10 December 2018 - Article
Many large businesses may be unaware that section 54 of the Modern Slavery Act 2015, which came into force on 29 October, will require them to prepare a statement disclosing the steps they have taken to ensure that there is no slavery or human trafficking in their businesses and supply chains. The provision applies to businesses in all sectors, including charities.
Preparing a fully compliant statement may mean asking searching questions throughout the organisation and its supply chains. Failure to comply with the new rules may result in unwelcome publicity, difficulties with customers, clients, investors and funders and, potentially, enforcement action from the Government.
Who is affected?
Section 54 of the Act requires organisations that supply goods or services and have a consolidated global turnover of £36 million per annum or more to prepare a slavery and human trafficking statement for each financial year. All bodies corporate and partnerships that meet the turnover requirement will be caught, regardless of where they are incorporated, if they carry on any part of their business in the UK. Notably, organisations that primarily pursue a charitable or educational aim have not been excluded from the requirements.
The first organisations that will have to comply with the new requirements are those which have a financial year ending on or after 31 March 2016. Any organisation with a financial year ending before that date will not have to publish a statement for 2016, but will have to comply in subsequent years.
The Government's guidance on section 54, 'Transparency in Supply Chains; which was also published on 29 October, seeks to assist organisations in determining whether they are subject to the requirements and, if so, what information their slavery and human trafficking statement needs to include. However, the guidance as to whether a parent company's statement is required to cover all of its subsidiaries is unclear. In our view, unless a parent company can clearly demonstrate that a particular subsidiary does not form part of its business or supply chain, it should include that subsidiary's business in its statement.
What information does the statement need to contain?
The Act states that the slavery and human trafficking statement, which must be approved by the organisation's management body and signed by a director, may contain information on the following key areas:
- the organisation's structure;
- the business's policies on modern slavery;
- the availability to staff of training on modern slavery;
- the organisation's principal risks related to modern slavery and its methods of evaluating those risks; and
- key performance indicators (KPIs) to assist the assessment of the steps the organisation puts in place to ensure that its business and supply chains are free of modern slavery.
Section 54 requires organisations to be transparent about the steps taken both in their own businesses and their supply chains to prevent slavery and human trafficking. If the organisation has taken no such steps, it must publish a statement to this effect. The Government's guidance suggests that disclosing actions taken on a country-by-country basis will help readers to understand the context of any measures the organisation has put in place.
Annex E of the Government's guidance provides further information that organisations may wish to include in their statements and raises a number of questions that they may wish to consider when drawing up their modern slavery policies. One of the interesting points raised by the guidance is that organisations should re-evaluate their existing internal KPIs and performance incentives to ensure that these do not create a slavery risk (for example, where KPIs focus on increasing production or shipment 'turn-around' times).
Satisfying the requirements of the Act is not a one-off exercise. The Government's guidance encourages each organisation to ensure that its slavery and human trafficking statement is kept under review and evolves alongside the organisation's activities.
When and where will the statement need to be published?
Under the Act's transitional provisions, the first organisations that will be required to publish a slavery and human trafficking statement are those whose financial year ends on or after 31 March 2016. The guidance states that an organisation should seek to publish its statement as soon as reasonably practicable, preferably within six months of the end of their financial year. For example, those organisations whose financial years ends on 31 December 2016, should aim to produce a statement by no later than 30 June 2017.
Organisations, whether incorporated in the UK or otherwise, will be required to publish their slavery and human trafficking statement on their website (if they have one) and include a link to the statement in a prominent place on their homepage. There is no requirement for organisations to include the statement in their annual report and accounts.
What are the sanctions for non-compliance?
It will be possible for the Secretary of State to enforce the duty to prepare a slavery and human trafficking statement by the use of injunction proceedings. In reality, the pressure for organisations to comply with the requirement is likely to derive mainly from consumer pressure and pressure from organisations higher up in a supply chain that are required to comply or are coming under pressure from their own clients or customers to comply. Investors and funders may also require compliance. Reputational and corporate social responsibility concerns are also likely to influence an organisation's approach. We consider it likely that third parties will establish searchable repositories of slavery and human trafficking statements to allow easy comparison between organisations and sectors by potential customers, clients, investors and funders.
Steps to take now
- Identify those within your organisation who will take responsibility for preparing your slavery and human trafficking policy and your annual statement.
- Prepare a map of your business and its supply chains so that you can identify and understand the potential risks.
- Talk to your suppliers and subcontractors. Let them know you will be needing information about their operations and check with any clients or customers whether they will require information about your own operations.
- Review and, if necessary, update your procurement policies to ensure that you can request the information you need from your suppliers and subcontractors.
- Examine the direction and focus of internal key performance indicators, business procedures and performance incentives to consider whether they could give rise to risks.
- Consider what actions you will take if a supplier or subcontractor is found to have been involved in modern slavery.
- Consider introducing modern slavery training for your employees and ensure that any client or media-facing employees know about the policy, can locate it and can refer to it if they face queries on the subject.
Lessons from California
The Act's requirement to prepare a slavery and human trafficking statement is modelled on the Californian Transparency in Supply Chains Act which came into force in January 2012. The UK legislation is, however, much broader in scope. In California, the turnover threshold is higher ($100 million) and the requirements only apply to retailers and manufacturers.
As in the UK, there are mechanisms within the legislation to force organisations to comply with their obligations but the Californian Attorney General has not yet used these powers. The only enforcement action taken to date was the sending of letters to more than two thousand companies requesting either information about their compliance or an explanation of why the obligations do not apply to them. As is anticipated in respect of the UK requirements, the pressure for Californian companies to comply with the Act's requirements has come largely from consumers and non-governmental organisations.
If you have questions or if there is anything we can do to help you prepare for compliance with this new requirement, please don't hesitate to contact us.