Transparency in Supply Chains under the Modern Slavery Act – Latest Developments and Insights

A 'soft' September deadline is now looming for those organisations with a financial year end of 31 March 2016 and who are caught by the supply chain transparency disclosure obligations under the Modern Slavery Act 2015 (MSA). The MSA includes landmark supply chain transparency provisions under s54 which require 'commercial organisations' (body corporates and partnerships) supplying goods or services with a global turnover of £36 million or more and who carry on business in the UK to publish an 'annual slavery and human trafficking statement' on their website.

This is a statement of the steps taken (if any) to ensure modern slavery is not taking place in the organisation's global business or supply chains and is designed to incentivise large organisations to take responsibility for eliminating modern slavery throughout their supply chains. The MSA's Statutory Guidance makes it clear that while statements should be published as soon as possible, in practice the Government 'encourages' organisations to report within six months of their financial year end.

The 'soft' deadline comes at a time when the UK Government has refocused its attention on tackling modern slavery with the Prime Minister, Theresa May, re-affirming her commitment to the issue in July 2016 by establishing a government taskforce on modern slavery and pledging over £33 million to create a five-year International Modern Slavery Fund focused on high-risk countries. More generally, the market is now much more alive to the issue of modern slavery. Many organisations across various sectors, (some of which have never previously engaged with the issue), are now developing modern slavery policies and procedures, mapping their supply chains, and talking to suppliers about required standards. Of course, there are undoubtedly others that are yet to engage or have taken a rather casual approach, as evidenced by some of the questionable slavery and human trafficking statements already published.

This update is the first in a series of articles focusing on supply chain transparency and modern slavery. We have highlighted below some of the key developments over the last few months, which will be followed by sector, regional and issue specific updates with more in-depth analysis.

Register of Statements

The Business and Human Rights Resource Centre (BHRRC) has continued to develop its central register of slavery and human trafficking statements. Over 500 statements have now been collected with links through to each statement from BHRRC's website. This is an excellent benchmarking tool for those yet to publish statements, but it should not be a race to the bottom. An early analysis by BHRRC and Core Coalition found that of the 75 statements examined only 22 satisfied both legal obligations under the s54 (ie, (i) the statement must be signed by a director or the equivalent; and (ii) it must be published on the organisation's website and include a link to the slavery and human trafficking statement in a prominent place on that website’s homepage). These are basic legal requirements that all organisations should be able to satisfy. Unfortunately, the 500 or so statements published so far vary greatly in both quality and compliance with these basic requirements.

Strategic Litigation

It is clear that so-called strategic litigation is set to rise where organisations are linked to, or complicit in, modern slavery – in particular bonded or forced labour and human trafficking. Large organisations with brands and reputations to protect are more likely to be targeted, particularly if they operate in high risk areas such as the construction sector, the service industry, agriculture or other primary industries. The BHRRC hosted a well-attended seminar - Strategic Litigation on Modern Slavery in Global Value Chains - in May 2016. It was apparent from the seminar that the construction sector in Qatar and the UAE is likely to be subject to special attention. Notably, the Freedom Fund has released a guide to using strategic litigation to combat modern slavery, which the Freedom Fund describes as a "roadmap to create an international strategic litigation network to punish and deter human traffickers". One of the key takeaways from the BHRRC seminar was a comment by the UK's Anti-Slavery Commissioner, Kevin Hyland, that a company's slavery and human trafficking statement should be a good indicator of whether a company "ought to have known" that modern slavery was occurring in their supply chain (ie, evidence of a criminal offence under the MSA). This is a clear indicator that published statements need to be approached with the gravitas they clearly deserve, state the steps that have actually been taken to address modern slavery, and not overreach or exaggerate the organisation's approach to the issue.

Global Indexes

The 2016 Global Slavery Index (GSI) was published in May 2016 and showed a 10 million increase in the estimated number of people trapped in modern forms of slavery over the 2014 GSI figures (from 35.8 to 45.8 million in total). An alternative to the GSI has now also been developed by Verisk Maplecroft. These indexes can be important tools for assessing and mapping country risks in a similar way to Transparency International's Corruption Perception Index that has been used for years in the context of bribery and corruption due diligence. Other useful tools include the US State Department’s “List of goods produced by child labor or forced labor”, which is broken down into goods and their source countries and the UK Government's industry-by-industry fact sheets on modern slavery.

Modern Slavery (Transparency in Supply Chains) Bill

Legal sanctions under the MSA for failing to comply with the disclosure obligation under s54 are currently limited to a Court injunction compelling the organisation to publish its statement. There are no fines or penalties for failing to publish a statement (or for doing so poorly or inaccurately), unless the failure is in contempt of a court order to publish. In an attempt partly to remedy this, the MSA may be about to get some bite. A private member's bill is currently before the House of Lords which, if passed by both Houses of the UK Parliament, would:

  1. require commercial organisations and public bodies to include a modern slavery and human trafficking statement in their annual report and accounts;
  2. require the Secretary of State to publish a list of all commercial organisations by sector that are required to publish a statement; and
  3. amend the Public Procurements Regulations to provide for an exclusion for participation in public procurement where an organisation has failed to produce a statement.

Bills instigated by the House of Lords are notoriously difficult to get through both houses, but the Bill is emblematic of calls from many quarters to increase the stakes. Of course, there remains the possibility that if organisations do not take their obligations under the MSA seriously, we could eventually see the introduction of a corporate offence for failing to prevent slavery occurring in supply chains (with an adequate procedures defence), mirroring the Bribery Act 2010.

Bribery, Corruption and Modern Slavery

Wherever there is slavery and human trafficking there will almost inevitably be some form of corruption, whether a payment is made to a border guard to turn a blind eye to human trafficking or to pay a local official to keep quiet about labour conditions in a factory. The issue for organisations and their supply chains is that anti-bribery legislation, such as the UK Bribery Act 2010, has very high penalties when it comes to bribes by the company or associated persons (including those in supply chains). This fact has not been missed by NGOs, with the Freedom Fund, together with other NGOs such as Liberty Asia, releasing a comprehensive analysis of the application and use of the Bribery Act and the US Foreign Corrupt Practices Act in the fight against modern slavery. As the focus on this issue intensifies, organisations need to be conscious of potential exposure to corrupt practices associated with modern slavery, particularly when it comes to ensuring they have adequate procedures in place under the Bribery Act to prevent bribery by associated persons (within their supply chains).

Where to Next

The focus on modern slavery and supply chains is clearly intensifying. Organisations can no longer afford to ignore any form of modern slavery in their global supply chains. For those organisations operating in high risk sectors or jurisdictions, human rights-related supply chain due diligence should, in our view, take a prominent place alongside other core compliance practices focused on issues such as anti-bribery and corruption, anti-money laundering, economic and trade sanctions, and environmental and social harm. The warning signals to industry are only getting stronger.