Corporate liability for breaches of the Modern Slavery Act 2015

When first enacted, the Modern Slavery Act 2015 ('MSA 2015') was internationally recognised as a landmark piece of legislation. However, key areas of the legislation were criticised for lacking enforceability - including the requirements for corporate supply chain transparency and the quality of modern slavery reporting.

This update will consider a number of potential developments related to MSA 2015 which, if enacted, can be expected to impact significantly on corporate liability in this area: (i) the introduction of mandatory reporting requirements, including a requirement to publish a modern slavery statement; (ii) the proposed introduction of a single enforcement body to combat modern slavery; (iii) a new Modern Slavery (Amendments) Bill; (iv) the possible extension of modern slavery due diligence obligations beyond the supply chain; and (v) a potential new failure to prevent modern slavery offence.  These developments reflect the growing legislative push across the world towards corporate accountability for Environmental, Social, Governance (or ESG) related issues, some of which we explored here.

What does this mean for UK companies?

The developments set out below are significant for businesses and their advisors. If, as expected, enforcement for non-compliance with the MSA 2015 becomes more rigorous, organisations can expect greater scrutiny of how they conduct business within their corporate group and across their broader supply chain, and, potentially their relationships with customers and other business partners. In preparation for these changes, corporate groups should be particularly conscious of the potential impact of operational or even relationship issues at any level of their structure, and the need to mitigate associated risks by adopting a robust approach to compliance.

Modern slavery statements

Certain large companies must produce a modern slavery statement under section 54 MSA 2015 outlining the steps they have taken to verify that their businesses and supply chains are slavery free (or otherwise, produce a statement confirming they have taken no such steps). At present, although businesses could face commercial and reputational consequences for non-compliance with section 54 MSA 2015, there is no provision for monetary penalties to be imposed in the event of a breach. The only remedy currently available is for the Secretary of State to bring proceedings for specific performance. As such, some organisations may be tempted to view compliance with section 54 as a "tick box exercise".

In its response to the transparency in supply chains consultation published in September 2020, the Government confirmed that it will make a number of legislative changes intended to increase accountability and transparency in this area. These changes include:

i. a mandatory requirement to include certain areas within a modern slavery statement, including at least the current six voluntary aspects;

ii. a single reporting deadline;

iii. a requirement for modern slavery statements to include the date of Board approval and Director sign-off;

iv. a requirement for modern slavery statements to explicitly name the entities covered in a group statement.

You can read more about these proposals in our article here.

The Home Office currently maintains a voluntary Modern Slavery Statement Registry, and it is expected that in due course publication of statements within that registry will become mandatory. The Home Office will monitor statements to ensure organisations are meeting the new reporting requirements.

Although there are no financial penalties currently provided for in the event of a breach of section 54 (to which, see further below), an organisation which publishes a modern slavery statement must ensure that its contents is both accurate and consistent, to mitigate the risk of civil action from parties who have acted in reliance on the information within the statement, including consumers, investors or commercial partners. This is particularly relevant for large corporate groups, who can elect to produce a single statement. Home Office guidance requires this statement to "fully cover[s] the steps that each of the organisations required to produce a statement have taken in the relevant financial year". Such groups may therefore be required to address slavery risks arising in multiple supply chains involving various corporate entities, as well as the compliance steps taken to address them.

The Modern Slavery (Amendments) Bill 2021

On 15 June 2021, a private members bill - the Modern Slavery (Amendments) Bill 2021 was laid before the House of Lords. Although unlikely to be enacted, it includes ambitious proposals on how to significantly increase enforcement of certain aspects of the MSA 2015, including the introduction of a criminal offence for any individual (including a Director) who knowingly or recklessly supplies a false or materially incomplete modern slavery statement. This offence would carry a penalty of up to two years imprisonment for individuals and a fine of up to 4% (capped at £20 million) of annual global turnover for the company.

You can read more in our article here. 

Single Enforcement Body

Also in June 2021, the Department for Business, Energy & Industrial Strategy published the Government Response to the 2019 consultation on establishing a new single enforcement body for employment rights (the Good Work Plan). The report confirms the creation of a new single enforcement body to combat modern slavery, enforce employment rights and protect agency workers. The new enforcement body will have the power to impose financial (civil) penalties for non-compliance with the updated modern slavery statement reporting obligations (as described above). The Government response also indicates that companies who have been found to be in breach of their modern slavery statement reporting obligations will be publicly named. It is expected that any evidence of criminal offences provided for within MSA 2015 will be reported by the single enforcement body to other relevant authorities for further investigation. This risk of penalties, together with the reputational consequences of breaching market and stakeholder expectations in this area, will do much to encourage corporates, to the extent they are not already doing so, to adhere to their obligations to combat modern slavery.

Extension of modern slavery due diligence obligations beyond the supply chain

In January 2021, the UK Independent Anti-Slavery Commissioner published a joint report calling for further action to be taken across the financial services sector to prevent modern slavery and human trafficking. The report emphasises the responsibility of financial institutions and other financial services providers to use their influence to address cases of modern slavery within their customers, and in particular those to whom they lend capital or provide investment.

The report identifies that, despite links to money laundering and other financial crimes, few financial services providers actively manage modern slavery risks. The report calls for modern slavery due diligence to be incorporated into existing financial crime controls, including customer due diligence, screening and ongoing monitoring. It also identifies the opportunity for investors and lenders to exert their leverage over customers and investee companies to influence behaviour and improve standards in this area.

Businesses operating in the financial services sector are already obliged, pursuant to existing regulations, to take extensive steps to address the risk that their services are used by customers to facilitate money laundering, which is defined by reference to the proceeds of any criminal offence, including modern slavery offences. Despite this, the report identifies that there is a lack of awareness on the part of some businesses operating within the sector (including in particular providers of crypto currencies, accountancy firms, insurance or brokering) of the extent to which they are exposed to this particular risk. Financial services businesses would be advised to take note of the report findings and ensure that modern slavery risks are considered and addressed within their anti-money laundering policies and procedures, including business-wide risk assessments and customer due diligence controls.

It is interesting to consider these obligations in the context of the scope of proposed new human rights and environmental due diligence requirements in the EU. If enacted, these proposals would require certain businesses operating in the EU to conduct due diligence and ongoing monitoring with respect "to potential or actual adverse impacts on human rights, the environment and good governance in their operations or business relationships". This could conceivably include conducting modern slavery due diligence on customers and commercial partners, as well as others in the supply chain.  The impact of a customer due diligence obligation that extends beyond the financial services sector would be very significant. Corporates who may fall within the scope of these obligations should follow this development closely, and ensure that, if enacted, they make sufficient provision for investment in compliance policies, procedures and controls to address customer risk.

A "Failure to Prevent" Modern Slavery Offence?

Back in 2017 the Parliamentary Joint Committee on Human Rights proposed the introduction of a new corporate offence of failure to prevent human rights abuses. Whilst this was not further defined, it seems highly likely that modern slavery offences (including offences of slavery, servitude and forced or compulsory labour and human trafficking outlined in Sections 1, 2 and 4  MSA 2015) would fall within the remit of such an offence. Similar to other 'failure to prevent' offences, where human rights abuses had been committed by persons associated with the corporate including, in this context, its subsidiaries and other members of its supply chain, it would be required to demonstrate that it had "conducted effective human rights due diligence" in order to avail itself of a defence. Such an offence could have a significant impact on businesses, requiring due diligence and risk mitigation measures to be adopted widely.

No steps were taken to implement this change in 2017. However, it is possible that this suggestion may be revisited in light of the movement towards more stringent modern slavery reporting obligations, the adoption of mandatory human rights and environmental due diligence requirements within the EU (as described above), and the increasing enthusiasm for using corporate 'failure to prevent' offences to address a range of misconduct, including most recently economic crime offences. For the latest on this debate, see our article here.