Modern Slavery Act and transparency in supply chains reporting: an in depth guide

What is slavery and human trafficking?

The MSA creates criminal offences of:

• Slavery, servitude and forced or compulsory labour: defined by reference to the European Convention on Human Rights
• Human trafficking: arranging or facilitating the travel of another person with a view to that person being exploited.
• Exploitation: slavery, servitude and forced or compulsory labour, certain sexual offences, removal of organs or tissue, and obtaining services or benefits by threats, force or deception.

These apply whether or not the offences take place in England and Wales.

Slavery and human trafficking also includes certain equivalent offences under Scottish and Northern Irish law.

Which organisations must publish a slavery and human trafficking statement?

The reporting obligation applies to companies, LLPs and partnerships which:

• Carry on business or part of a business in the UK
• Supply goods or services
• Have annual turnover of £36 million.

There is no minimum level of UK business activity or turnover to trigger the reporting requirement, although the Home Office guidance indicates that businesses without a “demonstrable business presence” in the UK will not be caught.

An organisation’s turnover for these purposes includes turnover of its subsidiaries, whether located in the UK or outside it. Turnover is calculated as revenue after deduction of trade discounts; value added tax and any other taxes.

Each organisation within a group that conducts business in whole or in part in the UK and exceeds the turnover threshold in its own right is also required to publish a slavery and human trafficking statement. However, there is the option to take a group approach to this requirement. Where, for example, a parent company and a subsidiary are both required to produce a statement, one statement may be produced and published on each website, as long as it covers the business and supply chains of both entities.

Separate rules apply to franchise businesses; they require that franchisor and franchisee turnover be treated as separate for these purposes.

When and where must the statement be published?

When?

The statement must be published following each financial year of the business. There is no prescribed time limit for publishing the statement, but Home Office guidance states that organisations are expected to publish it as soon as reasonably practical after the end of the financial year and are encouraged to do so within six months of the financial year-end. The guidance also suggests that organisations may wish to publish the statement alongside its annual or non-financial reports.

Although the requirement to publish a statement commenced on 29 October 2015, the obligation does not have effect in respect of organisations with a financial year ending before 31 March 2016.

Organisations with a year end of 31 March 2016 or later will be required to publish their statement for the 15/16 financial year, although the guidance acknowledges that for the 15/16 financial year, the statement’s contents will relate only to action taken after 29 October 2015.

Where?

If the organisation has a website, it must publish the statement on that website and include a link to the statement in a prominent place on the homepage. The link should be clearly labelled so that the contents are apparent. If there is more than one website, the organisation should use the website most appropriate to the UK business.

Any organisation without a website must provide a copy of the statement to anyone who requests it in writing, within 30 days of the company receiving the request.

The Government will not collate the statements centrally but it is possible that NGOs active in this area will do so.

What must the statement contain?

The minimum legal requirement is to set out the steps taken by the business in the relevant financial year to ensure that slavery and human trafficking is not taking place in either its business or its supply chains or, if no such steps have been taken in that financial year, to specify that no steps have been taken.

For corporate entities, the statement must be approved by the Board and signed by a director. An LLP’s statement must be approved by its members and signed by a designated member, while a partnership’s statement must be signed by a partner.

• The statement may also include information about:
• The organisation’s structure, business and supply chains
• Relevant policies, including supplier due diligence and auditing processes
• Training provided to those in supply chain management
• Key risks related to slavery and human trafficking including how those are evaluated and managed
• Relevant key performance indicators to enable readers to assess the effectiveness of the business’ anti-slavery activities.

The organisation is not required to guarantee that there is no slavery or human trafficking in the business or its supply chains. In some cases this may be impossible. Businesses are instead expected to take a risk-based approach.

Whilst the Home Office guidance states that clear and detailed statements are encouraged, legal compliance does not strictly require this, provided that the statement sets out the steps taken or that no steps have in fact been taken. However, many organisations will wish to publish more detailed statements as part of their corporate social responsibility programmes. The Government’s stated intention is that the transparency encouraged by the MSA will create a “race to the top” to raise standards.

The Government's expectation is that organisations will build on their statements year–on-year and that they will improve over time.

What are the sanctions for non-compliance?

There are no fines or penalties for failing to prepare or publish a slavery and human trafficking statement under the MSA. However, the Secretary of State has the power to bring civil proceedings in the High Court for an injunction requiring an organisation to publish a statement. A subsequent failure to comply with any court order would risk being in contempt of court, punishable by an unlimited fine.

Public scrutiny is expected to be the primary incentive for compliance and act as a check against inaccurate disclosure. Negative attention from the Anti-Slavery Commissioner, shareholders, customers, trade unions and civil society (such as NGOs and human rights groups) could affect a non-compliant organisation's reputation and share value, particularly if the organisation or sector is already under scrutiny for labour and supply chain issues.

Practical guidance

Organisations will need to assess the risk of slavery and human trafficking in their businesses and supply chains. Their risk-based approach will need to consider factors such as:

• Sector: sectors such as agriculture, manufacturing, service and hospitality and telecoms are particularly at risk (although the risk is not limited to these sectors)
• Geographical location of business and suppliers: if suppliers are located in countries with poor labour standards enforcement, this may merit particular scrutiny
• Reliance on migrant labour by the business or its suppliers: migrant workers are often particularly vulnerable to exploitation.

Businesses should also familiarise themselves with the statutory guidance published by the Home Office, which can be accessed here.

The Home Office guidance also provides advice on how to respond to modern slavery if it is identified in supply chains in the UK or elsewhere, including reporting on UK matters to the UK police and liaising with victim support services.

Organisations may wish to carry out some or all of the following steps, depending on the risks identified:

• Review procurement policies or, if not already in place, develop appropriate policies and procedures
• Adopt a code of conduct which addresses how staff and other associated persons (agents, suppliers and other service providers) are required to act, in order to minimise the risk of slavery and human trafficking occurring in the business and in its supply chains
• Undertake a review of existing supplier arrangements, particularly in high risk sectors or jurisdictions. Where necessary, seek to alter agreements to ensure that suppliers are obliged to comply with the requirements of the MSA and any code of conduct adopted by the organisation
• Update standard agreements to ensure suppliers and, in turn, their suppliers, will comply with the MSA and the organisation’s code of conduct (include appropriate warranties, undertakings and audit rights)
• Appoint a compliance officer either at Board level or reporting directly to the Board with responsibility for overseeing implementation of relevant policies and procedures and the preparation of the annual slavery and human trafficking statement
• Adopt a robust anti-slavery stance at the highest level, including making a board level statement of its zero tolerance to modern slavery in its business or its supply chains and publicise this internally and externally
• Ensure that details of the organisation’s modern slavery policy are publicised throughout the organisation’s supply chain
• Review the organisation’s whistleblowing, anti-bribery and other relevant staff policies to ensure they adequately accommodate the reporting of modern slavery issues in the business and supply chain
• Implement a training and sensitisation program within the organisation, with targeted training for those involved in procurement and/or with responsibility for supply chain management, including how to respond to modern slavery or human trafficking identified within its supply chains
• Prepare to respond to enquiries and challenges from inside and outside of the organisation once the slavery and human trafficking statement is published, including involving its PR advisers.