Companies are paying increased attention to the Transparency in Supply Chains provision contained in the U.K. MSA, which is aimed at requiring companies to root out modern slavery. Those obligated to comply must prepare and publish a slavery and human trafficking statement for each financial year. 2017 is the first year when all organisations to which it applies must publish a statement.
The Transparency in Supply Chains provision in the U.K. MSA applies to any commercial organisation in any sector, which supplies goods or services, and carries on a business or part of a business in the U.K., with a total annual turnover of £36 million or more. As such, any company or partnership that does business in the U.K., even if established outside the U.K., must publish a compliant modern slavery and human trafficking statement this year.
The requirement to publish a statement commenced on 29 October 2015, however, pursuant to the MSA’s transitional provisions, businesses with a year-end between 29 October 2015 and 30 March 2016 were not required to publish a statement for that financial year. Businesses with a year-end of 31 March 2016 were the first businesses required to publish a statement for their 2015-16 financial year.
This year is the first year when all companies or partnerships to which the MSA applies must publish a statement, and while there is no specified deadline for publishing a statement within the MSA, the Government guidance states that it expects organisations to publish their statements “as soon as reasonably practicable after the end of each financial year in which they are producing the statement.”
What are the Legal Requirements?
The MSA requires that:
- Statements must be published on the organisation’s U.K. website with a link in a prominent place on the U.K. homepage.
- Statements should be approved by the board of directors (or equivalent management body) and signed by a director (or equivalent).
The statement must also include “the steps the organisation has taken during the financial year to ensure that slavery and human trafficking is not taking place in any of its supply chains, and in any part of its own business.” If the organisation has taken no steps, the statement should say so.
The MSA also states that the statement may include information about:
- 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 about slavery and human trafficking available to its staff.
The U.K. Government has produced guidance to accompany the legislation, which provides further details on how it expects organisations to develop a credible and accurate slavery and human trafficking statement.
What are the Penalties for Non-Compliance?
If an organisation fails to publish a statement for the financial year, the U.K. Secretary of State may seek an injunction requiring compliance. Failure to comply with that injunction could result in an unlimited fine; however, the real purpose behind the Transparency in Supply Chains provision is to increase transparency by ensuring the public, consumers, employees, and investors know what steps an organisation is taking to tackle modern slavery. As such, the true impact of failing to comply is more likely to be reputational with the consequential adverse implications for consumer and investor goodwill.
Final Thoughts
Analysis of many of the Statements published pursuant to the MSA has revealed that a large number of companies are non-compliant. Some statements are not signed; some are not published in a prominent position on the organisation’s website, and others fail to state what steps have been taken to identify and eradicate modern slavery in its own organisation or supply chains. Most only provide information on the optional requirements that the MSA suggests might also be included.
It appears that some organisations have simply rushed to produce some sort of statement and have not carried out any particular due diligence on their supply chains or even on their own businesses. As the former Home Secretary, and now Prime Minister, Theresa May stated in the foreword to the Government guidance on the MSA “it is simply not acceptable for any organisation to say, in the twenty-first century, that they did not know. It is not acceptable for organisations to ignore the issue because it is difficult or complex. And it is certainly not acceptable for organisations to put profit above the welfare and well-being of its employees and those working on its behalf.”
Recently, a bill sought to amend the MSA by proposing that companies that were not sufficiently transparent about their efforts to protect human rights and, in particular, failed to publish a compliant Statement, be barred from receiving Government business. This has stalled on its way through parliament. However, there remains a degree of government support for some form of amendment in this regard.
Given the potential reputational risks, our advice is that companies not only publish the legally required statements, but also ensure that they have taken concrete steps to assess and address the modern slavery risks within their own businesses and supply chains.
Crowell & Moring lawyers have experience in assisting companies with MSA compliance, and more broadly in auditing and reviewing supply chains for compliance with a range of legal obligations.
For more information contact: Michelle Linderman, Jeff Snyder, Jana del-Cerro, Gordon McAllister