Modern Slavery Act - There may be trouble ahead: second interim report into transparency in supply chains

By Simon Shooter, Elizabeth Lang, Ian Hunter

03-2019

Having blazed a trail in 2015 enacting the Modern Slavery Act (MSA), the Government remains focused on perfecting the legislation and its proper implementation. Increasing transparency in the supply chain has been identified as a major tool in the fight against modern slavery in the business environment and, as a result, the section 54 transparency requirements of the MSA are at the core of this second review.

We look at the key findings of the report and ask what this means for affected businesses.

Trial by media, but a lack of enforcement

The report picks up on a number of perceived failings in the current approach identifying issues stemming from the lack of meaningful enforcement and penalties and confusion over the present reporting obligations. A criticism of the MSA as enacted is that it is toothless with the sanction for non compliance with section 54 being the right reserved to the Secretary of State to bring proceedings for specific performance.  No such proceedings have been taken to date and the main enforcer has been the threat to reputation presented by possible media coverage of defaulters. The report suggests that there is currently an estimated third of eligible businesses who are non-compliant.

What are the key recommendations?

The report makes a number of significant recommendations as follows:

  1. Clarification of companies in the scope of the MSA.
    While the obligation remains with companies to determine if they qualify and so need to publish a transparency notice, the Government is recommended to maintain its own list of companies who qualify the threshold requirements of the MSA.

  2. Improving the quality of statements.
    The second report repeats the previous report’s recommendation to make what are currently the six guidance areas to be addressed in transparency statements mandatory. The option to publish that no steps to address modern slavery have been taken is recommended to be withdrawn. Guidance is proposed to clarify that statements must identify what due diligence has been conducted and identify what due diligence steps will be taken in the future. Another recommendation of significance is the clarification that companies take responsibility for their entire supply chain, not just the higher echelons.

  3. Embedding the MSA in business culture.
    The recommendation is to amend the Companies Act 2006 to require companies to refer to their transparency notices in their annual reports. Companies should appoint a board member to assume responsibility for the production of the transparency notice. Disobedience to the MSA should be an offence under the Company Directors Disqualification Act 1986 in the event that slavery is found in a company.

  4. Increasing transparency.
    There is encouragement for the Government to set up a publically searchable repository to which companies will be required to upload their transparency notices.

  5. Monitoring and enforcement.
    The Independent Anti-Slavery Commissioner should monitor compliance. The Government is recommended to introduce, over the course of “a few years”, a set of meaningful sanctions; including warnings, fines set by percentage of turnover, court summons and directors’ disqualification.

  6. Extension of the MSA to the public sector.
    Section 54 should be extended to those entities in the public sector whose annual budget exceeds £36m. The Government is also encouraged to adjust the public procurement rules so that non compliant companies within the scope of section 54 are precluded from winning public contracts.

  7. Consumer attitudes
    The Independent Anti-Slavery Commissioner should commission research into how consumer attitudes to modern slavery can be influenced.

What happens next?

If the recommendations are adopted it can be seen that lip service to the MSA will no longer be an option. Sanctions including turnover-related fines, directors’ disqualification and preclusion from public contracting are clearly a far cry from the current rather empty threat of specific performance proceedings and adverse media coverage.

The clarification that the extent of the supply chain obligation runs to the entirety of the supply chain together with the clarified statement on due diligence is likely to require companies to review their current due diligence practice and could significantly increase the extent and associated cost of that task.

The report feeds off a clear Governmental concern that the current soft touch approach is being abused. The future projected is one where the stick is as visible as the carrot and where non -compliance carries material consequences.