Sally Butt, partner at law firm Addleshaw Goddard, investigates the Modern Slavery Act’s effect on the supply chain in asset finance
"Slavery is closer than you think" was the slogan that accompanied the UK government’s high-profile modern slavery campaign, which was launched in July 2014 and included TV commercials and billboard posters. The message was clear: the horrific crimes of slavery and human trafficking are here – today, in the UK – and it is time for them to be stamped out. The Modern Slavery Act 2015 aims to give law enforcement bodies the tools they need to do this by strengthening the criminal offences which relate to slavery and human trafficking, ensuring that those responsible receive severe sentences, and that victims receive suitable support.
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But the government’s efforts did not stop there. Law-makers strongly believed that business has a crucial role to play in wiping out slavery by creating an environment of supply chain transparency which does not permit any of slavery’s many heinous forms to exist. Big businesses – it is thought – have the purchasing power to choose supply chain partners who adopt appropriate ethical standards, and don’t put profits above human rights.
In particular, the government’s measures require that, as of 29 October 2015, every trading business with a turnover of £36m or over which operates in the UK is required to publish an annual statement setting out the steps it has taken to ensure that modern slavery and human trafficking are not taking place in its business or supply chains – both at home and abroad. In effect, this applies to virtually all large UK companies, regardless of the size of their workforce and supply chains, and whether they supply goods or services. Typically, slave labour scandals that have hit the UK headlines have involved the retail and consumer sector. However, with the aim of tackling these issues across the board – and in order to create fair competition across all businesses – the requirement applies across all industry sectors.
The first statements are required by businesses with a financial year-end of 31 March 2016, and must be published on the business’s website, with a prominent link on its home page. There is no prescribed form of statement, but the legislation suggests it should cover things like a description of the business and its supply chains, its anti-slavery polices, the supplier due diligence
processes it carries out, whether any parts of its supply chain carry a particularly high risk of slavery activities, and what training is given within the business in this area.
What happens if a business fails to publish a statement? Currently, the government has no power to issue any fine or penalty. The key risk of failing to produce a statement (or producing one which is clearly inadequate) is reputational. The first statements in particular are likely to be scrutinised by the media, campaign groups, competitors and customers.
But that’s not to say that all businesses need to go on high alert. Government guidance is that businesses must take "appropriate and effective" action. Best practice is therefore for businesses to take an approach that’s proportionate, bearing in mind the slavery and trafficking risks inherent in the locations and industry sectors in which they (and their suppliers) operate.
How does this affect us?
Customers
Customers with a turnover of £36m will be required to publish a supply chain transparency statement. In the legislation, the phrase "supply chain" is not defined. Rather, it should be given its "everyday meaning". Customers are likely to take the approach that they must report on supply chains in relation to leased equipment as well as equipment financed by other methods. Suppliers and finance companies, therefore, may well see increased due diligence from customers ahead of any acquisition, and customers may seek specific contractual terms concerning ethical sourcing In the most extreme cases, customers may even wish to reject a potential supplier on the basis that it cannot present a clean bill of health in terms of modern slavery and human trafficking risk.
Finance and equipment leasing companies
Finance companies with a turnover of £36m will be required to publish a supply chain transparency statement. Finance companies may not characterise themselves as having a supply chain in the same way that suppliers and customers do. However, bearing in mind the spirit and intent of the anti-slavery legislation, the most sensible approach would be to report on all equipment purchased for onward supply to customers under a finance agreement. Similarly, finance businesses (like customers) may wish to introduce policies and procedures which require suppliers to be open about their supply chains especially given that (as discussed above) customers may well demand it.
Suppliers
Most major suppliers will themselves be required to report on their supply chain transparency. However, they should also expect to come under greater scrutiny from potential large customers (and finance companies) who themselves wish to demonstrate that they are procuring ethically. Suppliers should be reviewing supply chains that include overseas manufacturing facilities and the supply of raw materials (particularly aggregates) as a priority, and putting measures in place, first to understand the level of slave labour risk and second, to take steps to mitigate it.
What next?
All affected businesses should be acting now to put in place the processes and procedures they need in order to make their report. For example, this could include drafting an anti-slavery policy which is rolled out to the business and to suppliers and carrying out staff training.
Sally Butt is a partner at Addleshaw Goddard
