Are you operating in the UK? Why you need to know about the UK's Modern Slavery Act 2015

The UK has recently introduced new laws on “modern slavery” and “trafficking”, through the Modern Slavery Act 2015 (MSA). Importantly, this includes a requirement for organisations that fall within the relevant provisions of the MSA to publish an annual “Transparency in Supply Chain”, or “TISC”, statement – essentially a statement setting out the steps that the organisation has taken over the previous year to eradicate slavery and trafficking in its supply chains.

The headline news is that the obligation to produce a TISC statement applies to organisations that carry on business within the UK, not just those which are incorporated or headquartered in the UK.

Is your business required to make a TISC statement?

The requirement to make a TISC statement applies to all commercial organisations that:

• carry on a business, or part of a business, in the UK; 
• supply goods or services; and 
• have a total worldwide annual turnover of £36m or more. 

“Commercial organisation”

“Commercial organisation” includes any body corporate or partnership, in any part of a group structure. It does not matter where, or in which jurisdiction, the partnership or body was incorporated or formed.

“Carrying on business in the UK”

In its guidance on the new disclosure obligation, the UK government has indicated that a “common sense approach” should be taken when assessing whether or not an organisation can properly be regarded as carrying on a business, or part of a business, in the UK.

The UK government’s guidance states that “organisations that do not have a demonstrable business presence in the UK” will not be caught by the test. Similarly, just because an overseas parent company has a UK subsidiary does not necessarily mean that the parent company is carrying on business in the UK, because the subsidiary may be conducting an independent business from that of its parent. But where a subsidiary’s UK operations form part of an overseas parent’s business, the overseas parent will be considered to carry on business in the UK.

It does not matter ifthe partnership or body is a for-profit business or not-for-profit charitable, educational, public, or other organisation, so long as it engages in commercial activities in the UK.

The turnover test

The turnover test is assessed by reference to each commercial organisation, and includes the turnover of any subsidiary undertaking of that entity, but doesn’t look any further up the chain of ownership to turnover of any parent of the relevant commercial organisation. For the purposes of the turnover test it is irrelevant where the subsidiary undertaking is based or where it carries on its business.

Statements by groups of companies

Each commercial organisation meeting the tests described above is required to produce a TISC statement, but a group TISC statement can be made by the parent company for itself and each of its subsidiaries that is otherwise required to prepare a TISC statement in its own right.

Where a subsidiary undertaking does not, in its own right, need to prepare a TISC statement (for example, because its turnover (when consolidated with that of its own subsidiary undertakings) is less than £36m), it may still need to form part of the parent’s TISC statement if its operations form part of the business or supply chains of the parent (or other subsidiary undertaking of the parent which is itself required to prepare a TISC statement).

Impact on multinational groups

The following examples illustrate how these tests might apply to a non-UK company (Parent) with a subsidiary with a UK business (UK Sub) and, in Example 3, a non-UK subsidiary (Non-UK Sub) whose business is conducted wholly outside the UK.

• Example 1: Parent is based outside the UK but conducts business in the UK. Parent’s annual turnover is £20m. UK Sub has a turnover over £36m.

Both Parent and UK Sub are required to produce a TISC statement, although one statement can be produced which covers both.

• Example 2: Parent is based outside the UK but conducts business in the UK. Parent’s annual turnover is £20m. UK Sub has a turnover of £18m.

Only Parent is required to produce a TISC statement (because UK Sub’s turnover is less than £36m), but it will need to include the steps taken in relation to UK Sub if its activities form part of Parent’s supply chain or business.

• Example 3: Parent is based outside the UK but conducts business in the UK. UK Sub has a turnover over £36m. Non-UK Sub does not carry on any business in the UK.

As with Example 1, Parent and UK Sub are each required to produce a TISC statement (although, again, one statement can be produced which covers both). If Non-UK Sub is part of Parent’s or UK Sub’s supply chain or business, steps taken in respect of it should be included as part of the relevant company’s TISC statement (or group statement). If not, there is no requirement to include Non-UK Sub in any TISC statement, but the business may still choose to for reputational or other reasons.

• Example 4: Parent does not carry on any business in the UK. UK Sub carries on its business independently from Parent and has a turnover over £36m.

Only UK Sub is required to produce a TISC statement, but again, the business may choose to produce a statement that includes other group companies.

Contents of the TISC statement