U.K. Modern Slavery Act: Five Things You Need to Know

thumbnailThe transparency provisions of the U.K. Modern Slavery Act went into effect on October 29. At the same time, the U.K. Government has released guidance for companies seeking to comply with the Act.

As previously discussed, the transparency provisions of the Act are applicable to companies that do any part of their business in the United Kingdom if they have annual gross worldwide revenues of £36 million (approximately $56 million) or more each year.

Companies subject to the Act will be required to publish an annual “slavery and human trafficking statement.” The statement should reflect what efforts, if any, a company has made during the previous financial year to ensure that its business operations, and its supply chain, are free from slavery and human trafficking.

Here are five key takeaways from the new statutory guidance:

(1) When must the first disclosures be published?

Companies with financial years ending on March 31, 2016 will be the first companies required to publish a statement. Companies are expected to publish their statement “as soon as reasonably practicable after the end of their financial year” and are encouraged to do so within six months.

Statements are expected to cover a company’s activities during the previous financial year.  The guidance notes that where an organisation has only recently undertaken activities relevant to the Act, they may choose to produce a statement that indicates that the activities described only cover a particular part of a financial year.

(2) What are the penalties for non-compliance?

The exclusive remedy for failure to comply with the transparency provisions is an action by the Secretary of State seeking injunctive relief through the courts. If an organization fails to comply with an injunction, it will be in contempt of court “which is punishable by an unlimited fine.”

(3) Does the legislation define “doing business in the United Kingdom”?

No. The guidance states that “the courts will be the final arbiter” as to whether an company is conducting business in the United Kingdom “taking into account the particular facts in individual cases.” The guidance notes that “a common sense approach” should be applied in determining whether an organization is doing business in the United Kingdom.

Notably, the guidance does state that “having a UK subsidiary will not, in itself, mean that a parent company is carrying on a business in the UK, since a subsidiary may act completely independently of its parent or other group companies.”

(4) If a parent company has subsidiaries, which entity or entities need to produce the required statement?  

The guidance clarifies that each part of a company that meets the statutory threshold (annual gross worldwide revenues of £36 million, supplying goods or services, and carrying on business in the United Kingdom) must produce the required statement. A parent company and its subsidiaries may each be required to produce a statement if they individually meet the threshold requirements. The guidance states that a parent company may produce one statement that subsidiaries can use to meet the requirement if the statement covers the steps undertaken by the subsidiaries.

(5) What if a company has not taken any steps to address the risks of slavery and human trafficking in the context of its operations and its supply chain?

A company must still publish statement even if it has not taken any steps to address the risks of slavery and human trafficking in connection with its operations. The statement should clarify that no steps have been taken. Such a disclosure will be compliant with the Act, but, as the guidance notes, “may damage the reputation of the business.”

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