By Elise Groulx Diggs Esq., Ad.E., Associate Tenant, Doughty Street International; Catherine Meredith, Barrister, Doughty Street Chambers; and Vera Padberg, International Researcher and Coordinator, Doughty Street International.
The new transparency in supply chains provision
Section 54 of the UK Modern Slavery Act 2015 enters into force today as a result of The Modern Slavery Act 2015 (Commencement No.3 and Transitional Provision) Regulations.
The Home Secretary has described s.54 - the transparency in supply chains 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, [the Government] will provide a strong incentive for businesses to take this issue seriously.’
Section 54 obliges all commercial organisations, supplying goods or services, with an annual turnover in excess of £36m to prepare a ‘slavery and human trafficking statement for each financial year of the organisation’.
This new ‘slavery and human trafficking’ statement must confirm that the organisation has taken steps during that financial year to ensure that slavery and human trafficking is not taking place in any of its supply chains and in any part of its own business. Alternatively, corporations can choose to expressly state that the organisation has taken no such steps.
Section 54(5) provides a list of information which an organisation ‘may include’ in a slavery and human trafficking statement including:
‘(a) the organisation’s structure, its business and its supply chains;
(b) its policies in relation to slavery and human trafficking;
(c) its due diligence processes in relation to slavery and human trafficking in its business and supply chains;
(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;
(e) 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;
(f) the training about slavery and human trafficking available to its staff.’
The Secretary of State today published statutory guidance on the new provision. The guidance is tailored to the needs of different businesses, and focuses on 5 key areas (in summary):
- describing business model and supply chain relationships;
- policies on slavery including due diligence and auditing;
- risk evaluation and management, and;
- performance indicators to assess effectiveness.
It provides practical tips on what businesses should include in the statement, how to structure the statement, and what needs to be done once the statement has been produced. The guidance also sets out what is expected of companies when they identify an incidence of modern slavery.
What is the timeframe for compliance?
The transitional provisions mean that commercial organisations are not caught straight away even though s.54 enters into force today.
Organisations with a financial year-end from 29 October 2015 up to and including 30 March 2016 will not be required to make a slavery and financial statement for the financial year 2015/16. However organisations with a financial year-end of 31 March 2016 will be required to publish their statement for the financial year 2015/16 within 6 months of the end of their financial year.
What impact will section 54 have on commercial organisations and on tackling slavery and trafficking?
According to a recent study, a disturbing majority of 71% of a cross-section of UK retailers and suppliers believe that there is a likelihood of modern slavery occurring at some point within their supply chains. The research also found that audits do not reveal what is really going on in their supply chains. This new reporting obligation will, it is hoped, have a significant impact on what commercial organisations can do to stop slavery and trafficking in their supply chains.
On the other hand, section 54 has been the subject of much criticism on the basis that it does not have real teeth. The Government’s argument is that it strikes the appropriate balance between improving transparency in supply chains whilst ensuring that commercial organisations take action to tackle modern slavery. As to how that balance will be struck – much will of course depend on what happens in practice.
The concern is that many organisations may choose to publish a cursory statement under section 54 or report that "the organisation has taken no such steps", presumably because there is no perceived risk of modern slavery in its supply chains. However, the Government hopes that the "no steps" option will be minimised in practice by negative publicity or pressure from investors, shareholders, the media, consumers, NGOs, etc. Moreover, if there is a risk of trafficking or slavery in supply chains this generates risk for their business relationships. In short, there may be commercial and financial motivations for organisations to publish statements, rather than desist.
Some commercial organisations have already taken steps to introduce polices and allocate personnel and resources to specifically tackle slavery in supply chains. They therefore welcome the new transparency in supply chain provision as they believe that their organisations have been acting responsibly already and that the new provisions will force other businesses to raise their standards and create more of a level playing field. Therefore there may be strength in greater numbers publishing statements adding pressure on those organisations who do not.
Further, section 54 includes a requirement that the company includes a link to the slavery and trafficking statement on a prominent place on the organisation’s homepage of their website. The statement must further be approved by the board of directors and signed by a director of the organisation. Therefore commentators foresee that reputational risk might be the most important incentive for business to comply with the provision.
In addition, the duties imposed by section 54 of the 2015 Act are enforceable by the Secretary of State bringing civil proceedings in the High Court for an injunction, which may force commercial organisations to comply with their obligations. Indeed, it may be that should it be found that directors, officers or other individuals within the company have also committed offences under sections 1 and 2 of the Act, criminal proceedings may follow against them, including potentially extremely expensive confiscation proceedings in the event of a conviction.
What needs to be done?
First, the starting point should be human rights due diligence to tackle slavery and trafficking in supply chains as found in the UN Guiding Principles on Business and Human Rights (the ‘Ruggie’ principles).
Secondly, and practically speaking, the reporting obligation will only apply to financial years starting on or after the 1st of April 2016. Companies, therefore, do not have long to gear up for this new obligation, and numerous changes may be required to ensure compliance. Some of these changes may include:
- Engaging with the key areas identified by the Government in the response to the consultation (above) and considering how to address these with a focus on human rights due diligence;
- Developing anti-slavery and human trafficking policies; and/or including these in corporate social responsibility (CSR) policies;
- Developing processes to investigate business and supply chain (contractors, sub-contractors, suppliers, contracts, etc.) to determine the level of risk or exposure to risk;
- Identifying and prioritising high risk areas in the supply chain and planning and setting out what steps are being taken to address the risks;
- Appointing senior individual(s) within companies with responsibility for investigation, compliance and the production of the statement;
- Identifying training needs within companies to ensure that all responsible staff involved in supply chain management and procurement are aware of the new obligations;
- Putting effective grievance and whistle blowing mechanisms in place to cover any concerns about slavery or human trafficking within any business or supply chain.
Thirdly, it may also assist to prepare a draft statement as soon as possible to ensure consideration and avoid having to rush as the obligation deadline approaches.
Members of Doughty Street Chambers advised Government and others on the Modern Slavery Act whilst it was in Bill form, and have spoken at industry events on the new transparency and supply chain provisions. Members of our Anti-Trafficking team and business and human rights team are on hand able to offer comprehensive and practical advice, training, and targeted investigations to commercial organisations, helping them to ensure they are fully compliant with these new requirements.
If you would like to know more about how this new provision might impact your company, or more about our work advising business and human rights issues, please contact:
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