The UK Prime Minister, the Rt Hon Theresa May MP, has described modern slavery as the ‘great human rights issue of our time’ and has committed that the UK Government will ‘lead the way in defeating modern slavery and preserving the freedoms and values that have defined our country for generations’.
The Modern Slavery Act 2015 was passed by the UK Parliament and received royal assent on 26 March 2015. The Act introduced a number of changes in England and Wales to combat human trafficking and slavery, focussing on:
offences, prevention orders and enforcement;
prevention and establishment of an Independent Anti-Slavery Commissioner;
protection for victims; and
global supply chain transparency.
This chapter examines the global supply chain transparency reporting requirements introduced by section 54 of the Act.
Section 54 of the Modern Slavery Act 2015
Section 54 of the UK Modern Slavery Act 2015 (the UK Act) requires companies, businesses and organisations operating in the UK to report on measures to address modern slavery in their global supply chains.
Under the UK Act and regulations, commercial organisations with a total turnover of £36 million are required to prepare a slavery and human trafficking statement (statement) for each financial year, defined as:
a statement of the steps the organisation has taken to ensure that slavery and human trafficking is not taking place in any of its supply chains or its own business; or
a statement that the organisation has taken no such steps.
Under the UK Act, statements must be:
approved by the board of directors (or equivalent);
signed by a director (or equivalent); and
published on the organisation’s website (or be available on request).
The prescribed threshold amount of £36 million was agreed to following consultation with businesses and NGOs. The threshold aligns with the definition of a large business under the Companies Act 2006 (UK) to ensure that those businesses ‘who have the resources to undertake effective due diligence will be required to produce a statement’. The UK Home Office estimates that 12,000 companies are required to report under the UK Act.
The UK Act does not prescribe what a statement must contain, but does within section 54 (5) provide six areas that a statement could contain (though these are not required):
the organisation’s structure, its business and its supply chains;
its policies in relation to slavery and human trafficking;
its due diligence processes in relation to slavery and human trafficking in its business and supply chains;
the parts of its 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;
its 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; and
the training about slavery and human trafficking available to its staff.
The Committee heard that section 54 was not included in the original draft of the UK Act. The Committee notes that, following consultation, the UK Parliament’s Joint Committee on the Draft Modern Slavery Bill recommended introducing a legislative requirement for certain companies to report on modern slavery in their annual strategic reports.
The Committee heard that the inclusion of section 54 came about due to the significant support and advocacy for the measure from NGOs and businesses. The UK Home Secretary, the Rt Hon Amber Rudd MP, submitted that the ‘single most decisive factor in shaping the UK’s approach was the views of businesses themselves’. The Home Office stated that consultations with businesses highlighted that the majority of businesses supported introducing a reporting requirement:
They said that the single most useful thing government could do was to create a level playing field: an environment where responsible businesses (that take action to identify and prevent slavery in their supply chains) are rewarded and recognised, rather than being singled out for criticism or under-cut by unscrupulous competitors. They wanted the State to use legislation to create the conditions for a (fair) race to the top, while leaving each business to work out how best to fight slavery in the context of their unique situation.
The UK Home Secretary submitted that the aim of the reporting requirement is:
…that information published by businesses will be used by consumers, investors, activists and competitors to give positive recognition to businesses who take action against slavery, while exposing laggards to public pressure and scrutiny that would ultimately hurt their brand and bottom line.
International reporting requirements
The Committee heard that governments around the world are considering a range of supply chain reporting requirements to address concerns about modern slavery in global supply chains.
The Department of Foreign Affairs and Trade (DFAT) submitted that international momentum to prevent and combat modern slavery in global supply chains is ‘accelerating’, with the introduction of legislation in the UK, the United States and Europe and increasing international cooperation. DFAT highlighted that supply chain transparency will be one of the key themes of Germany’s presidency of the G20 in 2017, and may be a feature of the Commonwealth Heads of Government meeting in 2018.
In particular, DFAT highlighted the establishment of the Global Alliance to Eradicate Forced Labour, Modern Slavery, Human Trafficking and Child Labour, known as Alliance 8.7 (named after the UN Sustainable Development Goal Target 8.7). Alliance 8.7 aims to strengthen coordination between the key UN bodies working on modern slavery, forced labour, human trafficking and child labour. Australia’s Ambassador for People Smuggling and Human Trafficking, Andrew Goledzinowski AM, told the committee that Australia is taking a lead role in supporting Alliance 8.7 and advocating for more coordinated action.
An overview of some of the key international supply chain reporting regimes are outlined below.
USA – Californian Transparency in Supply Chains Act 2010
California was one of the first jurisdictions to introduce transparency in supply chains legislation. In January 2012, the Transparency in Supply Chains Act 2010 entered into force.
The Californian Act requires some businesses with revenues of over $100 million to report on initiatives to eradicate slavery and human trafficking from its supply chains for goods offered for sale. The Act aims to educate and assist consumers to make more ethical purchasing decisions and to encourage businesses to ensure that their supply chains are free of human trafficking and slavery.
Subsequent reviews of the Act have indicated a number of issues with its implementation. For example, a 2015 report by Development International found that, of the 2126 companies subject to the law, only 14% of companies complied fully with the requirements. Anti-Slavery Australia further noted that the Act is weakened by the lack of effective sanctions for contravention of reporting requirements or other regulatory incentives or penalties.
Dodd-Frank Wall Street Reform and Consumer Protection Act
Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act introduced due diligence reporting requirements for organisations in the United States that use conflict minerals originating in the Democratic Republic of Congo (DRC) and bordering countries.
The Act requires organisations that source minerals from this area to submit a report to the US Securities and Exchange Commission on due diligence measures taken to determine whether the minerals directly or indirectly finance armed groups in the DRC, and must meet internationally recognised standards, such as the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas.
France – Duty of vigilance legislation
In February 2017, the French Parliament adopted a new law establishing a ‘duty of vigilance’ obligation for businesses. The legislation requires businesses to monitor their company and supply chains for human rights and environmental protection violations and to publish an annual risk report assessing the impact of these policies. The law applies to companies based on number of employees, and is estimated to apply to around 150 large companies.
The French legislation originally included strong penalties for non‑compliance, including fines of up to €10 million when a company fails to publish a plan, and up to €30 million if the failure resulted in preventable damages. However, Anti-Slavery Australia notes that these penalties were found to be unconstitutional by the Constitutional Council and were not enacted.
The Netherlands – Child labour due diligence legislation
In February 2017, the Dutch Government adopted the proposed Child Labour Due Diligence Bill. If approved by the Dutch Senate, the law would require companies to publicly report on efforts to identify whether child labour is present in their supply chains and, where this is found, to develop a plan to combat it. The law would apply to companies registered in the Netherlands and those selling to Dutch consumers (including online retailers). Small businesses would be exempted.
If approved, the Netherlands legislation would provide for penalties, including an administrative fine of up to €4100. If an organisation is fined and does not comply with its obligations within 5 years, the directors may be guilty of an offence and be liable to 6 months imprisonment.
European Union – Non-financial reporting directive
In December 2014, the EU Directive on disclosure of non-financial and diversity information (2014/95/EU) entered into force. The Directive requires companies with over 500 employees to report on relevant environmental, social, human rights and corruption risks and outcomes, which could include trafficking and slavery. The first reports under the Directive are due to be published in 2018.
Brazil –‘dirty list’ of companies using forced labour
In 1995, the Brazilian Government officially recognised the existence of ‘labour analogous to slavery’ following the highly publicised case of José Pereira, who escaped from a farm where he was forced to work as an indentured labourer. According to the International Labour Organisation’s 2010 report, the Brazilian Government introduced measures to eradicate slave labour through the establishment of the Executive Group for the Repression of Forced Labour (GERTRAF) and the Special Mobile Inspection Group (GEFM). In 2004, the Brazilian Government passed a ministerial ordinance to enable a list of companies found by the GEFM to be using forced labour (the lista suja, or ‘dirty list’) to be publicly released.
Assessments of the UK Act
Reviews of section 54
A number of formal reviews of the UK’s Modern Slavery Act have been undertaken since the introduction of the Act. The aspects of these reviews that relate to section 54 are outlined below. Further aspects of these reviews will be considered in the Committee’s final report.
UK Joint Committee on Human Rights
In April 2017, the UK Parliament’s Joint Committee on Human Rights examined section 54 of the UK Act as part of its review of business and human rights. While the Joint Committee applauded the passage of the UK Act and commended the Government for showing ‘genuine leadership’, it identified a number of shortcomings with the reporting requirements, namely:
no central list of companies required to report or repository of statements;
inadequate reporting requirements for companies;
lack of awareness among businesses; and
public bodies not included.
The Joint Committee also recommended that the Government bring forward legislative proposals to make:
… reporting on due diligence for all other relevant human rights, not just the prohibition of modern slavery, compulsory for large businesses, with a monitoring mechanism and an enforcement procedure.
The Joint Committee supported the passage of the Modern Slavery (Transparency in Supply Chains) Bill, introduced to the House of Lords by Baroness Young of Hornsey in May 2016. The Bill proposed to:
include public bodies in the transparency in supply chains requirements of the Act;
require companies and public bodies to publish their statements in their company reports;
require the Secretary of State to compile a list of companies that should be compliant with Transparency in Supply Chains, to make it possible for NGOs, civil society and the general public to find the information required for effective monitoring; and
prevent public bodies from procuring services from companies that have not conducted due diligence.
The Bill was not debated in the House of Commons prior to the UK election in mid-2017.
In his submission to this inquiry, Professor Robert McCorquodale, Director of the British Institute of International and Comparative Law and specialist advisor to the UK Joint Committee on Human Rights, recommended that the Committee take into account the conclusions of the UK Joint Committee on Human Right’s report, including the support for Baroness Young’s Bill.
Independent Anti-Slavery Commissioner
One of the key provisions of the UK Act established the office of the Independent Anti-Slavery Commissioner. The Commissioner is required to encourage good practice in the prevention, detection, investigation and prosecution of slavery and human trafficking offences and the identification of victims of those offences. Importantly, this position is independent of government. The current Independent Anti-Slavery Commissioner is Mr Kevin Hyland OBE.
In the first annual report in October 2016, the UK Commissioner noted:
Section 54 of the Modern Slavery Act, with its reporting requirement for large businesses operating in the UK, has forced the business community to discuss the topic of slavery openly to an extent that has not occurred since the days of the 19th century abolitionists.
Mr Hyland told the Sub-Committee that the change in the private sector since the introduction of the Act has been significant, with business CEOs viewing the requirement ‘as a race to the top, not just a function that they have to fulfil’.
However, the Commissioner highlighted that more needs to be done to better engage with the private sector in supply chain reporting:
While the Modern Slavery Act has undoubtedly pushed modern slavery up the agenda and into the boardrooms of large businesses, this is just the first step. There is still much more to be done to ensure that companies produce statements that both comply with the Act’s obligations and point to decisive action being taken, as opposed to merely being a ‘tick box’ exercise.
The Commissioner’s report highlighted the work undertaken to better engage with the private sector on supply chain reporting, including communicating with over 1000 companies outlining his expectations of reporting, leading roundtables on supply chain transparency and working with trade bodies to tackle modern slavery.
UK delegation outcomes
In May 2017, a delegation from the Committee visited the UK and met with a number of non-government organisations, legal experts, businesses required to report under the UK Act, and government officials responsible for its implementation. The itinerary for the delegation is at Appendix A.
The delegation discussed a range of issues related to the UK Act. The key themes related to the implementation of section 54 are outlined below. The Committee will address the other issues discussed in its final report.
A ‘game changer’
Overall, businesses and NGOs supported the introduction of supply chain reporting and reported it was having a positive impact on combatting modern slavery in global supply chains. In its submission to the inquiry, Marks and Spencer, which has a well-established and highly regarded human rights policy and framework, described the legislation as ‘game‑changing’ in terms of raising awareness of modern slavery issues for many businesses. Marks and Spencer noted that the legislation had:
… forced businesses yet to consider ethical practices in their own businesses to rapidly get started and those with more mature systems to get greater time on the board agenda to discuss how to embed [these] more effectively in their organisations.
Anti-Slavery International noted that the inclusion of section 54 into the UK Act was the direct result of lobbying by businesses involved in the Ethical Trade Initiative and British Retail Consortium. Anti-Slavery International noted that these businesses:
… recognised that their efforts towards ethical practices were undermined by competitors who were able to undercut them with impunity by adopting exploitative labour practices, including slavery. These businesses therefore wished for increased regulation in order to “level the playing field” somewhat by compelling unethical competitors to be more transparent about their practices.
The delegation also met with barrister Ms Caroline Haughey, who was commissioned by the Home Office to undertake an independent review of the Modern Slavery Act. In her submission and evidence to the inquiry, Ms Haughey noted that the reporting requirement under section 54 has had ‘multiple benefits’ in the UK, including raising public and consumer awareness about modern slavery and exploitation. Ms Haughey noted that, while some companies pay only ‘lip service’ to the requirement, a number have embraced its intention:
… reviewing their supply chains, proactively ensuring that exploitation if not eradicated its risk is reduced, changing terms of contracts to include ethics clauses, undertaking spot checks and ensuring their own employment standards are appropriate. Each company that takes such an action is having a ripple effect of setting standards and reducing exploitation.
One of the most significant concerns with the UK Act was the lack of provision for a central repository of modern slavery statements. As the UK Act does not include enforcement mechanisms, a central repository of statements was viewed as a key mechanism to hold businesses and organisations to account. Ms Haughey noted that recurring criticism of the section is that ‘there is no single repository to ensure that companies are compliant and it is suggested that this would add significant weight to the effect of the section’.
The delegation met with representatives from the Business and Human Rights Resource Centre (BHRRC), a privately funded NGO that administers the Modern Slavery Registry. BHRRC told the delegation that its main aim in publishing the registry was to drive change and act as an ‘unofficial watchdog’. At the time, BHRRC had published around 1800 statements of the estimated 12,000 to 18,000 required to report under the UK Act.
BHRRC also noted that it publishes analyses of the statements to compare and contrast how different businesses are reporting and aims to track how the reports develop over subsequent years.
The Committee notes that TISCreport also publishes a registry of human rights statements, including modern slavery statements prepared under the UK Act, and has made a submission to this inquiry outlining how it could assist in the development of a registry in Australia.
Consistency across jurisdictions
UK businesses and organisations highlighted the importance of ensuring that any requirements considered in Australia be consistent with the UK Act. Marks and Spencer submitted its concerns that:
… parallel legislative requirements in different parts of the world (including Australia) could create duplication in effort or multiple, varied approaches. This should be avoided.
Guidelines and templates
Some businesses suggested that clearer guidelines on the reporting process would have assisted them in developing their statements. Anti-Slavery International submitted that, to date, ‘the quality of the statements is mixed, with the majority being poor’, but highlighted that the requirement to report ‘has increased consideration of slavery risks by businesses and promoted increased dialogue on how slavery may be eradicated from business supply chains’. BHRRC noted that it publishes the available guidance developed by government and the NGO sector as part of the Modern Slavery Registry.
In its submission, Marks and Spencer supported the UK Government’s approach not to specify what modern slavery statements should contain, allowing businesses to determine what is appropriate. Marks and Spencer highlighted recent research by Ergon Associates that highlights that modern slavery statements are generally longer and more detailed than a year ago, containing more information on their structure, operations, supply chains, policies and training on human rights and modern slavery.
As discussed in Chapter 3, other submitters to this inquiry, such as the Walk Free Foundation, noted that the lack of clear guidelines made it hard for businesses to know what to report and made comparisons of statements more difficult.
A number of organisations highlighted other mechanisms government could use to address modern slavery in supply chains. Both BHRRC and Anti‑Slavery International highlighted the US Trade Enforcement and Facilitation Act of 2015 as an example the Australian Government could consider. The Act increases the powers of US customs officials to exclude from US markets goods that have been produced using forced or child labour. This Act, together with other best practice examples to combat modern slavery beyond supply chain reporting, will be considered in the Committee’s final report.