The Modern Slavery Act – what does it mean for business?

Earlier this year, the Modern Slavery Act was used to prosecute two brothers who trafficked vulnerable men from Poland to work in Sports Direct’s Shirebrook warehouse. Erwin and Krystian Markowski lured men on the promise of work, but once they arrived in the UK, took their passports and left them with only a fraction of the money they made from working at the warehouse.

Sports Direct, the UK’s largest sports retailer, and their recruitment agent Transline, had no knowledge of the illegal practices and when complaints were made, reported the abuses to the police. The Sports Direct brand however, is now associated with the scandal.

This case highlights the challenges in addressing slavery and human trafficking in the 21st century, as these practices are not uncommon and usually occur in Tier 2 and Tier 3 of supply chains, which are harder for organisations to monitor.

The Modern Slavery Act

When the Modern Slavery Act was first given Royal Assent, it was described as ‘historic’ and the ‘first of its kind in Europe’. It provided law enforcers with additional tools to help catch criminals, such as increased penalties, and ensured that better support was available for victims.

Following the California Transparency in Supply Chains Act of 2011 and as part of a worldwide movement towards greater transparency in supply chains, a key aspect of the new legislation is prevention – encouraging companies to introduce preventative measures to stop slavery or human trafficking entering their supply chain.

Part six of the Act introduces an obligation for companies with a minimum turnover of £36 million – who carry out part or all of their business in the UK – to provide a ‘slavery and human trafficking statement’ for each financial year. The Act does not provide a prescriptive list of what should be contained in the statement, but does suggest it ‘may’ include:

  • information about the organisation’s structure, its business and its supply chains;
  • the parts of the company and supply chains where there is a risk of slavery and human trafficking, and the steps it has taken to mitigate this risk;
  • its policies in relation to slavery and human trafficking; and
  • the training about slavery and human trafficking available to its staff.

Senior members of staff are also required to sign the company’s slavery and human trafficking statement. Depending on the legal structure of the company, this may also involve gaining approval from a company board and a director.

If the organisation has a website, the Act makes it clear that the statement must be displayed ‘prominently’. If the company does not have a website, they must provide a copy to anyone within 30 days of receiving the request.

But the statement itself is just the tip of the iceberg. Organisations who breathe a sigh of relief at finishing and posting their statement, believing that this fulfils their obligations, will be in for quite a surprise. The statement is, after all, about reporting on annual progress which has been made throughout the organisation to address this topic and all of its consequences, through policy implementation, risk assessments, due diligence, training and awareness.

That is quite another matter than a few aspirational words on a company website. These statements will be scrutinised by a vast number of interested parties, and if, for example, there is no training provided to staff on this topic, what progress will there be to report?

Protecting your supply chain 

Globalisation has added greater levels of complexity to supply chains. In the past, senior managers would have been able to check worker conditions by looking on the factory floor or by the factory’s reputation in the local community. Now, a company’s factory may be located in another continent, and outsourced to another company –who may have their own sub-contractors.

Philippa Foster Back, director of the Institute for Business Ethics, suggests it is unfair to hold larger companies responsible for their whole supply chain. The Home Office, however, argues that the Act only requires companies to be transparent about the steps they are taking so that consumers, campaigners, and others, can make an informed decision about the company.

Individual companies will have to decide how they approach the Act. For some, this obligation to disclose their practices will just be a matter of documenting or revising work that already takes place. For instance, since the new Act came into effect, Marks & Spencer has added a new statement to their ‘global sourcing principles’, banning suppliers from charging recruitment fees to employees to secure a job, and putting measures in place to ensure this does not happen.

Still, there will be other companies who have never considered slavery in their supply chain. For example, a recent survey by the Chartered Institute of Procurement & Supply (CIPS) found that 67% of SMEs had never taken steps to tackle slavery and 75% would not know what to do if they found slavery in their supply chain.

Why should companies comply with the Modern Slavery Act?

According to the Act, the Home Office may take civil action against companies who meet the criteria, but fail to meet their legal obligations.  There is also the potential for other legal issues to arise from poor labour practices in their supply chain, including complaints to the Organisation for Economic Co-operation and Development (OECD).

Corporate social responsibility (CSR) is also becoming increasingly important for companies. Investors are looking for ethical business practices, and there are greater demands for CSR as part of the tendering process. Consumers are also making ethical decisions when purchasing products and services.

Reputational damage is another major issue. For instance, budget fashion chain Primark has been accused of using slave labour. Although there is no concrete evidence, Paul Lister, head of Primark’s ethical trading team, has felt the need to explain the vigilant approach the company takes to ensure a slavery and human trafficking-free supply chain.

Pinsent Mason’s regulatory law expert, Sean Elson, also highlights the high level of publicity that surrounds companies who are linked to modern slavery. In relation to the Sports Direct case, he explains that the case shows that slavery and human trafficking are issues for UK business and are not just an issue for operations in ‘high-risk territories’. He also emphasises that companies should not view this as a paper exercise and should be committed to addressing potential areas of risk.

Final thoughts

As Sean Elson has observed, many companies may view the Modern Slavery Act as just additional red tape. However, the Act should be used as an opportunity for businesses to think about an important risk in an ever-globalised world.

No company wants criminal activity in their supply chain. Therefore, companies should seek to understand the Act, ensuring that they are fully aware of their legal obligations, and that they implement a policy that mitigates the risk of slavery and human trafficking becoming part of their supply chain.

Would you like to discuss your organisation’s Modern Slavery Act compliance needs further? Idox Compliance’s wide portfolio of solutions support a breadth of organisations in the UK and internationally with their compliance requirements on this topic and many others, such as Anti-Bribery and Corruption, Competition Law, Anti-Money Laundering and Conflicts of Interest.

For more information, please contact andrea.forbes@idoxgroup.com

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