Eradicating modern slavery through increased transparency in supply chains


Author: Tim Wright


Tim Wright, Partner, Fladgate LLP (twright@fladgate.com)


 

The Home Office recently published the Second Interim Report[1] from the independent review of the Modern Slavery Act 2015. Launched in July 2018, the independent review[2], led by Frank Field MP, Baroness Butler-Sloss and Maria Miller MP, aims to strengthen and enhance the current legislation as modern slavery evolves. The report considers the legal application of the Act and transparency in supply chains, in particular how to ensure compliance and improve the quality of transparency statements produced by eligible companies.

Transparency statements

Section 54 of the Act requires all commercial organisations with an annual turnover of £36 million or more, which supply goods or services and carries out business in the UK to prepare a slavery and human trafficking statement for each financial year (transparency statement). The transparency statement must be published prominently on its website. It should clearly state the steps taken to ensure that slavery and human trafficking is not taking place in its business or its supply chains. Alternatively, the statement should say that no such steps have been taken. The statements must be approved at a board meeting and signed by a sponsoring director prior to their publication.

Limited impact

The report notes that the impact of Section 54 has so far been limited, because many transparency statements are of poor quality and on occasion the obligation is completely ignored. Reasons given include a lack of enforcement, limited penalties for non-compliance[3], and confusion surrounding the reporting obligations themselves. In particular the report notes that it is not always clear which companies are covered by Section 54; further that the Section is very non-prescriptive in terms of how a business can comply with the Section including permitting a bare statement of “no steps taken.” The extraterritorial nature of the Act also makes it difficult to capture foreign companies.

Recommendations

The report makes a number of recommendations such as:

  • establishing an internal government list of companies falling within the scope of Section 54 (although non-inclusion in the list should not excuse a company from compliance);
  • removing the option to report that no steps have been taken;
  • making reporting against certain ‘headings’ mandatory[4] so that statements would have to include information on the organisation’s structure, its business and its supply chains, and its policies in relation to slavery and human trafficking;
  • introducing into the Companies Act a requirement that listed companies refer to their transparency statement in their annual reports (with an equivalent requirement for large private entities);
  • appointing a named, designated board member who is personally accountable for the production of statements.

Public procurement

Another recommendation is that Government further strengthen its public procurement processes to ensure non-compliant companies in scope of section 54 are prevented from bidding for public contracts. The report also recommends a central government-run online repository to which statements can be uploaded (akin to the Australian Modern Slavery Statements Register). Something similar to the US Federal Acquisition Regulation is envisaged, which requires companies with federal contracts for goods and services to be acquired outside the US with an estimated value in excess of $500,000 to produce a compliance plan and submit annual certifications regarding implementation of the plan and associated due diligence. The plan has to include a human trafficking policy, an employee awareness programme, an employee reporting or grievance process, a recruitment and wage plan, a housing plan (if applicable) and a violation monitoring and remediation mechanism.

Enforcement steps

Towards the end of last year the Home Office wrote to around 17,000, apparently non-compliant, companies requiring them to register on the Modern Slavery Contact Database and publish up-to-date modern slavery statements by 31 March 2019. They also had to submit their statements to the Transparency in Supply Chains and the Modern Slavery Registry NGO websites. The Home Office has said that it will publish a list of non-compliant companies following an audit of the statements filed.

What’s next?

When enacted in 2015, the Modern Slavery Act was rightly praised as the first of its kind. Since then, other governments have followed suit, introducing their own anti-slavery and trafficking legislation, and some, such as Australia, have gone much further than the UK. As stated at paragraph 1.5 of the report, the current approach, whilst taking a step forward, has proven insufficient and “[i]t is [now] time for the Government to take tougher action to ensure companies are taking seriously their responsibilities to eradicate modern slavery from their supply chains.” The independent review will aim to report to the Home Secretary before the end of March 2019 after which the report will be laid in Parliament.


[1] https://www.gov.uk/government/publications/modern-slavery-act-2015-review-second-interim-report

[2] https://independentmsareview.co.uk/

[3] “Although section 54(11) introduced the possibility for the Secretary of State to seek an injunction against non-compliant companies, Government was clear that it would be for consumers, investors and Non-Governmental Organisations (NGOs) to monitor compliance and apply pressure on businesses” (para 1.3 of the Report)

[4] The latest statutory guidance issued in March 2018 says that government expects companies to report on the identified areas but falls short of a hard requirement.


 

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