QEB Hollis Whiteman's Nadesh Karu examines Frank Field MP, Maria Miller MP and Baroness Butler-Sloss' 2nd interim report into their review of the Modern Slavery Act 2015.
When the Modern Slavery Act 2015 was passed it was considered ground-breaking. In an effort to ensure the UK stays at the forefront of the fight against modern slavery and trafficking, in July 2018 the Home Secretary announced a review of the Modern Slavery Act 2015.
The first interim report published in December 2018 addressed the role of the Anti-Slavery Commissioner. On 22 January 2019 the second interim report, which this article will focus on, was published addressing how to better ensure the transparency in supply chains of commercial organisations. A final report is due in March 2019.
At present, transparency in supply chains is governed by section 54 Modern Slavery Act 2015. In tandem with The Modern Slavery Act 2015 (Transparency in Supply Chains) Regulations 2015, it applies to all commercial organisations (corporate body or partnership) supplying goods or services that carry on all or part of their business in the UK with an annual turnover of £36 million. Section 54 requires that all such organisations prepare a slavery and human trafficking statement which must state either the steps that it has taken to ensure that slavery and trafficking is not taking place in its supply chains, or that it has taken no such steps.
The report in summary
Whilst the report praises the innovation of s.54, it notes fundamental problems in its scope, in terms of who it applies to and what it requires them to do. Further, these deficiencies are exacerbated by a lack of enforcement and penalties ultimately leading to the view that s.54 has had “limited” effect.
Nevertheless, the report provides a number of recommendations in an effort “to ensure compliance and drive up the quality of slavery and human trafficking statements produced by eligible companies”. In particular the report suggests standardising what the modern slavery statements should deal with and proposes real consequences for failure to do so. It also looks to the Australian Modern Slavery Act 2018, in respect of extending s.54 to apply to Government Departments and the Public sector, and the US Federal Acquisition Regulation in respect of companies’ eligibility for public contracts.
The report notes the language of s.54 itself creates an “ambiguity” as to whom it applies, contributing to over a third of eligible firms failing to comply with s.54. Section 54(1) states that it applies to “commercial organisations” and s.54(12) goes on to define those as partnerships or a body corporate “which carries on a business”, or part of a business in any region of the UK. However, as there is no definition for carrying on a business it is perceived that it is difficult to identify which companies are expected to comply with s.54.
The report recommends that “the Government should establish an internal list of companies in scope of section 54 and check with companies whether they are covered by the legislation”. However, it states that “non-inclusion in the list should not be an excuse for non-compliance.”
Interestingly, the report did not propose any further definition of “carrying on a business” and so whilst the above recommendation is a step forward one cannot help but feel it fails to strike at the root of the problem.
Quality of Statements
The report then goes on to acknowledge that even when companies attempt to comply with s.54 they often fall short. This is because s.54 allows companies to simply state that they have not taken any steps to address modern slavery in their supply chains, rather than addressing the issue.
Further, there is no real consistency in what their slavery and human trafficking statements must cover. Section 54(5) only requires that companies may cover six particular aspects. Unsurprisingly, the report found that that the “may” in s.54(5) should be changed to “must”, thereby standardising the areas to be covered in the human trafficking statement.
More fundamentally the report also recommends that it be made clear that companies must consider the entirety of their supply chains, or if not they should explain why and, again, what steps they will take in the future.
Whilst these recommendations are simple, if implemented they will result in significant improvements to the monitoring of companies, ensuring the spirit of s.54 is complied with, as well as the letter.
Embedding modern slavery reporting into business culture
Perhaps part of complying with the spirit of s.54, is the recommendation that there needs to be a shift in the perception of reporting modern slavery. Thus, the report recommends that the Companies Act 2006 should be amended to include a requirement for companies to refer to their modern slavery statement in their annual reports. Moreover, for those that are not covered by the Companies Act, s.54 should be amended to impose a duty on non-listed companies meeting the £36 million threshold.
To give this real teeth the report also recommends that businesses should be required to have a designated board member personally liable for the production of the statement and failure to produce a compliant statement should be an offence under the Company Directors Disqualification Act 1986.
Monitoring and enforcing compliance
The natural follow on from the above is who should monitor that compliance? The report recommends the Independent Anti-Slavery Commissioner; perhaps mindful that the current injunctive powers the Secretary of State has in relation to non-compliant companies have never been used. To that end the report recommends “a more robust and systematic approach” to non-compliance; involving warnings, fines (as a percentage of turnover), court summons and directors’ disqualification.
The other way to motivate companies is by making things public. Consequently, the report recommends that there “should be a central government-run repository to which companies are required to upload their statements and which should be easily accessible to the public, free of charge”. The report acknowledges that this would bring “clarity and consistency”.
Government and Public Sector
Government and the Public Sector are not immune to scrutiny either, as the report looks to the Australian Modern Slavery Act’s reporting obligations for the public sector. Accordingly, and one may assume in a bid to ensure that the UK maintains its word leading position, it recommends that s. 54 should be extended to the public sector. It also recommends that Government departments should publish a statement at the end of the financial year as should local government, agencies and other public authorities with an annual budget of more than £36 million. In fact, Baroness Young has put forward a Private Members Bill seeking to extend the reporting requirement to all public authorities.
Not satisfied with looking to Australia, the report also takes inspiration from the US, where companies vying for certain federal contracts must submit compliance plans and annual certificates regarding implementation of those plans and associated due diligence. With this in mind the report recommends that companies within the scope of s.54 that do not comply should not be eligible for public contracts.
The report pulls no punches in noting where the current provisions lack bite and provides a number of constructive recommendations which should ensure the UK remains a world leader in tackling and preventing modern slavery and human trafficking. One hopes that the final report in March will be equally incisive.