At first sight it seems unlikely that a new piece of legislation dealing with measures to combat slavery and human trafficking would have anything to do digital business.

The main purpose of the new Act is to introduce requirements which are intended to eliminate slavery and trafficking in global supply chains.  It has the same wide-reaching ethical remit for UK companies as regards slavery and trafficking as the UK Bribery Act 2010 provides in the field of bribery and corruption.

The digital business implications arise by virtue of the requirement for publication on websites of an annual slavery and human trafficking statement (a “Statement”).

When will it apply?

Section 54 of the Modern Slavery Act came into force on October 29 2015. It applies to businesses, trades and professions (both bodies corporate and partnerships) which:

a) Are based inside or outside the UK and carrying on business within it;
b) Supply goods or services and have a turnover (after deduction of trade discounts, value added tax and certain other taxes) of more than £36million (including the turnover of the organisation’s subsidiary undertakings, wherever operating); and
c) Have a financial year ending on or after 31 March 2016 (organisations with a financial year ending after the implementation of Section 54 but before 31 March 2016 need not comply with the reporting requirement until their next financial year has ended BUT it may still be worthwhile considering what practical steps can be taken before that to put in their first Statement).

How to comply?

The minimum that organisations must do is to publish a Statement on their website (with a prominent link to that Statement on the website’s home page) detailing what steps they have taken to combat slavery over the past financial year, in all parts of their supply chain and all parts of their business.

The contents of this Statement, are not prescribed by the Act. It may include details about:

a) the organisation’s structure, business and its supply chains;
b) its policies in relation to slavery and human trafficking;
c) its due diligence processes in relation to slavery and human trafficking in its business and supply chains;
d) 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;
e) 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;
f) the training about slavery and human trafficking available to its staff.

The government issued guidance on this issue, under section 54(9) of the Act, on 29 October.  The guidance explains “how the Government expects organisations to develop a credible and accurate slavery and human trafficking statement each year and sets out what must be included in a statement” (emphasis added).  Although the Act itself is not prescriptive, as explained above, the guidance is in effect likely to be seen by consumers and NGOs as setting out the minimum standard, and organisations that fail to meet this standard are likely to come under closer scrutiny.

Organisations are encouraged to publish the Statement within six months of the end of the financial year to which the Statement relates.    If the organisation publishing the Statement is a body corporate (other than a limited liability partnership), the Statement must be approved by its Board of Directors (or equivalent management body) and signed by a director (or equivalent) before being published.    There are different approval requirements for limited liability partnerships, limited partnerships and partnerships.

International Reach

Section 54 applies to any “body corporate (wherever incorporated) which carries on a business, or part of a business, in any part of the United Kingdom”

This wording is the same as can be found in Section 7 of the Bribery Act 2010 (Failure of Commercial Organisations to Prevent Bribery), so the intention is to give the UK a broad international jurisdiction in this area. However, the guidance notes make it clear that a common sense approach will be applied when determining whether an organisation has a “demonstrable” business presence in the UK.

A parent company with a subsidiary in the UK will not automatically be caught, as it is possible for a subsidiary to act entirely independently.    However, this may not be easy to prove and the prudent approach in this situation is likely to be for the parent company to publish a Statement if its turnover exceeds the relevant threshold. If any non-UK subsidiary is part of a parent company’s supply chain or own business and the parent company is required to publish a Statement by the Act, then regardless of whether that subsidiary separately meets the relevant turnover requirements, the parent company’s Statement should cover any actions taken in relation to that subsidiary to prevent modern slavery.     Parent companies are advised that ignoring the actions of non-UK subsidiaries would be seen as bad practice, particularly if they operate in high-risk geographies or industries.

In practice, the following examples may be useful to understand the reporting obligations on international companies and group companies:

Eg. 1: A UK subsidiary company, Bigbrands UK, has a turnover of £25million. Its US parent company, Bigbrands Global, has a worldwide turnover of £250million.

Reporting obligations:  unless it is possible to show that Bigbrands UK is operating independently and that Bigbrands Global is not separately carrying on all or part of its business in the UK, Bigbrands Global will have to publish a Section 54 Statement, because it carries on business in the UK. Bigbrands UK will not have to publish a Statement because it does not meet the turnover threshold. However, it may be advisable to publish the Statement issued by the parent company.

Eg. 2: Hugetech UK has a turnover of £40m. Its parent, Hugetech Global, has a worldwide turnover of £400m.

Reporting obligations: unless it is possible to show that Hugetech UK is operating independently and that Hugetech Global is not separately carrying on all or part of its business in the UK, Hugetech Global will have to publish a Section 54 Statement. Hugetech UK will also have to publish a Section 54 Statement.    Hugetech UK could amend and re-publish the Statement issued by its parent company.    Alternatively, Hugetech Global’s Statement could include the steps that both it and Hugetech UK have taken and Hugetech UK could then re-publish the same Statement (both organisations would need to separately approve and sign the Statement).

Eg. 3 Hugetech Global has another subsidiary, Hugetech Risk, which operates in manufacturing in high-risk geographies. It has a turnover of £45m but is an independent business and does no business in the UK.

Reporting Obligations:   See Eg.2 for Hugetech Global’s reporting obligations generally.    There is no absolute reporting obligation on Hugetech Risk, as it does not meet the test of carrying on business in the UK. However it would be seen as good practice either for it to publish its own Statement, or for Hugetech Global to include details of its anti-slavery actions in its Statement.

How is it enforced?

The only power of enforcement given to the Secretary of State is the power to apply to the courts for an order requiring an organisation to publish a Statement in accordance with section 54. In reality, the practical effect of this power of enforcement is likely to be to create adverse publicity.

Practical Steps

The first step organisations should take is to review their risk profile regarding human trafficking and slavery and identify the parts of the business and supply chain that are most susceptible to it. From that point on we might recommend they take the following actions:

– Identify any high-risk geographies and product sectors in which the organisation or its suppliers do business, perhaps referring to third party sources such as the Global Slavery Index;
– Establish and regularly review clear supply chain due diligence and audit processes designed to identify and eliminate any slavery or trafficking;
– Consider appointing one of the specialist external auditors of supply chain compliance;
– Consider specific training for employees who are at a risk of exposure to slavery and trafficking, such as buyers or those working in high risk areas;
– Draft and regularly review a specific policy regarding these issues;
– Review any other policies that could be related, such as the policies on bribery and corruption and human rights;
– Introduce standard terms with suppliers to make sure these policies are being enforced throughout the supply chain;
– Appoint a compliance officer who will be tasked with monitoring and enforcing the relevant policies;
– Introduce a set of performance indicators to measure the effect of any anti-slavery actions undertaken.

Bird & Bird
January 2016