The Modern Slavery Act 2015 ("MSA") received royal assent in March 2015, but one of its most important provisions only recently came into force at the end of October.
The provision in question is section 54; this provides that com organisations which satisfy particular criteria must prepare a slavery and human trafficking statement for each financial year.
However, what businesses are classed as a "commercial organisation". and what exactly should be contained within a "slavery and human trafficking statement"? To answer these questions, it is useful to remind ourselves of why the Modern Slavery Act was brought into force in the first place.
What are the aims of the Modern Slavery Act?
In simple terms, the Modern Slavery Act is aimed at combating the crimes of slavery and human trafficking. Section 54 of the Modern Slavery Act acknowledges that businesses have a role to play in achieving this aim, by taking steps to ensure such crimes do not occur within their own organisations or supply chains and being transparent about what these steps are.
Who does section 54 apply to?
Under the Modern Slavery Act, a "commercial organisation" is defined as any partnership or body corporate that:
- supplies goods or services; and
- carries on all or part of its business in the UK; and
- has an annual turnover of at least £36million.
Does this just apply to UK companies?
There is no requirement for a commercial organisation to be based in the UK in order for section 54 of the Modern Slavery Act to apply. Provided a foreign entity carries on at least part of its business in the UK; it will fall under the scope of the Modern Slavery Act. This could be by virtue of having a UK-based subsidiary.
A "common sense" approach will be applied in determining whether a non-UK entity carries on business in the UK. Still, the Home Office has suggested that the Modern Slavery Act will not apply to those entities that do not have a "demonstrable business presence" in the UK.
How is turnover calculated?
For the Modern Slavery Act, turnover is calculated as the amount derived from the provision of goods and services falling within the ordinary activities of a commercial organisation after deduction of:
- trade discounts;
- VAT; and
- any other taxes.
Turnover will also include the turnover of any subsidiaries of a commercial organisation, regardless of where they are based or carry on their business.
What should be included in the slavery and human trafficking statement?
The statement must include information about what steps a commercial organisation has taken during the financial year to ensure slavery and human trafficking is not taking place in any of its supply chains, and any part of its business. If a commercial organisation has not taken any steps, the statement must make this clear.
To assist commercial organisations with the types of information that should be included in a statement, section 54(4) of the Modern Slavery Act recommends that it may include information about:
- a commercial organisation's:
- structure, business and supply chains;
- policies in relation to slavery and human trafficking;
- due diligence processes in relation to slavery and human trafficking in its business and supply chains; and
- 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.
- the parts of a commercial organisation's 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;
- the training about slavery and human trafficking available to a commercial organisation's staff.
How are parent and subsidiary undertakings dealt with?
As noted above, foreign parent companies and/or subsidiaries that meet the requirements of the Modern Slavery Act will have to comply with its provisions, and the turnover of any subsidiaries must be taken into account when assessing whether a business's turnover exceeds the £36million threshold. So what happens if section 54 applies to both a subsidiary and its parent company? The answer is that both commercial organisations have to make their own slavery and human trafficking statement. Furthermore, a parent company's statement must include the steps taken in relation to all of its subsidiaries if, depending on the particular facts, the subsidiaries' activities form part of the parent company's supply chain or business. This means there will need to be some level of communication between the parent company and subsidiaries to ensure consistency in the statements being made.
However, where a parent company and its subsidiaries are required to make a statement, the parent company may produce one statement that its subsidiaries can use. The statement would need to cover the steps taken in the relevant financial year by the parent company and each subsidiary using the statement.
What are the deadlines for compliance?
A slavery and human trafficking statement must be produced for every financial year ending on or after 31 March 2016.
The Home Office expects businesses to make their statement as soon as reasonably practicable after the end of the financial year and, in any event, within six months of such date.
Are there any formalities to be aware of?
The slavery and human trafficking statement must be approved by the board of directors and signed by a director.
If a commercial organisation has a website, then the statement must be published on the website, and there must be a link to the statement in a prominent place on the homepage.
If a commercial organisation does not have a website, it must provide a copy of the statement to anyone who makes a written request for one within 30 days of receiving the request.
What are the consequences of non-compliance?
The Secretary of State may take civil proceedings against a commercial organisation to require it to produce a statement.
Aside from this, the main consequence of not making a statement in accordance with section 54 of the Modern Slavery Act, or reporting that it has not taken any steps to prevent slavery or human trafficking from taking place, is likely to be significant damage to an organisation's reputation and brand.
If you require any assistance in determining whether you must comply with the Modern Slavery Act or the steps to take to produce a comprehensive section 54 statement, please feel free to contact us.