Modern slavery encompasses slavery, servitude, forced and compulsory labour and human trafficking. The UK Modern Slavery Act 2015 (MSA) was enacted as part of the government’s broader strategy to tackle such crimes.
Under the MSA, an annual modern slavery and human trafficking statement is required for financial years ending on or after 31 March 2016 for all commercial organisations carrying on any part of their business in the UK with a turnover of £35 million or more. For asset managers this means fees, but for landlords and funds this includes rents received. The government’s statutory guidance recommends that organisations report within six months of the end of the financial year which means the first reports should be published by the end of September 2016. For more details on the corporate disclosure requirements under the MSA and the statutory guidance, please click here for our detailed client note.
Given the turnover threshold, a large number of property organisations will need to issue a statement. Whilst most could probably reflect on their own organisations with some confidence, the fact that the statements must extend to their supply chains may be more problematic and will require careful consideration.
A broad analysis of what constitutes an organisation’s “supply chain” is required and all contracting counterparties need to be viewed through the MSA lens. For example, landlords provide services to their tenants so will form part of their tenants’ supply chain. Landlords may therefore face scrutiny from tenants who have to comply with the MSA and are well versed in the detail of it. However, the tenant does not form part of the landlord’s supply chain unless it provides other services.
But consider the fund manager who enters into a property management contract on behalf of a landlord client with a third party who in turn sub-contracts the cleaning requirements to a much smaller organisation or individual where there is a real risk of forced labour. The sub-contractor is supplying services and is therefore part of the supply chain of the fund manager and the landlord. Because of this, their statements should set out what they are doing to identify and tackle the risk.
Landlords will need to consider those supplying services to them whether directly or indirectly through their asset managers. Although the most appropriate course of action may be to procure that the fund or asset manager is responsible for addressing modern slavery risks on behalf of the landlord, it is insufficient to do so without further thought. In that case, the statement should explain the analysis which has led to that conclusion, confirm that the manager has binding duties and is aware of their scope and include provision for on-going monitoring.
Developers should be aware that the construction sector is at particular risk of labour exploitation. Their statements should acknowledge this and outline the action they are taking to prevent the use of such labour.
For many businesses there remains uncertainty as to the application and scope of the new requirements and the practical measures that they should take to assess and manage modern slavery risks in their business and supply chains. This is particularly true of the property industry, which has not traditionally been seen as at high risk of slavery in any shape or form.