By John Bray
Director, Singapore Office of Control Risks
The UK government is planning amendments to the Modern Slavery Act (2015). As discussed in my earlier blog article on Australian anti-slavery legislation, the move towards tighter regulation is part of a global trend. Despite the many distractions associated with Brexit, we expect the UK amendments to be presented to parliament in the course of 2020.
The key features of the revised legislation will include:
- The amendments will reinforce the existing requirement for medium and large companies to issue annual statements on their measures to combat modern slavery in their supply chains.
- They will include more detailed reporting requirements, as well as the introduction of a single reporting deadline, and the creation of an online registry to hold all Modern Slavery statements.
- They will make it easier for both government and civil society to monitor companies’ compliance. Companies that fall short risk public naming and shaming. In future they may also face monetary penalties.
The significance of these changes extends beyond the UK: the UK’s approach to Modern Slavery is widely regarded as a model and may inspire similar reforms elsewhere.
The UK Modern Slavery Act applies to any company that “carries on a business, or part of a business, in the UK” and has an annual turnover of more than GBP36m. Such companies are required to issue an annual statement on their measures to address the risk that modern slavery and human trafficking are taking place in their supply chains. The statement must be approved by the company board or equivalent, and it must be accessible via a link on the company’s Internet home page. The Act presents a set of recommendations on the issues that should be addressed in the annual statement, but these are not formal requirements. There is no statutory penalty for failure to comply.
The Act can be considered a success in that it has indeed raised awareness, including in company board rooms. However, company statements vary widely in their quality, and there are still a number of firms who have failed to issue any statements at all. The UK Home Office has written twice to the estimated 17,000 companies who fall within the scope of the Act to remind them of their obligations. Meanwhile, other countries – notably Australia – either have introduced their own legislation or are in the process of doing so.
In July 2018 the government commissioned an Independent Review of the Act, which was led by three senior parliamentarians, and this was completed in March 2019. The government issued its response in July, accepting many of the Independent Review’s recommendations. It also launched a public consultation on further possible reforms, and this closed on 17 September.
Future reporting requirements
The amendments that the government has already approved in principle include the introduction of a single reporting deadline for all companies covered by the Act, and the creation of an online government registry to hold all company statements. These measures will make it easier for both government and civil society to monitor companies’ compliance as well as the quality of their reports.
Meanwhile, the public consultation has raised a question about the items that should be included in companies’ statements. In its current wording, the Act states that companies may cover the following items, but none of these is a formal requirement:
- The organisation’s structure, its business, and its supply chains;
- Its policies in relation to slavery and human trafficking;
- Its due diligence processes in relation to slavery and human trafficking in its business and supply chains;
- The 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;
- Its effectiveness in ensuring that slavery and human trafficking is not taking place in its business or supply chains, measured against such performance indicators as it considers appropriate;
- The training and capacity building about slavery and human trafficking available to its staff.
Depending on the outcome of the consultation it is likely that companies will in the future be formally obliged to address each of these headings in their statements. They will also be encouraged to explain their plans for future progress, preferably including measurable targets. These requirements and recommendations will be included in the government’s revised guidance on the Act, which will be issued in the course of 2020.
Potential penalties for failure to comply
At present companies face no penalty for failure to publish a statement, or for publishing one that is inadequate. However, the Home Office is currently carrying out an audit of compliance and states that “non-compliant organisations risk being publicly named”. Furthermore, government agencies have discretionary power to exclude companies that do not comply with the Act from public tenders. The Crown Commercial Service has already exercised this power.
The public consultation shows that the government is considering further options. One possibility would be the introduction of a “variable monetary penalty”. This would be a civil penalty rather than a criminal one. The new penalty would come into force a year after the introduction of any revised reporting requirements.
Outlook: the need for a “proportionate” approach
The proposed amendments to the Act will be phased in order to allow organisations time to prepare. The government acknowledges that the 17,000 companies covered by the Act vary widely in the nature of their exposure and their levels of maturity: it will therefore “want to ensure a proportionate approach to enforcement and compliance”.
The word “proportionate” should not imply complacency. At a minimum, companies need to map out their supply chains to identify their area of greatest exposure. These will not necessarily be in distant jurisdictions with weak governance records: it is important to check whether – for instance – the providers of office cleaning services in major Western cities are providing their employees with a ‘real living wage’ (In London the ‘real living wage is defined as £10.55 per hour). Companies need to be able to demonstrate that they have taken such factors into account when choosing suppliers, and that they have effective strategies for enforcing their own standards.
Both government and civil society are placing companies on notice that their supply chains face closer public scrutiny than before. It is time to respond.