28 November 2017
Peter Carter QC, a leading criminal silk and special adviser to the Joint Parliamentary Pre-Legislative Scrutiny Committee on the Modern Slavery Bill in 2014, gave a briefing on the Modern Slavery Act on 28 November. The briefing included a discussion of potential corporate exposure to sanctions under the Modern Slavery Act and potential adverse market responses to the supply chain reporting obligations.
Companies are exposed to modern slavery risks through their own operations and through complex supply chains where manufacturing, sourcing, financing and hiring are outsourced. Risks are particularly high further down the supply chain. G3 are able to assist with forensic investigations of the supply chain.
This note, authored by Peter Carter QC, summarises the main points of the briefing given on 28 November 2017.
1. The scale of the problem - according to the Independent Anti-Slavery Commissioner, Kevin Highland –
• 40m people enduring conditions of slavery around the world
• 151m children are victims of child labour
• 21m people in conditions of forced labour according to ILO
• In the UK there are estimated to be approximately 13, 000 victims
• There are 300 active police investigations according to the NCA.
For corporations, the main issue is supply chains. That will be my main focus.
2. However, the possibility of primary corporate and personal criminal liability cannot be disregarded which can give rise in turn to corporate primary or vicarious civil liability.
3. The present reporting obligations for supply chains may not be the final statutory scheme. If this process does not demonstrably improve the lot of workers producing goods and services for UK businesses, then a future government may look to the Bribery Act as a potential model.
Modern Slavery (Transparency in Supply Chains) Bill – this was intended to bring government and public authorities within the scope of supply chain regulation to affect tendering and supply to public bodies. The Bill fell, but it may be resurrected in some form.
Criticisms were made of the current statutory provisions concerning supply chains and corporate liability by the joint Parliamentary Committee on Human Rights, Promoting responsibility and ensuring accountability (March 2017). Among other things, it recommended considering provisions similar to those in the Bribery Act 2010.
The Modern Slavery Act 2015 (Transparency in Supply Chains) Regulations 2015 reg 4(2) require the secretary of state to –
(a) set out the objectives intended to be achieved by these Regulations;
(b) assess the extent to which those objectives are achieved; and
(c) assess whether those objectives remain appropriate and, if so, the extent to which they could be achieved with a system that imposes less regulation.
There is every possibility that Parliament may require the secretary of state to identify what could be achieved with more regulation.
4. First of all, do we understand what is meant by “modern slavery”? Are there common, consistent features and conditions? If so, where do we find them to avoid the accusation of claiming cultural relativism in order to avoid responsibility for a workforce enduring conditions we would not regard as acceptable in the UK.
5. Slavery, forced labour and exploitation – what do they mean? According to section 1(2) of the Modern Slavery Act 2015
“references to holding a person in slavery or servitude or requiring a person to perform forced or compulsory labour are to be construed in accordance with Article 4 of the Human Rights Convention.”
Subsection (3) adds “In determining whether a person is being held in slavery or servitude or required to perform forced or compulsory labour, regard may be had to all the circumstances.”
Despite the wording of section 1(3) “regard may be had to all the circumstances”, the adoption of Art.4 of the ECHR means that the test is not a relative one. The ECtHR has laid down the circumstances and conditions which amount to violation of Art.4 e.g. in
Siliadin v France (2006)43E.H.R.R.16 (p.287) and Choudury v Greece ECHR 112 (2017) 30.03.2017
The latter case decided that temporary seasonal labourers, apparently volunteers, can be victims of forced labour when their conditions and circumstances are properly examined.
What is apparently tolerated in one country due to the extremely impoverished circumstances of the labourers (adult and children) will not excuse a corporation subject to the jurisdiction of the Modern Slavery Act turning a blind eye to the standards the international community and the UK now demand.
6. Section 54 – transparency in supply chains - The effect of this provision and the statutory instrument which gives effect to it (SI 2015 no. 1816) is that the reporting obligation is restricted to commercial organisations with an annual turnover of £36m “derived from the provision of goods and services falling within the ordinary activities of the commercial organisation or subsidiary undertaking” after deducting taxes and trade discounts.
7. This begs various questions of interpretation:
a. Is the limit of £36m confined to turnover arising from the supply of goods and services, included aggregated turnover of parent and subsidiary companies? Almost certainly – Yes
b. If the parent company is a holding company which does not do any trading but its subsidiary supplies goods and services, does that subsidiary’s turnover require a report from the holding company as well as the subsidiary? Almost certainly – Yes
8. The obligation is to provide a statement signed by a responsible director or equivalent. There is no sanction for failure except the possibility that the secretary of state may obtain a court order requiring production of such a statement. There is no express provisions which makes it an offence to produce a statement which is inaccurate.
9. The Home Secretary has issued guidance - UK government’s 2017 guidance on transparency in supply chains issued under s.54 MSA –
It is unspecific and offers suggestions as to what is to be expected.
“This document provides guidance on how the Government expects organisations to develop a credible and accurate slavery and human trafficking statement each year and sets out what must be included in a statement.”
“1.5 One key purpose of this measure is to prevent modern slavery in organisations and their supply chains. A means to achieve this is to increase transparency by ensuring the public, consumers, employees and investors know what steps an organisation is taking to tackle modern slavery. Those organisations already taking action can quickly and simply articulate the work already underway and planned. Organisations will need to build on what they are doing year on year. Their first statements may show how they are starting to act on the issue and their planned actions to investigate or collaborate with others to effect change.”
“5.1 The Modern Slavery Act, does not dictate in precise detail what a statement must include or how it should be structured. It does, however, provide a non-exhaustive list of information that may be included.
10. The guidance does not adequately address the potential public backlash against a company with a poor record of treating people. Nor does it identify the potential for criminal liability for those who are disengaged or unwary.
11. However, other parts of the criminal law might bite there – such as the Fraud Act s.2 fraud by false representation with the intention of making again (or avoiding a loss) to the corporation) or s.3 fraud by failing to disclose what is legally required to be disclosed.
12. Where a corporation based in England and Wales is shown to be complicit in human trafficking anywhere in the world, section 2(6) of the Act makes the company itself guilty of the offence.
13. There are other potential criminal sanctions – such as fraudulent trading. Civil society has become active in pursuing corporations which are responsible for damage to the environment and for abusing people’s rights to dignity and fair working conditions. Publicity can be very damaging.
14. A company trading through its subsidiaries overseas needs to particularly alert to the question of attribution. The Court of Appeal in Bank of India v Morris  EWCA Civ 693 decided that attribution of an individual’s acts and knowledge to a corporation depends upon the construction and purpose of the legislation (in that case the Insolvency Act 1968). There can be little doubt that the purpose of the Modern Slavery Act is to eradicate, so far as is possible, the prevalence of modern slavery here and anywhere that UK companies have a corporate interest. This may result in corporations being found liable in criminal as well as civil cases as principles for offences committed overseas by their agents. And then there follow problems of money laundering the proceeds of that crime as the delinquent subsidiary or agent feeds funds through to the parent.
15. One area of commercial activity that takes up a lot of space in the Act but not in commentaries are the provisions about Maritime enforcement. This is an echo of the slave trade abolition acts of the 19th century with similar provisions. s.35 & Sch 2 a “designated officer” (which includes a constable, a Customs office and a naval officer) to board ships to search for victims of offences under ss. 1 or 2 of the Modern Slavery Act. It includes the powers to search foreign registered ships in England and Wales waters, a UK registered and any unregistered ship anywhere, and a foreign registered ship in international waters with the consent of that foreign state. All subject to the authority of the secretary of state. This has a practical effect in two obvious areas – transportation of goods by sea and the fishing industry.
16. The section 54 statement is not an audit exercise. It is a stage further and – I think more intrusive than – the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 no. 1970. Auditors frequently say “we are not investigators”. It requires the kind of investigative skills possessed by some NGOs and fraud investigators. It may involve chasing the money but it requires far more than the skills of an auditor. An auditor may need to factor the results of this kind of investigation into the audit report at the stage when considering going concern. Bad publicity can lead to market losses – both in the street and in the financial market Many large multinational companies have adopted the stance that they should be seen to be active in promoting the rights of those employed by their suppliers – whether or not they are part of the UK company’s corporate structure. Companies have adopted principles in the UN Guiding Principles on Business and Human Rights.
17. It is reassuring to see market leaders setting an ethical stance. See Ergon’s review of modern slavery supply chain reports – https://www.ethicaltrade.org/blog/learning-modern-slavery-statements. The modern slavery register - http://www.modernslaveryregistry.org/ Business and Human Rights resource Centre contains 3230 statements from companies in 26 sectors and 34 countries.
(1) A person commits an offence if—
(a) the person holds another person in slavery or servitude and the circumstances are such that the person knows or ought to know that the other person is held in slavery or servitude, or
(b) the person requires another person to perform forced or compulsory labour and the circumstances are such that the person knows or ought to know that the other person is being required to perform forced or compulsory labour.
(2) In subsection (1) the references to holding a person in slavery or servitude or requiring a person to perform forced or compulsory labour are to be construed in accordance with Article 4 of the Human Rights Convention.
(3) In determining whether a person is being held in slavery or servitude or required to perform forced or compulsory labour, regard may be had to all the circumstances.
(4) For example, regard may be had—
(a) to any of the person’s personal circumstances (such as the person being a child, the person’s family relationships, and any mental or physical illness) which may make the person more vulnerable than other persons;
(b) to any work or services provided by the person, including work or services provided in circumstances which constitute exploitation within section 3(3) to (6).
(5) The consent of a person (whether an adult or a child) to any of the acts alleged to constitute holding the person in slavery or servitude, or requiring the person to perform forced or compulsory labour, does not preclude a determination that the person is being held in slavery or servitude, or required to perform forced or compulsory labour.
(1) A person commits an offence if the person arranges or facilitates the travel of another person (“V”) with a view to V being exploited.
(2) It is irrelevant whether V consents to the travel (whether V is an adult or a child).
(3) A person may in particular arrange or facilitate V’s travel by recruiting V, transporting or transferring V, harbouring or receiving V, or transferring or exchanging control over V.
(4) A person arranges or facilitates V’s travel with a view to V being exploited only if—
(a) the person intends to exploit V (in any part of the world) during or after the travel, or
(b) the person knows or ought to know that another person is likely to exploit V (in any part of the world) during or after the travel.
(5) “Travel” means—
(a) arriving in, or entering, any country,
(b) departing from any country,
(c) travelling within any country.
(6) A person who is a UK national commits an offence under this section regardless of—
(a) where the arranging or facilitating takes place, or
(b) where the travel takes place.
(7) A person who is not a UK national commits an offence under this section if—
(a) any part of the arranging or facilitating takes place in the United Kingdom, or
(b) the travel consists of arrival in or entry into, departure from, or travel within, the United Kingdom.
(1) A commercial organisation within subsection (2) must prepare a slavery and human trafficking statement for each financial year of the organisation.
(2) A commercial organisation 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 organisation’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 organisation 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 organisation has taken no such steps.
(5) An organisation’s slavery and human trafficking statement may include information about—
(a) the organisation’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.
(6) A slavery and human trafficking statement—
(a) if the organisation is a body corporate other than a limited liability partnership, must be approved by the board of directors (or equivalent management body) and signed by a director (or equivalent);
(b) if the organisation is a limited liability partnership, must be approved by the members and signed by a designated member;
(c) if the organisation is a limited partnership registered under the Limited Partnerships Act 1907, must be signed by a general partner;
(d) if the organisation is any other kind of partnership, must be signed by a partner.
(7) If the organisation has a website, it must—
(a) publish the slavery and human trafficking statement on that website,
(b) include a link to the slavery and human trafficking statement in a prominent place on that website’s homepage.
(8) If the organisation does not have a website, it must provide a copy of the slavery and human trafficking statement to anyone who makes a written request for one, and must do so before the end of the period of 30 days beginning with the day on which the request is received.
(9) The Secretary of State—
(a) may issue guidance about the duties imposed on commercial organisations by this section;
(b) must publish any such guidance in a way the Secretary of State considers appropriate.
(10) The guidance may in particular include further provision about the kind of information which may be included in a slavery and human trafficking statement.
(11) The duties imposed on commercial organisations by this section are enforceable by the Secretary of State bringing civil proceedings in the High Court for an injunction or, in Scotland, for specific performance of a statutory duty under section 45 of the Court of Session Act 1988.
(12) For the purposes of this section—
“commercial organisation” means—
(a) a body corporate (wherever incorporated) which carries on a business, or part of a business, in any part of the United Kingdom, or
(b) a partnership (wherever formed) which carries on a business, or part of a business, in any part of the United Kingdom, and for this purpose “business” includes a trade or profession;
(a) a partnership within the Partnership Act 1890,
(b) a limited partnership registered under the Limited Partnerships Act 1907, or
(c) a firm, or an entity of a similar character, formed under the law of a country outside the United Kingdom;
“slavery and human trafficking” means—
(a) conduct which constitutes an offence under any of the following—
(i) section 1, 2 or 4 of this Act,
(b) conduct which would constitute an offence in a part of the United Kingdom under any of those provisions if the conduct took place in that part of the United Kingdom.