New U.K. Law Turns Up Heat on Human Trafficking Transparency

Companies doing business in the United Kingdom face a new push in the country to disclose what they’re doing to tackle slavery and human trafficking in their operations and supply chain.

Now in effect in Britain is the Modern Slavery Act. Its requirement: that companies doing business in the United Kingdom, with annual global revenue of £36 million or more, publish an annual slavery and human trafficking statement setting out what efforts (if any) they are making toward eradicating slavery and human trafficking in company operations and supply chain. The company doesn’t need to be incorporated or formed in Britain, effectively sweeping in companies everywhere.

“Companies should start preparing to ensure compliance with the legislation as soon as possible, putting in place steps to carry out an audit of their supply chains and internal processes to assess whether any slavery or human trafficking offenses could be taking place within their business,” says Elena Cooper, a partner in the London office at law firm Duane Morris.   

Many large multinational companies under the law’s umbrella may already have internal policies and procedures governing slavery or human trafficking offenses, but don’t necessarily have them documented. In that respect, the law prods companies to “get their house in order,” says Sarah Pearce, a partner in the London office at law firm Cooley.

“The problem we have at the moment is that there is no real guidance,” Pearce adds. The government anticipates publishing additional guidance in October setting out what information to include in the slavery and human trafficking statement, and when such statements will be due each year.

Disclosure Obligations

For now, companies can use the law itself as a framework. The legislation offers some expectations on what a slavery and human trafficking statement should include:

“If you haven’t already, you have to start including provisions in your supply chain contracts that give you the right to conduct audits of your suppliers.”
Sarah Rathke, Partner, Squire Patton Boggs

The organization’s structure, business, and supply chains;

Its policies relating to slavery and human trafficking;

Due diligence processes the organization has in place relating to slavery and human trafficking;

Effectiveness in implementing policies and eradicating slavery and human trafficking from the supply chain;

Measures taken to train staff about human rights issues.

The statement must then be approved by the company’s board and signed by a director. Once the statement is approved, companies must post a prominent link to the statement on the home page of the company’s website. If a company doesn’t have a website, it must provide a copy of the statement within 30 days of a request.

Where a company’s subsidiary also meets the annual revenue threshold, that subsidiary will need to prepare its own statement. Where revenue applies to both parent and subsidiary, the law indicates that only one statement would be required, but that it would need to appear on the websites of both the subsidiary and the parent.

Industry Efforts

Legal experts also say companies might want to require employees and suppliers to certify compliance with the company’s policies governing human trafficking and slavery, including a separate supplier code of conduct. “Policies alone will not prevent slavery and human trafficking taking place, but they will at least raise company awareness and could, potentially, assist the company in the defense of any allegations of breach of legislation,” Cooper says.

TRANSPARENCY IN SUPPLY CHAINS

The following is an excerpt from the U.K. Modern Slavery Act regarding how to prepare a human trafficking statement:
(1) A commercial organization within subsection (2) must prepare a slavery and human trafficking statement for each financial year of the organization.
(2) A commercial organization is within this subsection if it—
(a) supplies goods or services, and
(b) has a total turnover of not less than an amount prescribed by regulations made by the Secretary of State.
(3) For the purposes of subsection (2)(b), an organization’s total turnover is to be determined in accordance with regulations made by the Secretary of State.
(4) A slavery and human trafficking statement for a financial year is—
(a) a statement of the steps the organization has taken during the financial year to ensure that slavery and human trafficking is not taking place—
     (i)in any of its supply chains, and
     (ii) in any part of its own business, or
(b) a statement that the organization has taken no such steps.
(5) An organization’s slavery and human trafficking statement may include information about—
(a) the organization’s structure, its business and its supply chains;
(b) its policies in relation to slavery and human trafficking;
(c) its due diligence processes in relation to slavery and human trafficking in its business and supply chains;
(d) 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;
(e)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;
(f) the training about slavery and human trafficking available to its staff.
Source: The National Archives.

Many large multinational companies are already engaging with their supply chains to ensure ethical business behavior through their supplier codes of conduct. U.K.-based alcoholic goods company Diageo, for example, said it prohibits its suppliers from contributing directly or indirectly to human rights abuses. “As a minimum we expect our suppliers to… not ever use forced or bonded labor,” its supplier code of conduct states.

Japan-based Canon likewise includes a section in its supplier code of conduct addressing forced labor matters. Canon’s code states that the supplier “ensures not to use or facilitate any forced or compulsory labor. Forced labor can take different forms, including debt bondage, trafficking, and other forms of modern slavery.”

“If you haven’t already, you have to start including provisions in your supply chain contracts that give you the right to conduct audits of your suppliers,” says Sarah Rathke, a partner at law firm Squire Patton Boggs. Then ensure that you follow up on those audits, “because your program is only as good as your implementation,” she says.

Global healthcare company Roche, for example, said it audits its “most important business-critical suppliers,” which number roughly 1,000. “In case of findings in the human rights area, we collaborate with the suppliers to close these,” Roche says in its human rights statement on its website. “We do not have operations where this could be a significant risk.”

In 2013, for example, Roche said it terminated business with two suppliers “who did not meet our minimum standards and were not prepared to improve.” In 2014, “all suppliers improved their standards to meet our requirements,” Roche said. “No collaboration was terminated.”

Compliance officers should train commercial sales teams—those most likely to sign deals with business partners that might have ties to trafficking—to be on alert and not enter into relationships that potentially pose any issues, Pearce says.

Legal Risk

Failing to disclose your anti-trafficking efforts won’t result in any monetary penalties, but the law does allow the government to bring an injunctive action compelling the company to make a disclosure. An even bigger risk to companies, Rathke says, are consumer and shareholder class-action lawsuits filed against companies that fail to ensure that their business practices live up to their public disclosures.

A consumer class-action lawsuit, Sud v. Costco, filed last month in the U.S. District Court for the Northern District of California against retail chain Costco Wholesale, illustrates that point. According to the allegations, Costco knowingly sold shrimp purchased from producers in Southeast Asia “derived from a supply chain that depends upon documented slavery, human trafficking, and other illegal labor abuses” and failed to disclose these labor abuses to consumers.

Swiss food giant Nestle finds itself in a similar boat (no pun intended). One week after consumers filed the Costco lawsuit, another group of consumers filed a class action against Nestle in federal court in California. That lawsuit alleges that Nestle knowingly sold pet food also purchased from producers in Southeast Asia and, like Costco, failed to disclose the use of slave labor in its supply chain.

These cases highlight the importance of being extremely cautious about disclosing business practices that you can’t live up to, or signing all-encompassing industry pledges, some of which are “too broad to be workable,” Rathke says. Whatever human rights pledges your company or brand makes, she says, “you should be sure that you’re able to follow through on them.”