On 22 January 2019, the UK Government (the Government) published its second interim report as part of the Independent Review (the Review) of the Modern Slavery Act 2015 (the Act), which began in July 2018 (see our previous blogpost).

This is the second report for phase 1 of the Review, and it focuses on transparency in supply chains (section 54 of the Act). The report suggests that a lack of enforcement and penalties, as well as confusion surrounding reporting obligations, are the main reasons for poor-quality statements and the estimated lack of compliance from over a third of eligible firms.

Key findings and recommendations:

 

1.Clarifying which companies are in scope

  • The broad nature of requirements in section 54 has created ambiguity and lack of clarity, which makes it difficult to determine which companies are in scope.

The Government should:

  • establish an internal list of companies in scope of section 54 and check with companies whether they are covered by the legislation.

Companies should:

  • remain responsible for determining if they need to produce a slavery and human trafficking statement. Non-inclusion in the list should not be an excuse for non-compliance.

2.Improving the quality of statements

  • Businesses have too much freedom to determine the content of their statements.
  • The six areas listed in section 54, which set out what an organisation may cover in its statement, are not mandatory.
  • Better guidance is needed on the content of the statements.
  • There is no requirement for companies to disclose how far down their supply chains they have considered.

The Government should:

  • remove section 54(4)(b), which allows companies to report they have taken no steps to address modern slavery in their supply chains;
  • make the six areas set out in section 54 mandatory;
  • strengthen statutory guidance to include a template of the information organisations are expected to provide in their statements; and
  • make clear in the guidance to companies, which should be overseen by the Independent Anti-Slavery Commissioner, that reporting should include not only due diligence but also the steps that companies intend to take in the future.

Companies should:

  • be required to explain whether the areas in section 54 are not applicable to their business. They should also consider the entirety of their supply chains in their statements, and if not, explain why.

3.Embedding modern slavery reporting into business culture

  • Modern slavery reporting needs to be regarded as a serious regulatory and governance obligation.

The Government should:

  • amend the Companies Act 2006 to include a requirement for companies to refer to their modern slavery statement in their annual reports. Section 54 should be amended to impose a similar duty on non-listed companies that meet the £36 million threshold but would not be captured by the Companies Act 2006 reporting requirements.

Companies should:

  • have a named, designated board member who is personally accountable for the production of the statement. Failure to fulfil reporting requirements or to act when instances of modern slavery are found, should be an offence under the Company Directors Disqualification Act 198.

4.Increasing transparency

  • There is no requirement to upload modern slavery statements anywhere except for the company’s website.

The Government should:

  • set up a central repository to which companies are required to upload their statements and which should be easily accessible to the public, free of charge. The repository should also clearly outline the minimum statutory reporting requirements.

Companies should:

  • clearly date and state over which 12-month period their statements apply, to monitor progress.

5.Monitoring and enforcing compliance

  • There is no public body in charge of monitoring compliance with section 54. This role should be taken up by the Independent Anti-Slavery Commissioner.
  • A more robust and systematic approach to tackling non-compliance is necessary.

The Government should:

  • make the necessary legislative provisions to strengthen its approach to tackling non-compliance, by adopting a gradual approach (initial warnings, fines, court summons and directors’ disqualification);
  • bring forward proposals to set up or assign an enforcement body to impose sanctions on non-compliant companies.

6.Government and the public sector

  • There is currently no requirement in the legislation for the bodies in the public sector to report under section 54.

The Government should:

  • lead by example and publish a statement at the end of the financial year. Local government, agencies and other public authorities should also publish a statement if their annual budget equals or exceeds £36 million;
  • strengthen its public procurement processes to make sure that non-compliant companies in scope of section 54 are not eligible for public contracts;
  • the Crown Commercial Service should keep a database of public contractors and details of compliance checks and due diligence carried out by public authorities.

 

Read the full report here.