U.K. now requires supply chain transparency on human trafficking risks

In Part I of our two-part series, we discussed the worldwide issue of modern-day slavery and the California response. In this second part, we discuss the latest response in the United Kingdom. 

The United Kingdom Modern Slavery Act 2015 is new legislation passed in the United Kingdom with the purpose of combatting slavery and human trafficking. The Act applies to any entity that: 

1. Is a commercial organization (regardless of where the entity is incorporated or organized);
2. Supplies goods or services;
3. Has a global turnover of at least £36 million per year; and 
4. Carries on a business or part of its business in the U.K.

“Turnover” means the amount derived from the sales or other provision of goods and services falling within the ordinary activities of the commercial organization or subsidiary after deduction of trade discounts, value-added tax and any other taxes based on the amounts so derived. Further, guidance from the Home Office (the lead U.K. government department for immigration and passports, crime, counter-terrorism and police) provides that the relevant test for whether a company is “doing business” in the U.K. is whether or not the business in questions has a “demonstrable business presence” in the U.K. Whether or not a company has a demonstrable business presence in the U.K. will be reviewed on a facts and circumstances basis applying a common sense approach, but is expected to be interpreted broadly.  

The Act requires businesses subject to the Act to publicly state the activities they engage in to ensure that their business and supply chain are free from human trafficking and slavery (a “Section 54 Statement”) at least annually. 

The Section 54 Statement must, at a minimum: 

• List the steps the organization has taken during the financial year to ensure that slavery and human trafficking are not taking place in any of its supply chains and in any part of its own business; or 
• State that the organization has taken no steps to ensure the business and supply chain are not engaged in slavery or human trafficking.

Home Office guidance suggests the Section 54 Statement be written in simple language so as to be accessible to everyone and, while being concise, also cover all the pertinent information and include links to relevant publications, documents or policies. Guidance further suggests that a Section 54 Statement should include information about the following:

• The organization's structure, business and 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; and
  
  
• The training about slavery and human trafficking available to its staff.

A Section 54 Statement must be approved by the company’s board of directors, published on the company’s website and appear via a link in a “prominent” place on the website’s homepage. The deadline for publishing a company’s first Section 54 Statement is within six months of the first fiscal year end that falls after March 31, 2016.

Unlike the California Transparency in Supply Chains Act, if a covered company under the Act does not publish a Section 54 Statement, the Home Secretary can seek an injunction in the High Court to require the company to do so. If the company fails to comply with the injunction, it will be held in contempt of court and liable for an unlimited fine. 

As we stated previously, whether or not your company is subject to the current laws on trafficking and slavery, consider whether your company should begin accounting for risks of human trafficking and slavery in its supply chain. You can do this by requesting certifications in requests for proposals and representations and warranties in supply contracts and work orders, especially if the company’s operations create risk for supply chain issues.

Rich Reinis is a Corporate and Securities attorney in our Los Angeles office.