The UK Government (the “Government”) has recently brought in new measures to the House of Lords and House of Commons in order to enact them as law under the Modern Slavery Act 2015 (the “MSA”). These proposed changes would affect large businesses and public bodies, placing requirements on them to take active steps against modern slavery.
BACKGROUND
Modern slavery is known as severe exploitation of a person or more persons for personal or commercial gain. Examples of exploitation are human trafficking, forced labour, debt bondage, and the slavery of children.
In 2018, the Home Office assessed the MSA through an independent review (the “Review”). The Review examined whether the MSA was sufficiently effective or not and if not, what steps could be taken to make it more effective and up to date. Following the Review, pure statements against the modern slavery of government bodies, businesses and supply chains were considered as insufficient actions. Therefore, the Government proposed a public consultation (the “Public Consultation”) which took place in July 2019 to seek feedback on improving the MSA, in particular, section 54 concerning supply chains transparency (a disclosure of information to trading partners in preventing modern slavery). Businesses, public bodies, investors, and civil society provided their views and thoughts with an expectation to strengthen section 54 of the MSA.
KEY CHANGES
Following the Public Consultation, the Government responded in September 2020 by introducing new and ambitious measures for large businesses and public bodies to adopt in order to handle slavery risks, especially in supply chains. In addition, the Government highlighted that both public bodies and companies need to take action against modern slavery; statements alone in response to modern slavery are simply not enough.
The Government accepted most of the recommendations in the September consultation, with key changes as follows:
- extending reporting requirements to public bodies with a budget threshold of at least £36 million;
- mandating specific aspects or topics that modern slavery statements made by public bodies and businesses must cover;
- requiring the publication of modern slavery statements to be on the new Government-run registry as soon as it has been launched;
- setting a single reporting deadline which is 30 September, following a one year reporting period (1 April to 31 March) and additional six months for a preparation; and
- imposing financial penalties for failure of these obligations.
NEW OFFENCES AND REQUIREMENTS
The Government has now brought these measures into legislative action by introducing the Modern Slavery (Amendments) Bill (the “Bill”) to the House of Lords.
The proposed changes in the Bill cover new offences and requirements, in particular making it a criminal offence to include false information in modern slavery and human trafficking statements (section 54ZA).
The Bill seeks to propose that a responsible person for the modern slavery and human trafficking statement commits this criminal offence if:
- that particular statement is false or incomplete in a material aspect or significantly affect’s a reader’s understanding; and
- a person either knows or is reckless as to whether the statement is false or incomplete.
A responsible person includes:
- company directors, in any corporate entity other than a limited liability partnership;
- members of limited liability partnerships; and
- partners of partnerships.
Responsible persons may defend themselves if they can prove that they took all reasonable steps to ensure the accuracy of the modern slavery and human trafficking statement. They also have to demonstrate that they have informed the Independent Anti-Slavery Commissioner as soon as they were aware of the false or incomplete information contained in that particular statement.
A successful conviction could lead to:
- a fine in an amount up to 4% of global turnover of the offending corporate entity, up to a maximum of £20 million; and/or
- two years’ imprisonment or less.
The Bill also makes it a criminal offence for entities from continuing to source from supply chain participants after a formal warning (section 54ZB). Large corporate organisations could be issued a formal warning by the Independent Anti-Slavery Commissioner under section 41(3)(g) if their suppliers or sub-suppliers failed to implement minimum standards of transparency. Minimum standards of transparency include actions such as additional reporting requirements and specific reporting topics to be covered in the public statement. In this case, organisations need to stop sourcing from their supply chains; otherwise, they could be committing a section 54ZB offence if they continue to do so and if found guilty, face a fine of up to 4% of their global turnover up to a maximum of £20 million.
Finally, the Bill introduced three further requirements regarding transparency disclosures, which companies have to comply with (section 41(5A)):
- publish and verify information about the country of origin of sourcing inputs in its supply chains;
- arrange for credible external inspections, external audits, and unannounced external spot-checks; and
- report on the use of employment agents acting on behalf of an overseas government.
NEXT STEPS
The UK, through implementation of the MSA, has been heralded as the first country globally to regulate large businesses to address and report risks of modern slavery in their operations and supply chains.
If this Bill is brought into force, it will raise more legal and reputational risks for businesses and multinational corporations domiciled or operating in the UK. Affected firms will also need to navigate human rights regimes carefully across jurisdictions to ensure they are taking a consistently serious approach across the board.
PRACTICAL TIPS
Covid-19 and travel restrictions have accelerated modern slavery risks and challenged fund managers and investors to assess risks associated with their investments. In the global investment market, investors are keen to check the transparency of their investments; otherwise, their investments would involuntarily fund modern slavery.
Companies may fail to meet the MSA requirements if they do not update their modern slavery statement each year. This change, therefore, improves the corporate management practice by ensuring both public and private sectors remove modern slavery from their businesses and supply chains.
The Government’s response on the Transparency in Supply Chains Consultation can be accessed through this.
To view the Modern Slavery (Amendments) Bill, please click here.
For more information, and any guidance or advice on modern slavery, Cleveland & Co External in-house counsel™, your specialist outsourced legal team, are here to help.
