The new transparency in supply chains provision - what is it all about?

Section 54 of the Modern Slavery Act 2015 (MSA), which came into force on 29 October 2015, requires every organisation carrying on a business in the UK with an annual turnover of £36m or more to produce a slavery and human trafficking statement for each financial year to highlight how it is seeking to address issues of modern slavery in its business and supply chains. Government guidance on the new provision was also published on the same date.  The MSA is the first legislation of its kind in Europe - and one of the first in the world - to specifically address slavery and trafficking in the 21st century.

What is ‘modern slavery’?

It is a term used to refer to slavery, servitude, and forced or compulsory labour in the broadest sense.  The MSA also tackles human trafficking, an offence that is committed by a person who arranges or facilitates the travel of another person with a view to that person being exploited.  Modern slavery is a big issue; the Global Slavery Index 2013 estimated the number of victims to be 29.8 million each year.  The Home Secretary has described the new provision as:

“… a truly ground-breaking measure.  It recognises the important role business can play in tackling this scourge and encourages them to do more.  By requiring businesses to disclose what they are doing to eliminate slavery in their supply chains, we will provide a strong incentive for businesses to take this issue seriously.”

Which companies are affected by the new legislation?

All commercial organisations carrying on business in the UK, wherever incorporated, with an annual turnover of £36m or more are required to produce a slavery and human trafficking statement.  The turnover is calculated by reference to the organisation’s global turnover, including that of any of its subsidiaries.

Where a parent and one or more subsidiaries in the same group are required to produce a statement, the parent may produce one statement that subsidiaries can use.

When does the obligation come into effect?

The MSA is in force from 29 October 2015, but the first organisations that will have to produce a statement will be those with financial years ending on or after 31 March 2016.

There are transitional provisions in place exempting those organisations with a financial year end between the coming into force of the obligation and 31 March 2016.

What should the statement contain and how detailed does it need to be?

The MSA is not prescriptive about the layout or specific content of a statement.  However, it does provide guidance and examples as to the type of information that may be included:

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

The guidance makes it clear that businesses are not required to guarantee that their entire supply chain is slavery free.  The obligation is limited to setting out the steps (if any) that the business is taking to achieve this.  The Government expects organisations to build on their statements year on year.

The statement should be written in simple language that is easily understood.  It can be succinct but must cover all relevant points and include appropriate links to relevant publications, documents, or policies.  Relevant materials already compiled for other reports (such as corporate responsibility or ethical trade activities) can be included.

The key feature of the MSA is transparency, and so if an organisation has not taken any steps to ensure slavery and human trafficking is not taking place, it must still publish a statement to this effect (although this is likely to raise questions and the organisation should be prepared to explain the reasons why it has not taken any steps).

Where and when does it have to be published?

The statement must be published in a prominent place on the homepage of the organisation’s website.  The Government recommends adding a link such as: “Modern Slavery Act Transparency Statement”.  If an organisation does not have a website, the statement must be made available within 30 days of a written request being received by the organisation.

The statement should be published as soon as reasonably practicable after the end of the financial year - the Government recommends publication within six months of the year end and potentially at the same time as any annual accounts are published.

Does the statement need to be “signed off”?

To ensure high level accountability, the MSA requires the statement to be approved and signed by an appropriate senior person in the business.  In a limited company, the statement must be approved by the board of directors and signed by a director.  Similarly, in a limited liability partnership it must be approved by the members and signed by a designated member.

What are the consequences if an organisation fails to comply with the new reporting requirement?

The Secretary of State may seek an injunction requiring a business to comply.  A failure to comply with an injunction will be a contempt of Court which is punishable by an unlimited fine.

There has been criticism that the reporting provision does not have real teeth, as an organisation can avoid enforcement action simply by publishing a statement confirming that no steps have been taken.  However, there are likely to be reputational consequences if an organisation is seen to be avoiding proper compliance with the legislation.  The Government hopes that consumers, investors, and non-governmental organisations will engage or apply pressure where they believe a business has not taken sufficient steps, and that the risk of negative publicity and a potential impact on financial performance will also be relevant considerations.

Click here to view table.