Curing a legislative headache

The UK Modern Slavery Act legislation became law on 26th March 2015. Announcing its enactment Home Secretary, Theresa May MP, said: “Modern slavery is a heinous crime that affects communities and individuals across the globe.” All right-minded citizens will of course agree with her sentiment but sadly some individuals and organisations still seek to profit from ‘vulnerable individuals exploited into slavery, servitude and forced or compulsory labour in contravention of Article 4 of the Human Rights Convention’.

The new legislation is necessarily complex, however, the element of the new legislation most relevant to the electronic components supply network is Part 6, ‘Transparency in Supply Chains’, which seeks to address the role of businesses in preventing modern slavery from occurring in their supply chains and organisations.

According to May, Part 6 will require businesses to be transparent about what they are doing and will increase competition to drive up standards: “I want to support, motivate and incentivise organisations to understand the complex issue of modern slavery and how they can tackle it,” she said. “Organisations with significant resources and purchasing power are in a unique and very strong position to influence global supply chains.”

Impact

Part 6 of the UK Modern Slavery Act will impact all organisations in the UK electronic components supply network with annual sales revenues greater that £36m/$54m - which is a very substantial number of organisations. It mandates them to produce an annual statement setting out the steps they have taken in the financial year to ensure there is no modern slavery and human trafficking in any part of their business or anywhere else in their supply chains.

If a business fails to produce a Slavery and Human Trafficking statement for a particular financial year the Secretary of State may seek an injunction through the High Court requiring the organisation to comply. If the organisation fails to comply with the injunction, it could be held in contempt of a court order, which is punishable by an unlimited fine. Organisations with a financial year-end from 29th October 2015 up to and including 30th March 2016 will not be required to make a slavery and financial statement for the financial year 2015/16. However, organisations with a financial year-end of 31st March 2016 will be required to publish their statement for the financial year 2015/16 within six months of the end of their financial year.

Any organisation that is an autonomous part of a group structure is legally required to produce a statement. In the case of a parent company with one or more subsidiaries in the same group, the parent may produce a single compliance statement that subsidiaries can use to meet this requirement (provided that the statement fully covers the steps that each individual operation has taken in the relevant financial year). A non-UK-based organisation or a foreign parent company carrying on a business or part of a business in the UK, will also be required to produce a statement.

Are you sitting comfortably

According to the new legislation a Slavery and Human Trafficking statement must be written in simple English (but may be translated into alternative languages as required), and must set out the steps an organisation has taken to prevent modern slavery in its supply chains and its own business. The legislation does not however, dictate in precise detail what other information a statement must include or how it should be structured. That said, there seems an expectation that a statement should for instance include information about the organisation’s structure, its policies in relation to slavery and human trafficking, its due diligence processes, the parts of its business and supply chains where there is a risk of slavery and human trafficking taking place, its effectiveness in ensuring that slavery and human trafficking is not taking place, and the training and capacity building information about slavery and human trafficking it makes available to its staff.

Among the key objectives of the new legislation is to increase transparency and it is therefore imperative that an organisation’s statement can be easily accessible by anyone who wants to see it - the public, consumers, employees, NGOs or investors.

Another headache

Unfortunately Part 6 of the Modern Slavery legislation looks likely to be yet another ‘headache’ for the electronic components supply network of the sort it previously suffered because of RoHS and REACH legislation. I predict a great flurry of money sapping activity as many customers seek to contact their suppliers requesting the information they must have in order to properly complete their statements. So much for the UK government’s promises to reduce the burden of red tape!

About the only mitigating aspect of the new legislation is that organisations are able to ‘stage’ the compliance process. It’s apparently OK for a company’s first annual statement to be fairly vague as long as it’s improved upon progressively in subsequent years. Further, it seems that the government doesn’t have much appetite for hauling numerous organisations through the courts and is apparently relying on consumers, customers, investors and Non-Governmental Organisations (NGOs) to engage and/or apply pressure on their non-compliant business partners.