companies that fail to meet this standard are likely to come under closer scrutiny.
How is it enforced?
The only power of enforcement given to the Secretary of State is the power apply to the courts for an order requiring a company to publish a statement in accordance with section 54. In reality, the practical effect of this power of enforcement is likely to be to create adverse publicity.
The first step companies should take is to review their risk profile regarding human trafficking and slavery and identify the parts of the business and supply chain that are most susceptible to it. From that point on we might recommend they take the following steps:
- Identify any high-risk geographies and product sectors in which the company or its suppliers do business, perhaps referring to third party sources such as the Global Slavery Index;
- Consider appointing one of the specialist external auditors of supply chain compliance;
- Consider specific training for employees who are at a risk of exposure to slavery and trafficking, such as buyers or those working in high risk areas;
- Draft and regularly review a specific company policy regarding these issues;
- Review any other policies that could be related, such as the policies on bribery and corruption and human rights;
- Appoint a compliance officer who will be tasked with monitoring and enforcing the relevant policies;
- Introduce a set of performance indicators to measure the effect of any anti-slavery actions undertaken;
- Introduce standard terms with suppliers to make sure these policies are being enforced throughout the supply chain;
- Establish and regularly review clear supply chain due diligence and audit processes designed to identify and eliminate any slavery or trafficking;
- Engage more closely with suppliers on a practical level to resolve any issues around slavery and trafficking.