The UK’s Modern Slavery Act 2015 (“the Act”), which came into force on 31 July 2015, addresses the rise of new forms of slavery. These include imposing, as from October 2015, an obligation on companies with a turnover of over £36m to disclose what they are doing (or indeed not doing) to eradicate slavery within their supply chains. Shipowners with links to the UK may, therefore, need to review their anti-slavery and anti-trafficking policies and may be particularly affected as an industry, because in some circumstances the legislation provides for the forfeiture of vessels that have been used (or were intended to be used) for trafficking.
The Modern Slavery Act 2015
The Act consolidates the UK’s existing anti-slavery legislation, brings in harsher sentencing for offenders, extends powers for offenders’ property to be seized and aims to encourage companies that are at risk of unwittingly becoming involved with modern slavery to investigate their supply chains. The Act is a response to the increased public awareness of these issues and makes it an offence knowingly to hold another person “in slavery or servitude”, to make them “perform forced or compulsory labour” or, importantly for shipowners, to “arrange or facilitate the travel of another person” with a view to their being exploited.
Supply chain investigation
A key part of the Act, which is partly modelled on Californian legislation that came into force in 2012, is a “transparency in supply chains” provision, which encourages a new self-regulatory system by obliging those with a turnover over a certain threshold to publish a “slavery and human trafficking statement” each financial year. The statement must outline the steps the organisation has taken during that financial year to ensure that slavery and human trafficking do not take place in any of its supply chains or in any part of its own business. Compliance may be achieved by a statement that nothing has been done. The hope, however, is that the likelihood of negative publicity resulting from inaction will encourage companies to instead take steps to eliminate slavery from their supply chains and to publicise that fact through their annual statements.
The reach of s.54 of the Act is significant. The UK government conducted a consultation on the most suitable turnover (which would include a company’s subsidiaries) and has set the appropriate threshold at £36m. Any company carrying on business (or part of a business) within the UK that supplies goods and services and has a turnover of over £36m will be obliged to publish a s.54 statement.
Many shipping companies call at UK ports and/or have a presence here. It is uncertain what the courts will decide constitutes carrying on a part of a business in the UK but, drawing a parallel with the guidance issued by the Ministry of Justice on the likely application of the UK Bribery Act 2010, it may not apply to those shipping companies that merely trade to the UK, although it may well apply to those that, for example, maintain a branch office in the country. In addition, shipping companies may find themselves under considerable pressure to provide evidence of anti-slavery and anti-trafficking measures from charterers and cargo interests who ship goods to the UK - the cascading effect at which the Act aims.
If the term supply chains is interpreted broadly, then a shipping company is at significant risk of forming indirect links to slavery. The guidance that the UK government is permitted to issue by the Act may clarify this. Potentially, those companies that currently follow the UN’s Guiding Principles on Business and Human Rights may have taken most of the necessary steps already. In order to produce a comprehensive annual statement, it may be necessary to investigate, for example, shipyards, bunker suppliers, providers of ship supplies and crew agencies. This may be apparent to contractual counterparties, who may request information from shipping companies that might themselves fall below the turnover threshold. The leaders of this trend are likely to be food and garment retailers, as those industries are particularly vulnerable to slave labour and public boycotts can have drastic and swift effects on sales. Shipowners who carry their goods – for example in container and reefer ships – are therefore most likely to come under external pressure.
The Act creates a second, very different risk for shipowners: forfeiture of vessels. If a person connected to an owner is convicted of a trafficking offence, the courts may order forfeiture of the ship involved. There are two ways in which this may occur.
The first is if the convicted person is either the actual owner of the ship or a director, secretary or manager of the company that owns the ship. The second is where the convicted person was a) in possession of the ship under a hire-purchase agreement; b) a director, secretary or manager of a company in possession of a ship under a hire-purchase agreement; c) a charterer of the ship; or d) acting as captain of the ship. In the second case, there is an additional element that provides some protection for a shipowner. Provided that the gross tonnage of the ship in question is over 500 tons, it must be shown that the owner, or a director, secretary or manager of the owning company, knew or ought to have known of the intention to use the ship for trafficking. There is a right to make representations to the Court in respect of an intended forfeiture.
The Act also provides for a ship to be detained if there are reasonable grounds to believe that an order for its forfeiture could be made. It seems this would be the inevitable precursor to forfeiture. The courts have discretion to release a ship if satisfactory security is tendered.
Conventional insurance taken out by most owners is unlikely to cover the forfeiture of a vessel in these circumstances, so it will likely have a large financial impact on an owner.
For the responsible shipowner, it seems that the greatest risk lies in failing to exercise due diligence when vetting its managers, its captains and crew, and charterers. Carrying out thorough background checks and monitoring communication should help prevent the issue arising in the first place. It is not enough simply to claim a lack of knowledge if the shipowner ought to have known of the intention to use the vessel to commit an offence under the Act. Being able to show due diligence was carried out and that good systems were in place will assist a shipowner and help minimise the risk of detention.
The Act raises two issues that are of particular importance for shipowners. Firstly, companies maintaining a part of their business in the UK with a turnover of over £36m should invest resources in investigating their supply chains in order to publish annual statements under s.54 of the Act. Those to whom the Act does not apply directly may need to investigate their supply chains anyway, to enable their contractual counterparties in the UK to satisfy their own obligations under the Act. Secondly, shipowners will need to be aware of and address the risk of ship forfeiture. There may be a significant risk of the complete loss of vessels in circumstances where the shipowner is uninsured for that loss. We suggest that shipowners should take a prudent and proactive approach while waiting for the secondary legislation and statutory guidance. It would be wise to keep one step ahead of the requirements under the Act as part of a company’s ongoing monitoring of other well-established compliance issues, such as sanctions, anti-corruption and money laundering.