The modern slavery act 2015: supply chain transparency duties now in force


Many of our clients across a range of sectors have been following the progress towards the implementation of section 54 of the Modern Slavery Act 2015, regarding transparency in supply chains, with interest. Our previous update explained the purpose and effect of the new rules, but for some time we have been waiting for commencement legislation to bring them into effect. The wait is now over, as the provision was brought into force on 29 October, by the Modern Slavery Act 2015 (Transparency in Supply Chains) Regulations 2015.

What does your business need to know?

The Regulations have triggered the duty for certain organisations to produce an annual slavery and human trafficking statement, either detailing the steps taken by the organisation to ensure that slavery and human trafficking is not taking place in any part of its business or supply chain, or explaining that no such action was taken.

The Government’s expectation is that businesses will be taking positive steps to address any potential risks in their supply chains. Negative statements simply stating that no action was taken are likely to have serious adverse reputational consequences for businesses, and will affect the confidence of consumers, customers and investors, for whom high ethical standards are of increasing importance.

Which businesses need to make a statement?

The duty applies to any body corporate or partnership that carries on a business, or part of a business, in the UK, supplying goods and services. The Regulations confirm that the turnover threshold before organisations will be subject to the duty is £36m; the rate announced by David Cameron in July. The Regulations explain how total turnover is to be determined. Importantly, it includes the turnover of the organisation itself and also the turnover of any subsidiary undertakings.

In effect, however, the duty has implications for all businesses, regardless of their size. Larger businesses caught by the duty will be expected to carry out due diligence on smaller businesses in their supply chain.  Therefore, while the turnover limit will impose the legal duty only on larger businesses, in practice all businesses will need to consider the risk of slavery and trafficking because smaller businesses will be asked to respond to the demands of their larger business partners.

If an organisation’s turnover were to dip below the threshold in a future financial year, the Government has said that it strongly recommends that businesses who have produced a financial statement in one financial year should continue to do so in future years, even if their turnover has decreased. The idea is for organisations to build upon earlier statements and to demonstrate that they are being transparent, not because they are required to do so, but because they recognise it as important.

What should the statement say?

In practical terms, the more significant publication yesterday was the UK Government guidance accompanying the Regulations. The Transparency in Supply Chains Practical Guide offers guidance on 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 these statements.

The Government has deliberately avoided dictating the precise content of statements. However, the Act itself provides a non-exhaustive list of information that may be included:

  • a brief description of the organisation's business model and supply chain relationships;
  • the organisation’s policies relating to modern slavery, including the due diligence and auditing processes implemented;
  • details of the due diligence processes in relation to slavery and human trafficking in its business and supply chains;
  • details of training available and provided to those in the supply chain management and  the rest of the organisation;
  • the principal risks related to slavery and human trafficking and an explanation of how the organisation evaluates and manages those risks internally and within its supply chain; and
  • relevant key performance indicators, which will assist anyone reading the statement to assess the effectiveness of the activities it describes. As the statements will be produced annually, performance indicators are likely to be useful in demonstrating progress from one year to the next. The choice of which measures to use will depend on the individual circumstances of the business.

How should the statement be presented?

The statement needs to be placed on the organisation’s website and there should be a prominent link on the homepage. The guidance notes that the statement will be a public-facing document, and should therefore be easily understandable and written in plain English. Beyond that, however, the Government has not prescribed the layout or specific content of statements. It is up to organisations as to how they present the information and how much detail they want to provide.

How soon must a statement be published?

The requirement to publish a statement commenced on 29 October 2015, but the Government recognises that many organisations will not be able to produce a statement immediately. There are transitional provisions to allow organisations enough time to understand the requirement and to produce a statement.

While the normal requirement is to publish a statement at the organisation’s financial year-end, businesses whose financial year-end is between 29 October 2015 and 30 March 2016 will not be required to publish a statement for the current financial year.

To ensure the information is relevant and accurate, the Government has said 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.

Businesses with a year-end of 31 March 2016 will be the first businesses required to publish a statement for their 2016/16 financial year. They must produce a statement covering the full financial year.

What happens if organisations fail to comply?

The duties imposed on businesses are enforceable by the Secretary of State, bringing civil proceedings in the High Court in England for an injunction, or in the Court of Session in Scotland for specific performance of a statutory duty.

However, in the short term at least, the real teeth of the publishing duty will lie in the adverse reputational impact on a business appearing to do nothing at a time when trafficking is at the top of the political and public agenda.  What is clear is that larger businesses that fail to publish a statement or only publish a statement saying that no steps have been taken run the risk of government enforcement or negative public, consumer and investor reaction.

If you would like to discuss the impact of the Modern Slavery Act on your business please contact Paul Marshall.