Modern slavery and human trafficking remain hot topics since the coming into force of the Modern Slavery Act 2015 (the “Act”). The Home Office published updated guidance in October 2017 (the “2017 Guidance”) and it is reported that one third of businesses affected by the Act have not prepared a modern slavery statement, in spite of the legal requirement for them to do so.
The extremes of modern slavery may be obvious but the legislation is structured so that there are many shades of grey that could catch out anyone not keeping an eye on this issue. We previously reported on the cases of the offshore supply vessels MV Malaviya Seven and MV Malaviya Twenty where it was sufficient for the non-payment of crew wages to get the attention of the authorities. Whilst no slavery investigation relating to the incident has been reported on, it nevertheless attracted much negative publicity for the oil and gas industry in the UK, and in particular the oil companies that had used the vessel. The vessel was out of action for over a year and was eventually sold to pay the crew’s wages.
During straitened times in the oil and gas sector, symptoms of financial difficulties may have wider repercussions for the unwary.
The 2017 Guidance
Section 54 of the Act requires businesses that have a global turnover above £36 million and that operate in the UK, to produce an annual statement detailing the steps they have taken to ensure that there is no modern slavery in their own business and supply chains. The original 2015 guidance set out the Home Office’s expectations for such statements. It is unclear whether an organisation caught by section 54 must also account for the operations of non-UK subsidiaries but best practice would suggest that it should. See paragraph 3.13 of the 2017 Guidance:
“If a parent company is seen to be ignoring the behaviour of its non-UK subsidiaries, this may still reflect badly on the parent company. As such, seeking to cover non-UK subsidiaries in a parent company statement, or asking those non-UK subsidiaries to produce a statement themselves (if they are not legally required to do so already), would represent good practice and would demonstrate that the Company is committed to preventing modern day slavery. This is highly recommended, especially in cases where the non-UK subsidiary is in a high-risk industry or location.”
The 2017 Guidance makes clear that the statement is not just a box ticking exercise but must reflect a conscious effort to tackle the risks posed by modern slavery and trafficking. There is still no prescribed deadline for compliance such that the expectation remains that statements should be published within six months after year end.
Although much of the 2017 Guidance remains unchanged, two main points of note are:
> A suggestion that organisations falling below the £36 million turnover threshold may find it helpful to make a voluntary statement if they are bidding for contracts against businesses that do have one. Such organisations may already be responding to supply chain due diligence queries asking if they have a statement or policy setting out their approach to tackling modern slavery.
> An indication that it is best practice to include in the statement the items set out in section 54(5) of the Act, addressing the sort of information that “may” be included in an organisation’s statement.
On this second point we would particularly highlight the provisions of section 54(5)(d) of the Act:
“An organisation’s slavery and human trafficking statement may include information about –
(d) 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;”
For anyone dealing with local content requirements, particularly in high risk countries and in market conditions where profit margins are stretched, the obligation no doubt looks like an onerous burden that is tempting to turn a blind eye to. But section 54(5)(d) does emphasise the need for closer scrutiny of where local labour is sourced from and, in particular, proper due diligence into the players involved in the extensive supply chains that exist in a typical, large project.
Looking ahead – The Modern Slavery (Transparency in Supply Chains) Bill 2017 (the “Bill”)
Assuming the Bill becomes law, important changes to the Act that are of relevance to our clients in the energy and infrastructure sectors include:
> Section 54(5) of the Act would no longer be best practice examples of what to include in the statement: they would be mandatory, thus reinforcing the element of self-policing of compliance and making it easier for apparently minor breaches to occur which might tip off authorities to the need to investigate in more detail.
> A requirement that reasons are given when a statement is published confirming no steps have been taken to ensure modern slavery and human trafficking is not occurring in any part of their business or supply chains.
> An obligation on the Secretary of State to publish a list of all commercial organisations that are required to publish a statement, in a place and format that is easily accessible.
There is no proposal in the Bill to amend the sanctions for non-compliance with section 54 of the Act. The threat of adverse publicity and likely impact on credibility of reputation and so prospects for tenders to succeed, plus the fact that a lack of compliance may well provide the genesis of suspicion that leads to a full investigation into a company’s operations around the world, remain the serious consequences likely to arise.
Organisations will need to pay heed to the “best practice” section 54(5) requirements, which are likely to become mandatory in the near future.
In light of the 2017 Guidance and the proposed legislative changes, it is worth taking the time to review your own position and ensure the section 54 requirements have been complied with to the fullest extent possible.