Corporate liability is on the horizon for breach of the Modern Slavery Act

Lauren Bowkett, a Principal Associate at Shoosmiths, explains how the UK's Modern Slavery legislative environment is developing, and explores the proposed introduction of financial and criminal penalties.

The Modern Slavery Bill 

In May 2022, a legislative reform agenda published by the Prime Minister’s Office for the Queen’s Speech outlined plans to reform the Modern Slavery Act 2015 (‘MSA’). The purpose of the new Bill will be to increase accountability of companies and other organisations operating in the UK to drive modern slavery and human trafficking out of their supply chains, encompassing the MSA’s original objectives to fight modern slavery and human trafficking, but also ensuring that there are suitably severe punishments available for perpetrators and those not discharging their duties, whilst enhancing the support and protection of victims.  

Whilst there does not appear to be an immediate appetite to progress the new Bill into law, when enacted certain elements of the Bill will have a major impact on organisations caught under the updated regime.  

To consider what the new Bill may look like when published, it is worth revisiting the defunct Modern Slavery (Amendment) Bill, which was published in June 2021 (which shortly after its first reading was scrapped), and also the independent review of the Modern Slavery Act originally issued by the Home office in May 2019.

The main elements of the new Modern Slavery Bill outlined in the legislative reform agenda echo that of the Modern Slavery (Amendment) Bill and are as follows;  

• Strengthening the requirements of businesses with a turnover of £36 million or more to publish an annual modern slavery statement. Setting out the steps taken to prevent modern slavery in their operations and supply chains.
• Mandating the reporting areas to be covered in modern slavery statements; requiring organisations to publish their statements on a government run registry, extending these requirements to public bodies, and introducing civil penalties for organisations that do not comply with the requirements.
• Ensuring law enforcement agencies have stronger tools to prevent modern slavery occurring, protect victims of modern slavery and bring perpetrators to justice. 

Organisations should take note of this developing area of legislation as it is likely to have a significant impact for breaches of the MSA in the future, in terms of both criminal liability and civil penalties.  

There are practical steps that organisations can take now to reduce the risk of modern slavery and human trafficking within their own organisation and global supply chains whilst also boosting their own environmental, social and governance (ESG) credentials.  

Strengthening 

Currently Section 54 of the MSA is imposed on commercial organisations with a UK presence and global turnover of over £36 million to publish an annual modern slavery statement. The statement should set out the steps an organisation has taken to ensure that slavery and human trafficking is not taking place in any of its supply chains or within its own organisation.  

Currently there are no criminal penalties for non-compliance with the legislation. Section 54(4)(b) allows organisations to report that they have taken no steps to address modern slavery and human trafficking in their supply chains. 

It is expected that the new Modern Slavery Bill will be strengthened through the introduction of mandatory reporting requirements and that the option to report that no steps have been taken will be removed.  

The Modern Slavery (Amendment) Bill proposed strengthening mandatory reporting requirements through the creation of two criminal offences. It is anticipated that the new Modern Slavery Bill will follow the same model. 

The two proposed criminal offences were:

1. Knowingly or recklessly publishing a modern slavery statement that is false or incomplete.
2. Continuing to source items from suppliers or sub-suppliers that fail to show the minimum standards of transparency following a formal warning from the Independent Anti

Slavery Commissioner (‘IASC’). 

In an independent review of the MSA presented to Parliament by the Secretary of State for the Home Department in May 2019 it was recommended that a business should be required to have a named, designated board member who was personally accountable to produce the modern slavery statement. 

In the context of the Modern Slavery (Amendment) Bill a person responsible for a slavery and human trafficking statement of a commercial organisation was defined as a director (or equivalent) of the organisation if it was a body corporate (other than a limited liability partnership), a member of the organisation if it was a limited liability partnership, or a partner of the organisation if it was any other kind of partnership. 

Under the Modern Slavery (Amendment) bill it was envisaged that if a person was responsible for a slavery and human trafficking statement and was found guilty of committing one of the two criminal offences outlined above, they could be sentenced in the Crown Court to up to 2 years in prison and/or receive a fine amounting to 4% of the global turnover of their commercial organisation up to a maximum of £20 million. 

However, in the Home Office Independent Review it was suggested that failure to fulfil modern slavery reporting requirements or to act when instances of slavery are found within an organisation should instead be an offence under the Company Directors Disqualification Act 1986. 

But one way or another it is clear that the appetite appears to be for the creation of criminal type offences.

It is expected that if the mandatory reporting requirements were strengthened through the creation of two criminal offences this would be brought in gradually over time, allowing companies to adapt to the changes in the legislation.  

Such proposed strengthening of the MSA suggests that action is probably required now from those organisations already caught by the legislation. A review and preparation now makes sense in circumstances where there will likely be several amendments to the MSA, which if not followed, will shortly result in large fines and potential criminal sanctions for those organisations and potentially accountable persons who do not comply with them. 

The preparation and publication of a modern slavery statement can have several benefits for organisations, including strengthening the reputation of the organisations global brand, promoting transparency, and advancing ESG credentials. This is rightly being seen by consumers and investors alike as increasingly important. It is noted, for example, that ‘The Grocer’ ran an article in December 2022 entitled ‘Investors tell supermarkets to tackle increasing risk of modern slavery on UK farms’.

As well as considering what an organisation has done that year to minimise the risk of modern slavery and human trafficking in their supply chains, organisations need to consider what steps they intend to make in the future to reduce such risks and include these in their statement. If organisations focus on creating a detailed and objective modern slavery statement now, this will inevitably fine tune their due diligence processes, assisting them in verifying the validity of the information they hold in relation to their supply chains. It is impossible at this stage to know what the published Bill and the final legislation will look like. However, organisations should follow the spirit as well as the letter of the MSA and consider the relevant recommendations in the Home Office Independent review.

Mandating

Currently s54(5) MSA sets out the mandatory minimum standards of disclosure and transparency for commercial organisations when drafting their modern slavery statement.

The statement must include details of: 

• The organisation’s structure, business and supply chains
• Its policies in relation to slavery and human trafficking
• Its due diligence procedures in relation to slavery and human trafficking in its organisation and supply chains
• Highlight where there is a risk of slavery and human trafficking taking place within the organisation and the steps the organisation is taking to assess and manage this 
• Its effectiveness in ensuring slavery and human trafficking is not taking place within the organisation or its supply chains
• Details of the training the organisation gives to its staff about slavery and human trafficking

As well, as the mandatory standards currently contained within s54(5) MSA, the Modern Slavery (Amendment) Bill set out further proposed standards of disclosure and transparency that a commercial organisation would be required to include.  These were:

• Publish and verify information about the country of origin of sources within its supply chain 
• Arrange for external inspections, external audits and unannounced external spot checks
• Report the use of employment agents acting on behalf of an overseas government
• It is anticipated that the new Modern Slavery Bill may follow suit 

Similar to a commercial organisation’s reporting requirements, there are currently no criminal penalties for an organisation that does not set out the mandatory minimum standards of disclosure outlined in the MSA in a modern slavery statement.  

Under the Modern Slavery (Amendment) Bill it was envisaged that if an organisation failed to meet the requirements of disclosure and transparency they would be issued with a formal warning. If they continued to fall below the minimum standards, then those responsible (details of who that may include have been outlined above) would be criminally liable and at risk of receiving a fine amounting to 4% of the global turnover of their commercial organisation up to a maximum of £20 million.  

In the legislative reform agenda, it is also outlined that these requirements would be extended to public bodies. Government departments would be expected to publish a modern slavery statement at the end of the financial year if their annual budget exceeded £36 million. 

In March 2021 the government’s online modern slavery registry was launched, encouraging organisations which fall within the scope of the MSA to publish their annual modern slavery statement on the government-run registry. At the end of 2022 over 31,000 modern slavery statements had been published on the Modern Slavery Statement Register. It is thought that when the Modern Slavery Bill is published uploading an organisation’s modern slavery statement will be mandatory. It is currently entirely voluntary.

If we are right in foreseeing that failures by organisations to set out the mandatory minimum standards of disclosure and transparency in their modern slavery statements or to upload their modern slavery statement to the government’s online modern slavery registry will face penalties then it follows that these penalties will likely be similar to those envisaged by the Modern Slavery (Amendment) Bill or as outlined in the Home Office Independent Review.  

It would be wise for organisations to get into the habit now of annually submitting their modern slavery statement to the registry, embedding modern slavery reporting into business culture. It is also an opportunity to use the register to assist their own organisation to carry out due diligence to risk assess businesses within its own supply chains and/or review the approaches taken by other organisations with a view to possibly finding improvements.

Stronger tools

The implications for commercial organisations who do not comply with the MSA are currently only at risk of proceedings being brought by the Secretary of State for specific performance. Specific performance is when a court issues an order requiring a party to perform a specific act. In the case of a breach of the MSA that could be to draft and publish a modern slavery statement, if they did not have one, and they fall within the scope of the legislation.   

It is expected that the new Modern Slavery Bill will bring into play both financial and custodial implications to those at the very top of commercial organisations, placing the responsibility firmly at their door.

Take steps now

Corporate and personal liability is on the horizon for breaches of the MSA and should be a concern to all organisations, even those within the public sector. Organisations need to adopt a robust approach to compliance now, or they could face both criminal and financial implications in the future. A good starting point is to make sure your organisation is complying with the MSA 2015 in its current form.  

As a priority organisations should consider:

• The design and delivery of their human trafficking and modern slavery policy
• Putting in place policies and procedures to mitigate risk  
• Reviewing procedures if they already exist
• Carrying out regular risk assessments and monitoring on supply chains 
• Carrying out appropriate training to all those within the organisation 

And potentially go one step further and consider making changes in the spirit of the main elements of the Modern Slavery Bill outlined in the legislative reform agenda and the now defunct Modern Slavery (Amendment) Bill:

• Uploading the organisation’s modern slavery statement to the government-run database
• Adding non-mandatory information to the modern slavery statement by mapping and publicly disclosing supply chains  
• Arranging for external inspections, audits and unannounced external spot checks 
• Reporting the use of employment agents acting on behalf of an overseas government  

If you or your organisation needs any further information about modern slavery and trafficking then contact Lauren Bowkett, Principal Associate or John Hartley, Partner in the Business Crime & Compliance Team at Shoosmiths.