Modern Slavery Act 2015: how well do you know your supply chain?

Posted: 23/09/2015

The Modern Slavery Act 2015 is intended to come into force this October, although the commencement date has yet to be announced. It will require both UK and foreign companies and other commercial organisations (including partnerships and LLPs) that carry out any business in the UK and have a global annual turnover of £36 million or more to prepare and publish a slavery and human trafficking statement for each financial year. The statement must either set out the steps the organisation has taken during that year to ensure that slavery and human trafficking are not taking place in its own business or anywhere in its supply chain, or state that it has not taken any steps. Turnover, for these purposes, will include turnover of both the commercial organisation and any subsidiary undertakings, derived from the supply of goods and services falling within the organisation’s ordinary activities after deducting any trade discounts, VAT and other taxes, wherever earned – including where the organisation’s UK operations are minimal.

Whilst the requirement under the Act is for a company to prepare a statement, rather than to take any positive steps to eradicate slavery from its supply chain, the Government envisages that commercial pressure will be brought to bear on those organisations that fail to take action. The new requirements will make transparent what a particular organisation is or is not doing and will enable members of the public, consumers and investors to make informed decisions as to which organisations they do business with. The consequences in terms of damage to reputation and competitive disadvantage for organisations that fail to take the issue seriously could be significant.

Where a company or other organisation fails to prepare a statement as required by the Act, the Secretary of State can bring enforcement proceedings.

Content of the statement

There is no particular form that the statement must take and its content is likely to vary significantly from business to business, depending on their activities. Certain sectors are likely to be more vulnerable to modern slavery than others - for example, agriculture and retail or manufacturing operations where goods or components are sourced internationally. Consequently, the steps that it might be appropriate for businesses operating in those sectors to take would probably be very different to, and more onerous than, those a professional services firm operating exclusively within the UK might take.

The Government has identified the following areas of information that organisations may wish to cover in their statements:

• a brief description of the organisation's business model and supply chain relationships;
• the organisation’s policies on slavery and human trafficking, including its due diligence and auditing processes in relation to slavery and human trafficking in its business and supply chains;
• identification of those 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;
• the organisation’s effectiveness in ensuring that slavery and human trafficking is not taking place in its business or supply chains measured against performance indicators to chart progress year on year; and
• the training about slavery and human trafficking available to the organisation’s staff.

The Government has indicated that it will publish guidance to coincide with the new duty coming into force. The guidance is likely to focus on these areas and also details around where and when an organisation must publish its statement, good practice for businesses to consider in relation to due diligence processes (although the guidance will not be prescriptive) and suggestions as to how modern slavery might be identified.

The statement must be included on an organisation’s website (or provided within 30 days of a request being made where an organisation does not have a website) and, in the case of companies, it must be approved by the board and signed by a director.

What should businesses be doing to prepare?

Some companies, including UK quoted companies in their strategic reports and some entities with a US presence, will already report on human rights and slavery issues and the effectiveness of any company policies on these issues. They may therefore already be in a position to comply with the new duty when it comes into force. Other organisations should be thinking about:

• mapping supply chains by identifying suppliers and contractors and where they operate;
• identifying who within their organisation will be responsible for compliance;
• identifying those areas of their business where the risk of modern slavery is the greatest;
• what staff training will be needed for those employees involved in procurement and supply chain management and for staff more generally and how this might be provided;
• whether contracts with suppliers and contractors ought to include appropriate provisions regarding their own procedures.

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