The United Kingdom has amended its laws to require entities operating there to produce an annual slavery and human trafficking statement.  The requirement is subject to a turnover threshold but could include UK-based subsidiaries and branches of non-UK corporations.

Helpfully, the UK government has produced guidance that sets out the content, approval, publication and timing parameters for the required statements.  Less helpfully, the government has not confirmed whether compliance will be expressly linked to the mandatory or discretionary exclusion criteria for participation in public sector procurement exercises in the UK.

On 29 October 2015, Section 54 of the Modern Slavery Act 2015 came into force in the UK, requiring commercial organisations falling within its scope to produce annual slavery and human trafficking statements.

Which Organisations are Affected?

Section 54 applies to “commercial organisations” with a minimum annual turnover of £36 million.  The Act defines a “commercial organisation” to include all companies and partnerships, wherever incorporated or formed, that carry on a business in the UK.  UK government guidance suggests that foreign organisations with UK subsidiaries that act independently of their foreign parent may only need to look at the turnover of those UK subsidiaries when determining whether the requirement to prepare a slavery and human trafficking statement has been triggered (although the turnover of any subsidiary companies held by that UK subsidiary would also need to be accounted for).

By the same logic, if a foreign company has a UK branch, as opposed to a separate subsidiary, the foreign company itself would likely be seen as the entity carrying on at least part of its business in the UK.  Accordingly, the global turnover of the foreign company, along with that of its subsidiaries, would determine whether the £36 million threshold has been met.  This could be a reason to prefer using a UK subsidiary to a UK branch office, if the UK entity’s revenue is below £36 million.

Slavery and Human Trafficking Statements

Content:  There is no prescribed length or form for the statement, but it should include the steps (if any) that the organisation has taken during the financial year to ensure that slavery and human trafficking are not taking place in any of its supply chains or in any part of its own business.  The statements should be succinct, accessible and provided in the languages relevant to the organisation’s business and supply chains.

Approval:  Companies must have their statements approved by the board of directors, and signed off by one director.  Limited liability partnerships must have statements signed by a designated member, and approved by all members.

Publication:  Statements must be published either on the organisation’s website or provided to anyone making a written request within 30 days.

Timing:  Businesses with a financial year-end of 31 March 2016 will be the first organisations that are required to publish a statement under the Act.  All organisations will be encouraged to provide their statement within six months of the financial year end, in order to ensure that the statement is as current as possible.

Breach:  Failure to produce a statement can result in the Secretary of State pursuing an injunction requiring the organisation to comply with its obligations under the Act.  In the event that an organisation breaches the injunction, it will be in contempt of court, the penalty for which is an unlimited fine.

Effect on Procurement Compliance

It’s too soon to say what linkage may evolve between organisations’ compliance with the Modern Slavery Act requirements and government contracts participation.  The current UK implementation of the EU procurement regime – the Public Contracts Regulations 2015 – sets out a number of mandatory and discretionary grounds for exclusion from participation in UK government contracts.  A track record of compliance with the slavery and human trafficking statement requirement is not yet expressly listed.

However, the UK government has been at the vanguard of expanding the list of exclusions: see, for example, its policy announcement in 2013 that tax compliance would become a relevant factor in bidder assessment –18 months later, this factor found its way into the Public Contracts Regulations 2015 as a mandatory ground for exclusion from procurement procedures.

But despite the absence of an express reference to slavery and human trafficking, on a discretionary basis any UK (or EU) authority can already exclude from a government contracting process any bidder guilty of grave professional misconduct which renders its integrity questionable.  It’s not hard to imagine that, in the right circumstances, an incomplete or missing slavery and human trafficking statement could be used to justify exclusion from a public tender process.