Our Commercial IT and Outsourcing team looks at the transparency measure in the Modern Slavery Bill, the effect this may have on businesses and how businesses can prepare themselves...
"..the Modern Slavery Bill…will require all businesses over a certain size to disclose what steps they have taken to ensure their businesses and supply chains are slavery free", Teresa May, Modern Slavery and Supply Chains Consultation, 2 February 2015.
The Modern Slavery Bill had its Third Reading in the House of Lords on 4 March. Only a minor amendment was proposed to the clause on Part 6: "Transparency in Supply Chains etc". The bill is due to receive Royal Assent during March 2015.
The bill is one of the first of its kind (in the UK and worldwide) to address the issue of modern slavery. Key provisions include:
- the consolidation of the current offences of slavery and human trafficking into a single Act of Parliament;
- lengthening of the maximum prison sentence for these crimes from 14 years to life imprisonment; and
- establishment of a new Independent Anti-Slavery Commissioner.
Following debate and campaigning from Parliamentarians, businesses and pressure groups such as Liberty, the bill now contains Part 6 which compels certain businesses to publish the steps they have taken to ensure that slavery and human trafficking is not taking place within their organisations or supply chains.
What does Part 6 say?
Part 6 requires a commercial organisation to prepare a slavery and human trafficking statement for each financial year.
Who does this apply to?
It applies to any commercial organisation:
- which supplies goods or services; and
- has a total turnover of not less than an amount prescribed by regulations made by the Secretary of State.
In this context, a commercial organisation can be either a body corporate or partnership (wherever incorporated or formed) which carries on a business or part of a business in any part of the UK.
That means it could cover both UK-based and non UK-based companies which carry on all or part of their business in the UK.
What is a slavery and human trafficking statement?
- of the steps the organisation has taken during the financial year to ensure that slavery and human trafficking is not taking place:
- in any part of its own business, or
- in any of its supply chains; and
- a statement that the organisation has taken no such steps.
This is a potentially onerous obligation. To make an "option (a)" statement, a company affected (particularly one with global operations) will need to commit significant amount of resources to undertake due diligence into all of its supply chains and all of its business (regardless of location) so as to demonstrate the steps it has taken.
The alternative "option (b)" will be unattractive to those companies conscious of the public backlash which will inevitably result from such a statement. However it is at least an option which may be useful for businesses who feel they can disregard public reaction/reputation concerns or who consider the risks are low for that particular business.
How does this affect your business?
The Home Office consultation is designed to establish which organisations should be caught by these provisions.
While the Home Office has been clear that the intention is to catch large organisations (i.e. those with the resources to undertake the level of due diligence which will be required and which will be able to exert meaningful influence on their supply chains), the consultation document does identify the following possible turnover thresholds:
- £36 million (being a threshold cited in the Companies Act 2006 for determining the size of a large company);
- £250 million;
- £500 million;
- £1 billion.
If set as low as £36 million, some 12,000 UK companies would be caught.
The consultation document adds clarity to how turnover will be calculated - it will be calculated on the organisation's total worldwide turnover. That means that for an organisation carrying on all or part of its business in the UK, the total turnover of its entire business (including its subsidiaries) will be taken into account.
Taken to its extreme, this could result in a UK parent company which carries on business in the UK having to issue a statement and each of its subsidiaries (which in their own right meet the threshold) issuing statements.
When will the supply chain clause take effect?
The consultation closes at 11:45pm on 7 May 2015.
The Government will then publish a response and set the turnover threshold to determine the businesses to be caught by the bill.
Secondary legislation and guidelines will then be drafted so that businesses are prepared for the supply chain clause to commence in October 2015.
How can your business prepare?
- Read the Government's consultation paper;
- Respond to the consultation or ensure your trade association responds;
- Consider the steps you made need to take to comply:
- Research the practices of current and future contractors and sub-contractors and identify jurisdictions or types of suppliers who present most risk;
- Review current procurement practices and consider checks, audits, changes to contracts and internal and external policy;
- Consider how important this obligation will be - as a business do you consider the reputation issues to be important, what level of risk is there in your supply chain and on what basis have you formed that judgement?
- Report to the board and ensure that the bill is discussed at director level; the Government may include a requirement for boards to sign the slavery and human trafficking statement so that the issue is taken seriously.
REMEMBER that businesses can comply with the Modern Slavery transparency requirements by simply stating that no steps have been taken to ensure their supply chain is free from slavery.
Ultimately, it will be a question for each individual business whether they act positively towards the requirements of the Modern Slavery bill or risk potential damage to reputation.