UK 'Modern Slavery Act' Compliance

There are certain key differences between the UK legislation and the California Act, notably that the former applies to supply chains for goods and services in all sectors and not just the provision of goods as under the California Act, which also imposes certain “footprint” conditions such as the requirement that businesses must be organized or commercially domiciled in California. The Attorney General of the California Justice Department also issued guidance about the California Act in 2015 called “California Transparency in Supply Chains ' A Resource Guide.”

The Act

The Act consolidates and expands upon existing UK legislation and also sets up a systematic approach to combatting modern slavery and human trafficking. The main offenses are: 1) slavery ' this is where ownership is exercised over a person; 2) servitude and forced or compulsory labor ' servitude involves the obligation to provide services imposed by coercion, and, forced or compulsory labor involves work or service exacted from any person under the threat of a penalty and for which the person has not offered himself or herself voluntarily; 3) and, human trafficking ' this concerns arranging or facilitating the travel of another person with a view to exploiting them, which covers a range of things such as sexual exploitation, the removal of organs, and securing services from children and vulnerable persons.

Penalties include maximum life imprisonment. An independent Anti-Slavery Commissioner (Kevin Hyland) has also been established who is tasked with a number of functions including encouraging practice in the prevention, detection, investigation and prosecution of slavery and human trafficking. The Commissioner has set out his strategic plan for the next two years, which includes engagement with the private sector to encourage supply chain transparency.

The Compliance Disclosure Requirement

The compliance requirement is set out in Section 54 of the Act, which requires businesses who supply either goods or services to annually disclose in a “slavery and human trafficking statement” the steps that they've taken to ensure that there is no slavery or human trafficking in their business or supply chains. Under separate secondary UK legislation dated Oct. 28, 2015 (now in force), a threshold is set for this so that it is only businesses whose annual turnover is at or over UK '36 million that must meet the compliance disclosure requirement. (The Guidance sets out details about how turnover is calculated.)

The Guidance clarifies and puts together the overall picture, stating that the compliance disclosure requirement applies to: 1) an organization in any part of a group structure if it is a body corporate or partnership (wherever incorporated); 2) carries on a business, or part of the business, in the UK; 3) supplies goods or services; and 4) has an annual turnover of at least UK '36 million. All industry sectors are covered.

Determining whether an organization “carries on” business in the UK will likely be done on a case-by-case basis. The Guidance states: “Applying a common sense approach will mean that organi[z]ations that do not have a demonstrable business presence in the [UK] will not be caught by the provision. Likewise, having a UK subsidiary will not, in itself, mean that a parent company is carrying on a business in the UK, since a subsidiary may act completely independently of its parent or other group companies.” What constitutes a “common-sense approach” has not been explained any further. Some U.S. corporations will therefore have to consider carefully whether they fall under the compliance disclosure requirement of the Act.

It is important to stress: The Guidance states that the compliance disclosure requirement does not mean a business must guarantee that the entire supply chain is slavery free. Instead, businesses are to be transparent about the steps that they have taken to ensure that modern slavery is not occurring.

Although the legal obligation to publish the “slavery and human trafficking statement” came into force in October, because many businesses are not realistically in a position to currently publish the statement, a transitional period has been allowed. Under separate secondary UK legislation of Oct. 22, 2015 (now in force), the statement does not have effect in respect of a financial year ending before March 31, 2016. According to the Guidance, this means as follows: First, businesses with a financial year-end date between Oct. 29 2015 and March 30, 2016, will not be required to publish a statement for the financial year preceding the date in the above-mentioned period. Second, businesses with a financial year-end of March 31, 2016, will be the first businesses required to publish a statement for their 2015-16 financial year. The Guidance provides some examples of when statements must be made, which is useful, as from simply reading the Act, the times when statements must be published and covering what time-periods is not so obvious.

The Guidance also states that businesses should publish their statement as close as possible to their financial year-end, but they will have six months from their financial year-end to publish.

The Slavery and Human Trafficking Statement

The core issue is very much about what the “slavery and human trafficking statement” should contain. The Act states that the statement may include the following: 1) the organization's structure, its business and its supply chains; 2) the organization's policies in relation to slavery and human trafficking; 3) the organization's due-diligence processes in relation to slavery and human trafficking in its business and supply chains; 4) the parts of the organization's business and supply chains where there is a risk of slavery and human trafficking taking place; the steps the organization has taken to assess and manage that risk; 5) the organization's effectiveness in ensuring that slavery and human trafficking is not taking place in its business or supply chains, measured against such performance indicators as the organization considers appropriate; and 6) the training about slavery and human trafficking available to the organization's staff.

Although these areas are optional, it is expected that most businesses will address most if not all of these areas in their statement.

There is no prescribed form for the “slavery and human trafficking statement.” Therefore, it is at the discretion of businesses how they present the information and in what detail. Necessarily, the information in the statement will be determined by the sector of the business as well as the complexity of its structure and supply chains, or the particular sectors and countries in which its suppliers are located.

According to the Guidance, a statement should be: 1) written in simple, easy to understand language; 2) written in English, but optionally in other languages where relevant to the business and its supply chains; 3) succinct while still covering all the relevant points and providing appropriate links to relevant publications, documents or policies of the organization; 4) true and refer to actual steps undertaken or started; and, 5) specific as to actions taken on a country-by-country basis (where relevant) to help investors, consumers and the public understand the context of any actions or steps taken to minimize risks.

If a business already has in place corporate social responsibility or ethical trade activities, procedures or policies in place that address the issue of modern slavery to a degree, and that may have already been disclosed, they can be used and built upon. Also, links may be provided by a business to publicly available documents or policies published on their websites to support their slavery and human trafficking statement” narratives.

If a business has a website, it must publish the “slavery and human trafficking statement” on that website, and, include a link to the statement in a prominent place on the website's home page. If the business does not have a website, it must provide a copy of the statement to anyone who makes a written request for it within 30 days.

The Guidance also provides further details about when a business has more than one website. Regarding prominence of the link on the home page itself, according to the Guidance, a “prominent place” may mean a modern slavery link that is directly visible on the home page, or part of an obvious drop-down menu on that page. The link should be clearly marked so that the contents are apparent. The Guidance recommends a link titled “Modern Slavery Act Transparency Statement.”

The “slavery and human trafficking statement” must be approved and signed by a director, member or partner of the business. The person who is required to sign the statement depends on the type of organization. This is set out in more detail in the Act and also explained further in the Guidance.

Enforcement

Where for a particular financial year a business fails to comply, the (UK) Secretary of State (in effect a government Minister) can apply for an injunction through the High Court requiring the non-compliant business to comply (in Scotland, a different court and procedure applies). Failure to comply with the injunction will likely constitute contempt of court and the possibility of an unlimited fine. A business can be considered to have failed to comply if it has: 1) not produced a statement; 2) not published the statement on its website (if it has one); or 3) not set out the steps it has taken in the relevant financial year. A serious consequence for non-compliance is likely to be reputational damage, meaning that consumers might no longer buy a business's products or services, and investors might not invest in the business or not continue their investment.

What Can Be Done to Comply

As the compliance disclosure requirement is new, businesses are currently finding their way. While the Guidance is useful, it should be read with care, as it also describes best-practice areas that might not suit all businesses.

Making sure that those businesses affected by this compliance requirement introduce and maintain robust anti-slavery and human trafficking compliance practice, procedures and policies is important, including for reputational purposes. Work needs to be done not only in order to start, but also for the future as the requirement will continue annually. A number of initial actions can be taken including the following: 1) determine when the “slavery and human trafficking statement” has to be published; 2) undertake an internal business audit and a supply chain audit to determine slavery risk as regards locations and vendors, followed up by doing due diligence; 3) draft the “slavery and human trafficking statement” and ensure sign-off responsibility and tone from the top; 4) incorporate anti-slavery compliance into other policies and procedures, such as the code of conduct and procurement procedures; 5) draft anti-slavery clauses in supplier contracts; 6) train internally with a particular focus on areas such as procurement staff, and also train suppliers; and 7) set up whistleblowing mechanisms for raising and reporting slavery concerns.

Andr' Bywater is a commercial lawyer with Cordery in London, UK, where he focuses on regulatory compliance, processes and investigations. Reach him at [email protected].

In late March of last year, the UK adopted legislation aimed at combatting slavery and human trafficking: the “Modern Slavery Act 2015″ (“the Act”). It includes a specific compliance disclosure legal obligation that has been in force since Oct. 29, 2015. Also in October, the UK government published “Transparency in Supply Chains, A Practical Guide” (“the Guidance”) in order to provide guidance about the compliance requirement.

This legislation affects any business from anywhere (i.e., not just businesses based in the UK) so long as the business meets a UK '36 million turnover threshold (USD $55.281 million) and sells goods or services into the UK.

The UK legislation takes its inspiration from California, which in 2010 adopted the “California Transparency in Supply Chains Act” (“the California Act”). This requires retail and manufacturing businesses with worldwide annual gross receipts over $100 million and annual Californian sales exceeding $500,000, doing a certain amount of their business in California, to disclose their efforts to eradicate slavery from their supply chains.

There are certain key differences between the UK legislation and the California Act, notably that the former applies to supply chains for goods and services in all sectors and not just the provision of goods as under the California Act, which also imposes certain “footprint” conditions such as the requirement that businesses must be organized or commercially domiciled in California. The Attorney General of the California Justice Department also issued guidance about the California Act in 2015 called “California Transparency in Supply Chains ' A Resource Guide.”

The Act

The Act consolidates and expands upon existing UK legislation and also sets up a systematic approach to combatting modern slavery and human trafficking. The main offenses are: 1) slavery ' this is where ownership is exercised over a person; 2) servitude and forced or compulsory labor ' servitude involves the obligation to provide services imposed by coercion, and, forced or compulsory labor involves work or service exacted from any person under the threat of a penalty and for which the person has not offered himself or herself voluntarily; 3) and, human trafficking ' this concerns arranging or facilitating the travel of another person with a view to exploiting them, which covers a range of things such as sexual exploitation, the removal of organs, and securing services from children and vulnerable persons.

Penalties include maximum life imprisonment. An independent Anti-Slavery Commissioner (Kevin Hyland) has also been established who is tasked with a number of functions including encouraging practice in the prevention, detection, investigation and prosecution of slavery and human trafficking. The Commissioner has set out his strategic plan for the next two years, which includes engagement with the private sector to encourage supply chain transparency.

The Compliance Disclosure Requirement

The compliance requirement is set out in Section 54 of the Act, which requires businesses who supply either goods or services to annually disclose in a “slavery and human trafficking statement” the steps that they've taken to ensure that there is no slavery or human trafficking in their business or supply chains. Under separate secondary UK legislation dated Oct. 28, 2015 (now in force), a threshold is set for this so that it is only businesses whose annual turnover is at or over UK '36 million that must meet the compliance disclosure requirement. (The Guidance sets out details about how turnover is calculated.)

The Guidance clarifies and puts together the overall picture, stating that the compliance disclosure requirement applies to: 1) an organization in any part of a group structure if it is a body corporate or partnership (wherever incorporated); 2) carries on a business, or part of the business, in the UK; 3) supplies goods or services; and 4) has an annual turnover of at least UK '36 million. All industry sectors are covered.

Determining whether an organization “carries on” business in the UK will likely be done on a case-by-case basis. The Guidance states: “Applying a common sense approach will mean that organi[z]ations that do not have a demonstrable business presence in the [UK] will not be caught by the provision. Likewise, having a UK subsidiary will not, in itself, mean that a parent company is carrying on a business in the UK, since a subsidiary may act completely independently of its parent or other group companies.” What constitutes a “common-sense approach” has not been explained any further. Some U.S. corporations will therefore have to consider carefully whether they fall under the compliance disclosure requirement of the Act.

It is important to stress: The Guidance states that the compliance disclosure requirement does not mean a business must guarantee that the entire supply chain is slavery free. Instead, businesses are to be transparent about the steps that they have taken to ensure that modern slavery is not occurring.

Although the legal obligation to publish the “slavery and human trafficking statement” came into force in October, because many businesses are not realistically in a position to currently publish the statement, a transitional period has been allowed. Under separate secondary UK legislation of Oct. 22, 2015 (now in force), the statement does not have effect in respect of a financial year ending before March 31, 2016. According to the Guidance, this means as follows: First, businesses with a financial year-end date between Oct. 29 2015 and March 30, 2016, will not be required to publish a statement for the financial year preceding the date in the above-mentioned period. Second, businesses with a financial year-end of March 31, 2016, will be the first businesses required to publish a statement for their 2015-16 financial year. The Guidance provides some examples of when statements must be made, which is useful, as from simply reading the Act, the times when statements must be published and covering what time-periods is not so obvious.

The Guidance also states that businesses should publish their statement as close as possible to their financial year-end, but they will have six months from their financial year-end to publish.

The Slavery and Human Trafficking Statement

The core issue is very much about what the “slavery and human trafficking statement” should contain. The Act states that the statement may include the following: 1) the organization's structure, its business and its supply chains; 2) the organization's policies in relation to slavery and human trafficking; 3) the organization's due-diligence processes in relation to slavery and human trafficking in its business and supply chains; 4) the parts of the organization's business and supply chains where there is a risk of slavery and human trafficking taking place; the steps the organization has taken to assess and manage that risk; 5) the organization's effectiveness in ensuring that slavery and human trafficking is not taking place in its business or supply chains, measured against such performance indicators as the organization considers appropriate; and 6) the training about slavery and human trafficking available to the organization's staff.

Although these areas are optional, it is expected that most businesses will address most if not all of these areas in their statement.

There is no prescribed form for the “slavery and human trafficking statement.” Therefore, it is at the discretion of businesses how they present the information and in what detail. Necessarily, the information in the statement will be determined by the sector of the business as well as the complexity of its structure and supply chains, or the particular sectors and countries in which its suppliers are located.

According to the Guidance, a statement should be: 1) written in simple, easy to understand language; 2) written in English, but optionally in other languages where relevant to the business and its supply chains; 3) succinct while still covering all the relevant points and providing appropriate links to relevant publications, documents or policies of the organization; 4) true and refer to actual steps undertaken or started; and, 5) specific as to actions taken on a country-by-country basis (where relevant) to help investors, consumers and the public understand the context of any actions or steps taken to minimize risks.

If a business already has in place corporate social responsibility or ethical trade activities, procedures or policies in place that address the issue of modern slavery to a degree, and that may have already been disclosed, they can be used and built upon. Also, links may be provided by a business to publicly available documents or policies published on their websites to support their slavery and human trafficking statement” narratives.

If a business has a website, it must publish the “slavery and human trafficking statement” on that website, and, include a link to the statement in a prominent place on the website's home page. If the business does not have a website, it must provide a copy of the statement to anyone who makes a written request for it within 30 days.

The Guidance also provides further details about when a business has more than one website. Regarding prominence of the link on the home page itself, according to the Guidance, a “prominent place” may mean a modern slavery link that is directly visible on the home page, or part of an obvious drop-down menu on that page. The link should be clearly marked so that the contents are apparent. The Guidance recommends a link titled “Modern Slavery Act Transparency Statement.”

The “slavery and human trafficking statement” must be approved and signed by a director, member or partner of the business. The person who is required to sign the statement depends on the type of organization. This is set out in more detail in the Act and also explained further in the Guidance.

Enforcement

Where for a particular financial year a business fails to comply, the (UK) Secretary of State (in effect a government Minister) can apply for an injunction through the High Court requiring the non-compliant business to comply (in Scotland, a different court and procedure applies). Failure to comply with the injunction will likely constitute contempt of court and the possibility of an unlimited fine. A business can be considered to have failed to comply if it has: 1) not produced a statement; 2) not published the statement on its website (if it has one); or 3) not set out the steps it has taken in the relevant financial year. A serious consequence for non-compliance is likely to be reputational damage, meaning that consumers might no longer buy a business's products or services, and investors might not invest in the business or not continue their investment.

What Can Be Done to Comply

As the compliance disclosure requirement is new, businesses are currently finding their way. While the Guidance is useful, it should be read with care, as it also describes best-practice areas that might not suit all businesses.

Making sure that those businesses affected by this compliance requirement introduce and maintain robust anti-slavery and human trafficking compliance practice, procedures and policies is important, including for reputational purposes. Work needs to be done not only in order to start, but also for the future as the requirement will continue annually. A number of initial actions can be taken including the following: 1) determine when the “slavery and human trafficking statement” has to be published; 2) undertake an internal business audit and a supply chain audit to determine slavery risk as regards locations and vendors, followed up by doing due diligence; 3) draft the “slavery and human trafficking statement” and ensure sign-off responsibility and tone from the top; 4) incorporate anti-slavery compliance into other policies and procedures, such as the code of conduct and procurement procedures; 5) draft anti-slavery clauses in supplier contracts; 6) train internally with a particular focus on areas such as procurement staff, and also train suppliers; and 7) set up whistleblowing mechanisms for raising and reporting slavery concerns.

Andr' Bywater is a commercial lawyer with Cordery in London, UK, where he focuses on regulatory compliance, processes and investigations. Reach him at [email protected].