November 28, 2017

U.K. Modern Slavery Act Update

A minimum of 21 million people are estimated to be in forced labor across the globe today, a figure far greater than the number of slaves transported across the Atlantic in the slave trade of the 15th to 19th centuries.

The U.K.’s 2015 Modern Slavery Act attempts to tackle some of the most pressing issues in this human rights crisis — which generates billions of dollars internationally — with the primary aim of encouraging greater corporate responsibility for slavery within supply chains. For more detail on whether your business may need to comply with the Act, and the specific obligations it imposes, please see our previous update.

The U.K. Home Office recently amended its guidance on certain aspects of the Act, providing insight into what companies can expect as the Act continues to evolve.

Why is this important for U.S. companies?

Section 54 of the Act requires companies that supply goods or services and generate an annual turnover (revenue) of above £36 million (approximately $47.5 million) to produce a slavery and human trafficking statement each financial year. This applies to all commercial organisations operating wholly or partially in the U.K., and turnover is calculated to include any subsidiary undertakings (including those operating wholly outside the U.K.).

Companies which carry on business or part of a business in any part of the U.K. are required to produce a statement, regardless of where they are headquartered. There is no minimum level of business required in the U.K. and no requirement for an organisation to be physically located in the U.K. The simple fact that a company has a subsidiary in the U.K. will not necessarily mean that it is compelled to comply (as the subsidiary may operate entirely independently of the parent). However, the applicable test of whether the business has a “demonstrable business presence” in the U.K. is a low threshold.

Is there an equivalent in the U.S.?

In the U.S., the State of California has a very similar requirement which took effect on 1 January 2012 under the California Transparency in Supply Chains Act of 2010.  

Under this Act, companies with annual global sales in excess of $100 million who do business in California must disclose (on their website) the extent to which they:

a. Evaluate their supply chains for human trafficking activities.  

b. Audit suppliers’ compliance with the company’s standards on human trafficking and slavery.

c. Certify that their product materials comply with the laws on human trafficking and slavery in the countries where they do business.  

d. Maintain internal standards and procedures for employees or contractors who fail to comply with the company’s standards.

e. Provide training on the issue to employees responsible for supply chains.

The Attorney General can seek an injunction requiring compliance with these disclosures by any affected company which fails to do so. The law does not provide for fines or penalties.

Recent updates in the U.K.

The U.K. Home Office has amended its guidance on the government’s expectations for the statements required under the U.K. Act. Most notably:

  • The Act sets out a non-exhaustive list of items that may be included in the statement. The new guidance states that businesses “should aim to include” this information from now on. In concrete terms, an organisation’s structure, business and supply chains, and its due diligence processes in relation to slavery and human trafficking should be detailed in its report.
  • Past statements should remain available online, to enable readers to judge progress made.
  • Businesses should continue to produce statements on an annual basis, even if their annual turnover falls below the required threshold.
  • Smaller organisations are now encouraged to produce a statement, even where not required to do so.

The U.K. government has proposed the following amendments to the legislation, which would increase the onus on businesses to determine the existence of slavery and human trafficking in their supply chains:

  • The voluntary non-exhaustive list of factors to include in the statement would become compulsory.
  • Existing requirements would be strengthened so that organisations which state that no steps have been taken to ensure that slavery and human trafficking are not taking place in their business or supply chains (currently allowed under section 54(4)(b) of the Act) will also need to explain why no such steps have been taken.
  • The U.K. Home Office would be obliged to publish a list of all commercial organisations that are required to publish a statement.

Furthermore, in October 2017, the U.K. Home Office published its 2017 U.K. Annual Report on Modern Slavery and launched the “Business Against Slavery” forum, which aims to bring business leaders together to generate ideas and initiatives to combat modern slavery in supply chains. The forum will partner with the government to increase the number and quality of statements published under the Act.

Enforceability

There are currently no fines or penalties for failing to prepare or publish a slavery and human trafficking statement, although the U.K. government can bring injunction proceedings to require compliance. The aim of the Act, however, is to ignite consumer pressure and encourage compliance through the threat of reputational damage. Organisations such as the U.K. Business and Human Rights Resource Centre and CORE, the U.K. civil society coalition on corporate accountability, have compiled a list of statements published to date, with details on their varying level of compliance. This will inevitably create pressure on companies to take these corporate compliance issues seriously.

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