The UK Government has published guidance¹ on the transparency in supply chains provision of the Modern Slavery Act. Starting with those with a year-end of 31 March 2016, all organisations with a turnover above £36m will be required to publish an annual statement on their actions to ensure that there is no slavery or human trafficking in their business or supply chains.

This updates our previous briefing published in July.  

The annual statements are intended to ensure that the public, media, consumers, employees and investors know what steps an organisation is taking to tackle modern slavery, thereby generating pressure and competition to drive up standards, and levelling the playing field between those who already act responsibly and those who do not. Checking and reporting is not only a matter of law – it is a matter of reputation for your company too.

Who must comply

The requirement to publish an annual statement applies to all corporate bodies and partnerships (wherever incorporated or formed) which: supply goods or services; and carry on a business or part of a business in any part of the UK; and have a global annual turnover of or above £36 million. Turnover is calculated as the turnover of the organization and of any of its subsidiaries, including those operating wholly outside the UK.

‘Carrying on a business’

The Government expects that the scope of this will be defined by applying a common sense approach. An organisation will be caught if it engages in commercial activities irrespective of the purpose for which profits are made.

Non-UK companies

Whether the provision applies to organisations incorporated or formed outside the UK is also subject to a common sense approach: the guidance expects that this will mean that organizations that do not have a demonstrable business presence in the UK will not be caught. Having a UK subsidiary will not in itself mean that a parent company is carrying on a business in the UK.

Franchises

In determining the total turnover of a business operating a franchise model, only the turnover of the franchiser will be considered. But franchisers may wish to consider the impact on their brand of the activities of their franchisees and to report on the steps taken to ensure the franchise as a whole is free from modern slavery. Franchisees over the £36m threshold must produce a statement in their own right.

Parents and Subsidiaries

Each parent and subsidiary (whether based in the UK or not) that meets the requirements must make a statement in their own right. If a foreign subsidiary is part of the parent company’s supply chain or own business, the parent company’s statement should cover any actions taken in relation to that subsidiary to prevent modern slavery.

More generally, parent companies are recommended to include the actions of their non-UK subsidiaries, particularly those in a high-risk industry or location. Where a foreign parent is carrying on a business or part of a business in the UK, it is required to produce a statement.

Annual Statements

Content

The government has not prescribed the layout or content. But statements must include all the steps taken during the financial year to ensure slavery and human trafficking is not taking place in any part of the business or in any of its supply chains. This will be determined by the organisation’s sector, the complexity of its structure and supply chains, and the particular sectors and nations its suppliers are working in.

Timing

To allow organizations time to prepare, the first required to publish a statement will be those with a year-end of 31 March 2016, for their full 2015-16 financial year. Organisations are expected to publish their statements as soon as reasonably practicable, and within six months, after the end of each financial year.

Approval

To ensure senior level accountability and the fostering of a culture of zero tolerance for modern slavery, the statement must be approved by the board and signed by a director; or by the members and signed by a member; or by a general partner or partner, as appropriate to the type of organisation. In order to get the board ready to assume this responsibility it is a good idea to include this Act in the regular board training.

Publishing

The statement must be published on an organisation’s website.

Penalties

The only legal sanction for not publishing a slavery and human trafficking statement is civil proceedings taken by the Secretary of State for an injunction to require a company to publish a statement, or order for specific performance of a statutory duty in Scotland. But the reputational damage of failing to detect profits from slavery and human trafficking are huge and growing.

What businesses need to do now

• Nominate a suitable department/individual to oversee compliance with the Act. 
• Conduct an audit of the business and supply chains so that resources are focused in the highest risk areas: particular risks to consider include country risks, sector risks, transactions and business partnerships. 
• Review current policies or draw up new ones: policies should include on-going due diligence processes that should be proportionate to the risk, the level of influence the organisation has, and informed by the risk assessment. 
• Training: develop and provide tailored training for staff, suppliers and agents, in particular those responsible for supply chain management and procurement, as well as for the board. 
• Key performance indicators: identify measures that will help demonstrate progress and that can be set out in the annual statement. 
• Draft statement: prepare a first draft to help to identify any gaps where early action is required.