UK Considers Ways to Boost Compliance with Modern Slavery Act

 

By Rosemarie Lally, J.D. April 5, 2019
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​As companies prepare to publish in June their fourth annual statements required by the United Kingdom's Modern Slavery Act of 2015 (MSA), the U.K. Home Secretary is considering ways to strengthen the act to increase corporate compliance.

An estimated one-third of organizations don't comply with the act, according to a January report by the U.K. Home Office's independent review of the MSA. The U.K. Home Office, a government agency responsible for securing the U.K.'s borders and controlling immigration, enforces the MSA.

Despite the low compliance rate, the MSA "has impacted how business is done in the U.K. and by multinationals in other countries by focusing firms' attention on modern slavery," said Michael Littenberg, a partner with Ropes & Gray in New York City. "Many firms, especially the larger ones that are more aware of their compliance obligations, have implemented processes and procedures to address potential problems in their supply chains." Supply chains include the people involved in the production of goods from raw components to the final product.

"Ignoring the MSA—and compliance by lip service—will soon carry the risk of sanction," predicted Simon Shooter, a partner with Bird & Bird in London. Financial penalties would be new; currently, there is no penalty for noncompliance.

The act requires commercial organizations with worldwide revenues of at least 36 million pounds (approximately U.S. $47.18 million) conducting business in the U.K. to publish an annual report describing steps taken in the past year to ensure their business and supply chains are free of slavery and human trafficking. Alternatively, companies must disclose if they have taken no such steps.

The disclosure requirement applies to financial years ending on or after March 31, 2016, and every year thereafter. There is no prescribed format for the disclosure statement, but guidance suggests that statements should address six elements:

1. Organizational structure and a summary of operations and supply chains.

2. All corporate policies relevant to slavery and human trafficking.

3. Due diligence policies relevant to modern slavery.

4. An assessment of the parts of a business or its supply chain where there is a risk that slavery is occurring and the steps taken to manage that risk.

5. How effective an organization has been in ensuring that slavery and human trafficking are not occurring.

6. Employee training about complying with the MSA.

Suggestions for the Government to Improve Compliance

The report suggested that many companies aren't complying because of a lack of enforcement and penalties, as well as confusion surrounding reporting obligations. Stating that the government must take tougher action to ensure companies are complying, the authors offered several recommendations:

  • Clarify the scope of the MSA. The government should maintain a list of companies covered by the regulation.
  • Require that companies document that they've addressed in their statements the six elements the act recommends.
  • Remove the option to respond that no steps have been taken.
  • Require businesses to refer to their statements in annual reports.
  • Require companies to upload their statements to a government-run website.
  • Monitor compliance and amend the law to introduce financial penalties over the next few years.
  • Extend the MSA's scope to cover public entities whose annual budgets exceed 36 million pounds.
  • Deny public contracts to noncompliant companies.

Shooter expects that the U.K. government will adopt the report's recommendations. He said that "the most significant fix in terms of getting businesses to take their obligations more seriously is the imposition of sanctions."

Littenberg doesn't think legislative fixes are necessary. "Instilling a greater awareness of the problem is the most important thing," he said.

"It's important not to just focus on disclosure, but to step back and examine your supply chain, assess the risks and determine how they can be addressed," Littenberg said. "This is not a 'once and done' issue."

Jacquelyn MacLennan, an attorney with White & Case in London, noted that "even without strict penalties, the requirement to report under the act has been a catalyst for conversations and awareness on this issue." Formulating a statement requires board-level approval and engagement at the most senior levels of a company, she said. "Many companies have found additional benefits in diving deeper into their supply chains and identifying risks."

[SHRM members-only toolkit: Introduction to the Global Human Resources Discipline]

Recommendations for Covered Companies

To comply with the MSA, "prepare an annual statement, have it signed by appropriate persons and approved by the board, consider the six recommended topics outlined by the Home Office, and determine your firm's effectiveness in addressing each one," Littenberg said. Pay attention to commentary from nongovernmental organizations on how they think efforts should be focused, he added.

"I would recommend businesses draw up their own anti-slavery and human-trafficking policy or corporate statement," Shooter said.

Littenberg urged businesses to remember that MSA is one specific initiative in an international patchwork of efforts to address modern slavery. For example, similar efforts are underway in Australia, Canada and California in the U.S., as well as implemented through trade-based U.S. legislation, such as the Smoot-Hawley Tariff Act and the Countering America's Adversaries Through Sanctions Act. "We need to think about the problem holistically, not just focus on this one law," he said.

Rosemarie Lally, J.D., is a freelance legal writer based in Washington, D.C.

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