The coming into force in the UK of the Modern Slavery Act (the Act) increases yet further the burden of regulation on business. Cruise lines (in common with other large companies) need to look carefully at their supply chains in order to ensure compliance. Cruise lines may face particular challenges because of the complexity of their supply chains, the conditions in some of the regions in which they operate and the source of their goods and services in these regions.

Overview

As well as provisions relating to slavery and human trafficking, the Act creates a new reporting obligation, which will require companies to certify that their supply chains are free of slavery and human trafficking. By way of a recent example, in November 2015 Nestlé launched its Seafood Action Plan to address problems of forced labour and worker abuse in its seafood supply chain in Thailand1.

Companies that are subject to the obligation will be required to publish a Slavery and Human Trafficking Statement (Statement) each financial year setting out the steps they have taken to ensure that there is no slavery and human trafficking in any part of their business or supply chains.

There is a particular urgency for companies with a financial year ending on 31 March 2016, as they are the first organisations which will be required to publish their Statement. They need to report on events in the financial year 2015/2016 “as soon as reasonably practicable” after the financial year end.

Detailed requirements

The reporting obligation applies to companies which satisfy all four of the following criteria:

  • They supply goods or services.
  • They are a commercial organisation (ie a company or a partnership).
  • They carry on a business or a part of a business in the UK, regardless of where they are incorporated (note that the Act uses the same formulation as the UK Bribery Act in this regard).
  • They and their subsidiary undertakings (wherever operating) have an annual turnover of £36 million or more.

The Act does not stipulate the information that must be included in the annual Statement (although it does offer some suggestions, as supplemented by guidance issued by the UK Government in October 2015). It also does not require companies to employ third parties to verify the integrity of supply chains, although some companies may determine that this is prudent.

Instead it suggests that the following information may be included in the Statement:

  • 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 and 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.
  • The training about slavery and human trafficking available to its staff.

The Statement must have high level (i.e. board or equivalent) approval and must be published on the organisation’s website or, if it does not have a website, be available on request.

Other legislation - the amended EU Accounting Directive

There is a degree of overlap between the requirements of the Act and the reporting obligation under the amended EU Accounting Directive (the Directive)2.

Once fully implemented3, the Directive will require undertakings that are public interest entities (as defined in the Directive) with an average number of 500 employees or more and either a balance sheet of at least €20 million or net turnover of at least €40 million to prepare a “non-financial statement” as part of their management reports.

The non-financial statement (sometimes called an ESG report) must provide information about, amongst other things, environmental matters, social and employee matters (e.g. gender equality and respect for workers’ rights) and governance (including respect for human rights, anti-corruption and bribery). Issues covered by the Statement may of course be relevant both to social/employee matters and also to governance matters in the ESG report.

Recommendation

Those cruise lines with a UK nexus, which includes all those carrying on a business or part of a business in the UK, should carefully review their supply chains to establish where they have operations and the countries from which goods and services are sourced.

The risks associated with the relevant sectors, geographies, transactions and business partners should be identified and consideration given to how best to mitigate those risks.

A clear paper trail evidencing any review and resulting mitigating actions should be carefully maintained to document the actions which have been taken to comply with the Act.

Key dates should also be diarised so that there is sufficient time to collate information and prepare the Statement.