The Modern Slavery Act 2015: What do businesses need to know and do?

From October 2015, under the new Modern Slavery Act 2015 (the MSA), most large commercial organisations in the UK will need to publish
an annual, Board-approved, statement setting out the steps that they have taken to prevent slavery, not just within their organisation but also within their
supply chain.

Rather than approaching this as an isolated exercise, for many organisations this obligation to make an annual Transparency in Supply Chains (TISC) statement may be most effectively met by utilising their existing anti-bribery and corruption (ABC) and / or corporate social responsibility (CSR) systems,  thereby incorporating anti-slavery efforts within their broader business (and supply chain) risk analysis and response.  Although non-compliance with the statement obligation does not carry a legal penalty, the reputational impact of getting this obligation wrong may be significant.

Why do you need to be aware of the MSA?

The MSA is a key part of the UK’s efforts to combat the global issues of forced labour, domestic servitude and human trafficking.  The MSA consolidates and develops existing law on the offences of slavery and trafficking.

It is possible for corporates to be held criminally responsible for those offences.  In practice, though, the key obligation that corporates need to be aware of is the duty to prepare an annual TISC statement.  This obligation is particularly significant – and potentially onerous – because it requires organisations to look beyond their own boundaries to understand their worldwide supply chain. The expectation is that they will then, where necessary, exert influence to eradicate any use of slave labour.

The obligation to provide a TISC statement will apply to all commercial organisations that carry on all or part of their business in the UK, supply goods or services and have a total worldwide annual turnover of £36 million or more.  Foreign businesses that carry out part of their operations in the UK will therefore be caught, and the revenue of any subsidiaries (including those with no connection to the UK) will be taken into account when assessing whether the £36 million threshold is reached.  A TISC statement must be approved by the Board and signed by a director, and a link to the statement must be included in a prominent place on the home page of the organisation’s website.

What does a TISC statement need to include?

Organisations that are required to publish a TISC statement
have two options.  A TISC statement will
need to either:

• set out the steps that the organisation has
  taken during the financial year to ensure that slavery and human trafficking
  are not taking place in either its own organisation or its supply chain; or
• state that the organisation has taken no such
  steps.

Beyond this, the MSA is not prescriptive as to what should
be contained in a TISC statement, although it suggests that an organisation may
want to include the following elements:

• information concerning the organisation’s structure, business and supply chains;
• its policies in relation to slavery and human trafficking;
• the due diligence it has undertaken in its business and on its supply chain;
• its assessment of risks and the steps it has taken to address the risks of slavery and trafficking in its business or supply chain;
• its effectiveness in ensuring slavery and human trafficking is not taking place within its business or supply chain; and
• the training which it gives to its staff.

Further guidance is expected
to be published by the Government when the MSA is brought into force, giving organisations
more detail on, amongst other things, what they should be including in their
TISC statements.

What happens if an
organisation fails to comply?

There is no legal penalty for not complying (although the MSA
gives the Secretary of State the power to seek an injunction to force a
corporate to make such a statement).  The
real risk is reputational rather than legal.
This will be particularly so when it comes to sectors where corporate
reputation is a key part of the business model.
Listed entities will also be aware of the importance of ethical
investment, either by specific ethical investment funds, or as part of
responsible investment principles for other investors.

The reputational risk presented where slavery is discovered
within the supply chain has been highlighted again in recent weeks.  In California (which already has anti-slavery
laws similar in some respects to the MSA) Costco is facing a class-action
claim, seeking an injunction to prevent it from selling prawns unless they are
labelled as being tainted by slavery.
The claim alleges that a part of Costco’s complex supply chain, based in
Thailand, used slave labour on its boats. This type of action can cause a
great deal of reputational damage regardless of the outcome of the case.

Managing supply chain
risk: an integrated approach

The MSA’s approach of leaving it to individual organisations
to decide what steps are reasonable and proportionate for them to take will be
familiar to those who have been involved in preparing and implementing policies
and procedures in response to the Bribery Act 2010 (the Bribery Act).  The parallels
do not end there.  Many of the steps that
an organisation may want to take to comply with the MSA will be similar to
those that it also takes to comply with the Bribery Act and / or the effective
operation of a CSR programme, such as:

• establishing a clear policy;
• conducting a global a risk assessment to identify and assess potential vulnerabilities in the business and supply chain;
• taking actions and developing processes to limit and manage those risks;
• providing training to employees;
• managing risk through contractual provisions with third parties; and
• putting in place a monitoring system to track progress and compliance.

The absence of a corporate offence in the MSA, when compared
to the criminal offence of failing to prevent bribery (section 7 Bribery Act),
is an important distinguishing feature.
Nevertheless, the desire to ensure that there is no slavery within an
organisation’s supply chain, and the reputational considerations discussed
above, will mean that businesses need to think carefully about how they meet
this obligation.  For many, the most
efficient and effective course will be the co-opting of existing ABC procedures
to gather this further information and understand and address their corporate
exposure.

As those with experience in implementing anti-bribery
policies will know, another benefit of a robust compliance and monitoring
program is that it can uncover other instances of illegality, unethical conduct
or civil (contractual) wrong-doing in the supply chain.  For many, the TISC statement will become one more
addition to the suite of key reporting measurements derived from an integrated approach
to business which enable the management to have proper oversight of the risks
they face.

All businesses caught by the MSA will need to consider
carefully what they will include in their TISC statement, and how this will fit
with their existing compliance and CSR programs.