20 October 2016
Why do we need a Modern Slavery Act?
In 2014, an International Labour Organisation’s report found that illegal gain from forced labour of about 21 million people amounted to three times more than previously estimated. The study found that it was in fact generating $150 billion per year. Such a staggering amount brings to light the idea that modern slavery is still prevalent today, as people are forced into work, dehumanised and objectified. What is more, the United States Department of Labour found that slave labour contributes to the production of at least 136 goods from 74 countries worldwide.
Accordingly, legislation against modern slavery has become a priority in governments’ agendas. In 2015, the United Kingdom’s Parliament passed the Modern Slavery Act, which Theresa May has marked as “an historic milestone”. The Act was passed into law on 26 March 2015 and came into effect on 29 October 2015. Businesses covered by the legislation will need to publish a ‘slavery and human trafficking statement’ for financial years ended after 31 March 2016.
What does it mean?
The purpose of this Act is to combat slavery and human trafficking by creating new criminal offences, powers of enforcement and provisions to protect victims. Organisations are encouraged to make greater efforts to identify and prevent slavery and human trafficking within their own supply chains on a global and local level. In addition, the legislation will provide consumer pressure to drive business change as it intends to make suppliers accountable to consumers. Those that do not comply could suffer an adverse effect as they place the company’s reputation at risk.
Which organisations are most at risk?
Though all large businesses will have to comply with the Act, it is important to be aware that some sectors are at particular risk. For example, the hospitality sector is at risk because it relies on large numbers of unskilled, low-paid and temporary staff who are often from foreign countries. Furthermore, businesses that are in the process of a merger or acquisition will have to acknowledge the risks involved if the target company has not taken appropriate action required by the Act.
Who is obligated and where?
The scope and impact of the Modern Slavery Act is far reaching, applying to all commercial organisations, whether private or public companies, or partnerships, wherever they are incorporated or formed, and in whatever sector they operate in. More specifically, the statute affects those that:
- have a global turnover of over £36 million; and
- operate their business, wholly or partially, in any part of the United Kingdom, regardless of where it is registered.
However, companies that are below the threshold should also be aware that they may be affected if they supply to a business that satisfies the above criteria. They will be required to implement policies in order to be eligible to act as their supplier.
How does the Act apply?
Section 54 of the Act, ‘Transparency in Supply Chains’ (TiSC), dictates that the legal obligation for a business is to publish a ‘slavery and human trafficking statement’ for each financial year. This statement must report on the procedures put in place to mitigate the risk of slavery and human trafficking directly within its structure or its supply chains from overseas as well as in the UK. Alternatively, the business must state that no procedures have been undertaken to confirm the existence of slavery or human trafficking.
Moreover, if the organisation has a website it is required to publish that statement and include a link to it on its homepage.
The Act requires businesses to publish their statement as soon as practically possible after the end of each financial year. Although, the legislation does not prescribe a deadline for the statement to be produced, it is advised that businesses should publish their statements within six months of the end of the financial year.
What should be included in the statement?
The Act does not prescribe the contents of the statement, but rather provides guidelines for the details that the organisation may wish to include:
- the organisation’s structure, its 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; and
- the training about slavery and human trafficking available to its staff.
Who should approve the statement?
The statement must be approved by appropriate personnel within the organisation: for a body corporate, it must be approved by the board of directors and signed by a director; for a limited liability partnership, it must be approved by the members and signed by a designated member.
What happens if you do not comply?
There are no legal binding requirements to disclose the statement; however, the Secretary of State can enforce disclosure through an injunction. The Government also relies on public concern and shareholder scrutiny to place pressure on companies to facilitate compliance.
What should you do now?
The Government has not outlined the policies and activities that a business should undertake or how they should be conducted in order to reduce the risk of slavery and human trafficking. Rather, it expects each business to perform due diligence and to take an appropriate and proportionate response to the factors that affect its operations and industry. As a result it has become an integral part of managing business risk. As such, companies should review the risks regarding slavery and human trafficking and identify the parts of the business and supply chain that are most susceptible.
Further actions taken are subjective to the business, but some issues that are important to consider include: reviewing high risk countries and sectors that you operate in; producing a company policy regarding these issues; introducing controls against suppliers; and reviewing audit processes designed to eliminate slavery and trafficking.
How can we help you?
We have the knowledge and experience to help you. If you need further advice on developing a policy, identification of risks or assistance with drafting a compliant report under the act, please contact Subarna Banerjee at our London office or click here to find your local adviser.