12 January 2016

Supply chain transparency – is your business ready?

The tail end of 2015 saw a number of businesses under scrutiny as a result of questionable practices in their supply chains.   New UK legislation requiring businesses to report what they are doing to clean up their supply chains means that businesses should be preparing now for a year that will see pressure for increased transparency across various sectors.

What is the scale of the problem?

According to the International Labour Organisation (ILO), there are 21 million people around the world currently subject to forced labour and in the UK that figure is estimated at 13,000 people.  According to the UN, modern slavery and trafficking is the second-largest criminal industry in the world, with the ILO estimating annual profits at $150 billion.

High risk sectors include retail, construction, manufacturing and agri-business.

The new reporting obligation

The new UK Modern Slavery Act 2015 (the MSA) represents the first European legislation aimed at 21st-century trafficking / forced labour and it requires businesses operating in the UK with a turnover of over £36 million to prepare and publish a “slavery and human trafficking statement” for each financial year.

What does the statement need to cover?

To meet the requirements of the MSA, the statement must describe the steps the organisation has taken to ensure that slavery and human trafficking are not taking place in any of its supply chains.

Whilst there are no specific requirements to follow on layout, content or level of detail. the MSA guidance encourages clear and informative statements that have considered:

  • the details of an organisation’s structure, business and supply chains taking into account the sectors and countries from which goods / services are sourced;
  • whether policies in relation to slavery and human trafficking exist;
  • details of due diligence processes in relation to slavery and human trafficking;
  • clarification of the parts of the business and supply chains where there is a risk of slavery and human trafficking taking place, including the steps taken to assess and manage that risk;
  • disclosure of relationships not just with suppliers but also trade unions and other bodies representing workers; and
  • training available to staff.

Whilst businesses can comply by publishing a statement that no steps have been taken, this approach risks attracting negative stakeholder, NGO and media attention.  In addition, it is likely that MSA statements will become commonplace in tender / contractual documentation – this means that a failure to engage could lead not only to lost business but also potential financial liability in the event an issue arises in the future. There may also be liability under foreign criminal laws, including Australia as discussed below.

Global reach of the new provisions

Companies are accountable for slavery and labour abuses occurring across their whole chain of operations. The idea is to ensure no slavery is linked to any UK products or services and to show consumers, investors and employees that companies are taking a proactive stance.

As a result, the MSA will apply to both UK and foreign companies that “carry on a business” in the UK.

Who must approve the statement and where must it be published?

Corporates must have the statement approved by their board of directors and signed by a director.

The statement must be published on the company’s website with a link in a prominent place on the homepage. For businesses with no website a copy must be available on request.    

When will reporting begin?

Businesses with a year-end of 31 March 2016 or later will be the first to be required to publish a statement.  The statement itself should be made as soon as reasonably practicable after the end of the financial year.

What are the penalties for failure to comply?  

If businesses fail to comply, the Secretary of State may seek an injunction / order through the High Court requiring the company to comply with any subsequent failure putting the company in contempt of court. 

What practical steps should business be taking now

It is critical businesses know their supply chains.  This will involve getting to grips with the operations of the business and the way it procures goods / services.  To assist in the preparation of the statement the following will need to be considered:

  • a supplier / supply chain risk assessment should be conducted to identify the full network of suppliers and areas of increased exposure within the business;
  • existing measures already in place in terms of transparency and preventing modern slavery taking into account wider recruitment, procurement, corporate social responsibility and ethical trading;
  • MSA provisions in policies / procedures and tender / contractual documentation;
  • supplier due diligence processes;   
  • delegate authority for supply chain transparency to a senior individual;
  • training and communication of organisational values across the business;and
  • a process of initial / ongoing due diligence should be implemented to monitor supplier compliance.

Full and proper compliance with the requirements of the MSA is not going to be a straightforward or quick process for business.  Consequently, swift action should be taken to ensure that when formal reporting is required (from April 2016) businesses are ready both to report and deal effectively with subsequent scrutiny and questions that may be raised by stakeholders, pressure groups and, quite possibly, competitors seeking an advantage.

Is this the start of a Global Trend?


Australia introduced anti-slavery and human trafficking offences into its Criminal Code in 1995, which were bolstered again in 2013.  In Australia, it is a crime, punishable by 25 years’ imprisonment, to engage in human trafficking, slave trading or to enter into a commercial transaction involving a slave.  In addition, causing another person into forced labour or conducting a business involving forced labour carries a maximum penalty of 12 years’ jail.  These laws apply universally to conduct within and outside Australia.

Australia’s laws also capture financing of such crimes.  An organisation will be criminally liable for intentionally or recklessly providing finance to “any commercial transaction” involving slavery.  Additionally, if a business involves servitude or forced labour, criminal liability arises automatic upon an organisation providing finance to it.  The provisions are broadly drafted so once a business has provided finance to another business, criminal liability can arise if that business or commercial transaction ‘involves’ slavery,  servitude or forced labour.

It may be possible to defend liability under the Criminal Code if the corporation has undertaken due diligence to prevent slavery like conditions in its supply chain, or to develop a corporate culture which does not permit the use of slavery like conditions. The work done by a company in preparing a slavery and human trafficking statement under the MSA will form a basis for the due diligence or corporate culture imperative under Australian law. Conversely, less robust statements may indicate the failure to take adequate steps to avoid the use of slavery like conditions in the supply chain and so act as evidence against the corporation.  Companies should consider their exposure to the Australian provisions and where necessary, have their MSA statements reviewed for liability issues prior to publication.

The Australian government has not imposed equivalent reporting laws to the MSA.  It is possible that Australia will be influenced by the UK’s new reporting requirements and, in the coming years, this is an area Australian businesses will be monitoring closely.

Hong Kong

Hong Kong makes it an offence to traffic persons to or from Hong Kong for prostitution purposes, carrying a maximum sentence of 10 years’ imprisonment.  This is the only offence under Hong Kong law that is specific to slavery and/or human trafficking.   The remainder of the Hong Kong anti-slavery and human trafficking regime comprises a patchwork of offences - for example, immigration / employment and the general criminal law.  Most of these trafficking-related offences are indictable offences for the purposes of the Organized and Serious Crimes Ordinance (Cap 455).  This Ordinance criminalises dealing in the proceeds of indictable offences.  It also makes it an offence to fail to make a disclosure to the Hong Kong Joint Financial Intelligence Unit where a person knows or suspects that property is the proceeds of an indictable offence.  Accordingly, a person who deals in or fails to report the proceeds of slavery or human trafficking may commit an offence in Hong Kong.

The United States of America

The Thirteenth Amendment to the United States Constitution makes involuntary servitude illegal in the United States. In addition, specific Legislation prohibiting involuntary servitude has been in place since 1948. In recent years, there have been significant enhancements to the U.S. Criminal Code targeting human trafficking, involuntary servitude and forced labour. The Federal Criminal Code outlaws a range of human trafficking and modern day slavery charges, some of which are punishable by up to 20 years in prison.  In 2012, President Obama issued Executive Order 13627 entitled “Strengthening Protections Against Trafficking in Persons in Federal Contracts”. This Order enhanced the responsibilities and duties of federal contractors and subcontractors to prevent human trafficking.

In addition to federal laws, certain state-laws have also been introduced to fight human trafficking. One of the most stringent is the California Transparency in Supply Chains Act, enacted in 2012.  With marked similarities to the MSA, this requires all retailers and manufacturers doing business in the state (whose annual worldwide gross receipts exceed $100 million), to report their implementation of anti-human trafficking compliance controls.  On the back of this, last year saw a series of lawsuits launched in California claiming that businesses that have since been linked to slave labour had deceived consumers through “inadequate” public disclosures.

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