A new obligation has been introduced requiring large commercial organisations operating in the United Kingdom to publish a “slavery and human trafficking statement” at the end of each financial year.
The requirement extends to all commercial organisations in any part of a group structure (wherever incorporated, and whether a company or a partnership) that carry on a business, or part of a business, supplying goods or services in any sector in the United Kingdom and have annual turnover of at least £36 million. This includes the turnover of any subsidiary undertakings, regardless of where those subsidiaries are based or operate.
The first organisations that need to comply will be those with a financial year ending on or after 31 March 2016. The UK Government expects affected organisations to publish the necessary statement within six months after the end of the relevant financial year.
The UK Government has produced a practical guidance document, Transparency in Supply Chains etc., to assist organisations with understanding their obligations under the new regime.
What Must The Statement Say?
The “slavery and human trafficking statement” must either
Specify the steps that the organisation has taken during the financial year to ensure that forced labour and human trafficking is not taking place in any part of its own business or in its supply chains; or
Specify that the organisation has taken no such steps. It is hoped that this will not be considered an attractive option!
There are no other mandatory requirements for what the statement should contain or how it should be presented. The guidance does, however, encourage statements that are clear, detailed and informative, and it is expected that organisations will build on their statements year on year.
Examples of the type of information the statement might contain include
Details of the organisation’s structure, business and supply chains
Its policies in relation to forced labour and human trafficking
A description of the due diligence processes it has followed in relation to assessing potential forced labour and human trafficking in its business and supply chains
Information about the parts of the business where there is a risk of forced labour and human trafficking, and the steps taken to assess and manage that risk, together with an assessment of the effectiveness of those steps
Details of relevant training provided to staff
How Must The Statement be Published?
The statement must be published on the organisation’s website and a link to it should be included in a prominent position on its home page.
Who Must Approve The Statement?
The highest level of management within the organisation producing the statement is responsible for approval. For companies, this means that the statement must be approved by the board of directors and be signed by a director. For LLPs, the statement will need to be approved by the members and signed by a designated member.
What if Multiple Organisations in The Same Group are Caught by The Obligation?
It will be acceptable for a parent organisation to produce a single statement that can be used by its subsidiaries, provided that the consolidated statement sets out the steps that each organisation has taken individually.
What is The Risk if an Organisation Fails to Comply?
There is no direct legal sanction attached to the new regime. In theory, the Secretary of State could seek a High Court injunction requiring an organisation to comply but we suspect that such instances will be rare.
In practice, the biggest carrot to encourage compliance is likely to be reputational enhancement resulting from taking part, versus the potential for adverse comment for failing to do so. In this regard, the guidance notes that it will be for consumers, investors and Non-Governmental Organisations to “engage and/or apply pressure” where they believe a business has not taken sufficient steps.
What Should Organisations do Now?
Identify which group entities (if any) may be captured by the new requirement and when
Conduct a risk assessment of the business and its supply chain to identify any potential countries, sectors or transactions that may have a particular risk of forced labour and human trafficking existing in them
Review any control mechanisms already in place to manage those risks, including compliance policies, supply chain/procurement relationships and contractual provisions
Consider what additional steps and controls might be put in place
Create a structure for producing a statement, including identifying which internal team will be responsible for its production.
For more information, please contact your regular McDermott Will & Emery lawyer or an author.