General

Today, 2 December, marks the International Day for the Abolition of Slavery. A common misconception about slavery is that it no longer exists. Although the Abolitionist movement of the 19th century in Europe and the Americas put an end to slave trade and set slaves free, it did not eradicate slavery as a phenomenon. In truth, modern slavery continues to be ingrained in our daily lives. Forced labour, exploitation of children, debt bondage, trafficking of human beings and sexual exploitation are just a few forms of modern slavery, each more serious and inhuman than the other. Alarmingly, the number of people forced into slavery worldwide is ascending! 

Modern slavery affects every continent, it has been found to exist in 167 countries. In the estimates of the Walk Free Foundation, over 45 million people globally are subjected to some form of slavery. There are more people living in a state of slavery today than at any given time in history! 1 in 200 humans is enslaved. In an effort to tackle modern slavery in business, the United Nations has recently developed a set of Guiding Principles on Business and Human Rights and is preparing a draft convention extending the obligation to protect human rights to private sphere.

Although India is claimed to be the home of most modern slaves, according to the 2018 Global Slavery Index, 7 out of the top 10 countries with the highest prevalence of modern slavery are found in emerging Europe: Belarus, Macedonia, Albania, Ukraine, Croatia, Montenegro and Lithuania. Modern slavery is a sizeable and lucrative business. According to the International Labour Organization, it generates US$ 150 billion annually in illicit profits. In 2016, the US Department of Labor found 139 categories of goods produced by forced labour or child labour in 75 countries.

The recent decade has seen an uptick in consumer demand for ethical products. In response, a handful of developed economies have enacted legislation mandating certain businesses to ensure the respect of human rights in their entire supply chains. The advent of these new laws has precipitated an increasing emphasis on modern slavery compliance among a growing number of businesses internationally. Simultaneously, a push for even stricter compliance standard is gaining momentum.

The California Transparency in Supply Chains Act

The California Transparency in Supply Chains Act (TSCA), signed into law in 2010 and effective from 2012, is the first legal enactment of its kind designed to combat modern slavery. It emerged in response to consumer demand for increased supply chain transparency. Supply chain transparency is a nascent business imperative that requires companies to divulge information about what is happening upstream in their supply chains. Conventional wisdom holds that new-age consumers in developed economies, in particular, rely on this information to drive their purchasing decisions.

TSCA applies to retail sellers and manufacturers doing business in the state of California with annual gross revenue exceeding US$ 100 million. Qualifying companies are required to disclose information regarding their efforts to eradicate human trafficking and slavery within their supply chains on their websites or, if no website is maintained, by making written disclosure within 30 days of receiving consumer request for the information. The required disclosures concern five areas: verification of supply chains, conduct of audits to ensure supplier compliance, certification by suppliers, internal accountability for employees and contractors, provision of employee and management training.

Significantly, no company is required to implement specific measures to ensure that its product supply chains are free from modern slavery. Instead, the law mandates qualifying companies to make the required disclosures, even if they do little or take no action at all to safeguard their supply chains from slavery. If no action is taken, a company would be required to state that it takes no action.

The UK Modern Slavery Act

The UK Modern Slavery Act 2015 (MSA), universally hailed as the pivotal milestone in the fight against modern slavery, was broadly modelled on TSCA. It applies to commercial organisations with an annual global turnover of at least £36 million doing all or some of their business in the UK. Foreign companies doing business in the UK and foreign subsidiaries of UK companies producing goods and services sold or used in the UK are also required to comply. In a manner similar to TSCA, MSA requires qualifying organisations to prepare an annual statement of the steps taken to ensure slavery and human trafficking are absent from their operations and supply chains. According to guidance contained in the MSA, the type of information that may be included in the annual statement includes:

- A description of the organisation’s structure, business model and supply chain relationships.

- Information on the organization’s policies in relation to slavery and human trafficking.

- Details of the due diligence processes the organisation undertakes in relation to its business and supply chains.

- The areas of the business and supply chains at risk of slavery and human trafficking and the steps taken to assess and manage that risk.

- The effectiveness in ensuring that slavery and human trafficking is not occurring in its business or supply chains, measured against performance indicators considered to be appropriate.

- Any training provided to staff.

Alternatively, the organisation must declare that no steps have been taken.

As can be seen, the transparency provisions of both TSCA and MSA are light touch – in the sense that companies can comply by stating they have no policies in place to deal with modern slavery, thereby forgoing any semblance of compliance. Notably, the requirements of both TSCA and MSA are not backed by any meaningful sanctions. Instead, the UK Government takes the view that the organisations which fail to take action would face commercial pressure to do so, as reputational damage and competitive disadvantage could be significant.

By creating the role of Independent Anti-Slavery Commissioner (no corresponding role is envisaged under TSCA), MSA has taken the effort of ensuring supply chain transparency a step farther. The Commissioner has a UK-wide remit to encourage good practice in the prevention, detection, investigation and prosecution of slavery. A recent public consultation reveals that the UK Government is looking to increase the Commissioner’s enforcement authority in the instances involving failure to comply with MSA. The increase in the enforcement authority could be combined with introduction of civil penalties. While the particulars of enforcement mechanisms available to the Commissioner remain to be decided, it is anticipated that the Commissioner could well be entrusted with the extent of authority bringing its status closer to that of an “ombudsman”.

The French Devoir de Vigilance Law

France saw a spike in consumer demand for companies to exercise a greater degree of social responsibility in the aftermath of the collapse of Rana Plaza, a garment factory in Bangladesh, killing 1,134 workers. In response, the National Assembly adopted the Law on Due Diligence of Corporations and Main Contractors (the so called loi sur le devoir de vigilance) in February 2017.

The law went into effect in March 2017 and applies to companies headquartered in France employing at least 5,000 employees in France, or 10,000 or more employees worldwide, and foreign companies employing at least 5,000 employees in France. Affected companies are subject to a statutory obligation to publish and implement a vigilance plan (plan de vigilance) to prevent serious violations of human rights, fundamental freedoms, the health and safety of people and the environment.

In contrast to TSCA and MSA, the French law is considerably more radical in approach. Instead of requiring qualifying companies to declare their efforts, if any, companies subject to French law are actually obliged to establish and implement a vigilance plan. In addition, they are subject to the statutory requirement to publish annual implementation reports. Finally, as will be elaborated in the subsequent paragraph, non-compliance with the law can result in application of penalties. 

In the first reading of the law, a penalty of up to €30 million was proposed for failure to comply. In a subsequent reading, however, the Constitutional Council rejected the penalty citing legal ambiguity surrounding phrases such as “fundamental freedoms”. Accordingly, the penalty was substituted with a formal notice procedure. Companies receiving a formal notice are given 3 months to comply. Continued non-compliance may result in imposition by the court of a penalty for each day of non-compliance. Furthermore, failure to comply can result in liability for the non-compliant company if consumers harmed by the failure to establish or implement a vigilance plan claim damages for corporate negligence.

The Australian Modern Slavery Legislation

The Australian Commonwealth Modern Slavery Act 2018 (the Australian MSA) entered into force on 1 January 2019. Drawing upon the UK MSA, it requires businesses meeting a certain consolidated revenue threshold (AU$ 100 million, or over) to report annually on the risks of modern slavery occurring within their business operations and supply chains, along with the action taken to assess and address such risks. Mimicking the approach taken in the UK, the Australian MSA makes compliance voluntary. No penalties are imposed on companies failing to comply. The contrasting feature of the Australian MSA is that, apart from private business, it also applies to public sector. Unlike in the case of the UK, the Australian MSA establishes neither independent commissioner nor other authority to deal with supervision of modern slavery compliance.

Notably, Australia boasts another modern slavery law, the Modern Slavery Act of New South Wales (NSW) that was introduced prior to the federal Australian MSA. It was voted into law in June 2018 and received royal assent. Compared to the federal Australian MSA, the standard of supply chain transparency established under NSW law is significantly stricter. Specifically, the law applies to companies with annual revenue of AU$ 50 million or more, establishes the office of anti-slavery commissioner and, most radically, imposes a fine for non-compliance of up to AU$ 1.1 million or up to two years of imprisonment for board members. There are concerns, however, that given the apparent inconsistencies between the federal Australian MSA and NSW law, the NSW law may be deferred indefinitely in favour of the weaker federal law.

The Dutch Child Labour Due Diligence Law

As the name of the Dutch law implies, its ambit is limited to supply chain due diligence with respect to use of child labour. The law applies to all Dutch and foreign companies selling goods or providing services to Dutch consumers, irrespective of revenue or size of labour force. Although the law was adopted in May 2019, it is expected to go into effect only in 2022.

Affected companies will be required to submit to the supervisory authority (which is yet to be established) an affirmative statement to the effect that an appropriate level of supply chain due diligence aimed at preventing child labour has been carried out. Failure to submit the statement may result in imposition of a fine of EUR 4,100, or higher, if the due diligence is found to be inadequate or the appropriate plan of action to detect and prevent the use of child labour is missing.

When the Dutch law will become enforceable, individuals and organisations will have standing to file complaints with the supervisory authority whenever products or services sold in the Netherlands are believed to have been produced by using child labour. Complaints are subject to elaborate examination and mediation procedures by the supervisory authority. Failure by the offending company to follow the course of action determined by the supervisory authority within the prescribed time may result in imposition of significant penalties. Fines run as high as EUR 750,000, or 10% of the total worldwide revenue of affected business, whichever is greater. Moreover, in the event of imposition on a company of two fines for committing breaches of the Child Labour Due Diligence Law within five years, the company director will be liable for up to two years of imprisonment.

Conclusion

The significance of the emerging modern slavery legislation is threefold. Firstly, it shines the light of public scrutiny on corporate supply chains and, in many instances, highlights the abuses that were previously swept under the carpet of corporate indifference. The legislation requires corporate management to turn attention, oftentimes for the very first time, to the risk of modern slavery occurring in their supply chains. Secondly, enhanced supply chain transparency reduces the demand for products and services tainted with forced labour or human trafficking, and improves the quality of goods and services brought to end consumer. Thirdly, a growing number of companies will make use of the requirements of modern slavery laws as a springboard into better due diligence, self-regulation and implementation of more exhaustive models of corporate culture and conduct.

Importantly for businesses, human rights violations in corporate supply chains are an expanding area of scrutiny and reputational risk that all companies, not only global corporations, will be facing. Company executives should seek to manage this risk proactively. Responding to the focus on modern slavery domestically and abroad, a growing number of companies in the jurisdictions where no supply chain transparency laws apply choose to voluntarily report their efforts in combatting modern slavery. Indeed, modern slavery statements on corporate websites, including on the websites of companies not affected by California, UK, French or Australian laws, are becoming increasingly ubiquitous.

Finally, the mere fact that slavery still exists and continues to flourish, attests to failure by governments and international institutions to enforce laws and make them work for the estimated 45 million of the world’s slaves. Governments, rather than businesses, should have the primary responsibility for the enforcement of national and international laws against slavery. In the absence of proper enforcement, “the blackest stain upon civilized Europe” (as slavery was labelled by Prince Albert) will continue to weigh heavily on our collective consciousness, as it still weighs on our past.