Slavery Act Puts Company Reputations On The Line

With the enactment of the Modern Slavery Act in October, the United Kingdom has made a new addition to the growing body of compliance regulations sprouting up globally.

The new law requires large companies to file a slavery and human trafficking statement annually to prove that the necessary compliance programs are in place and that no labor is exploited at any level of their supply chain. While laudably ambitious, the legislation is vague. It also partially duplicates disclosure requirements already contained in the 2006 UK Companies Act.

“Whilst the Companies Act is not as prescriptive or specific in this area, publicly listed companies that are bound by it likely already have these issues on their radar, together with comprehensive ethics and compliance programs, so the Modern Slavery Act may not constitute a significant change,” says Hannah Laming, a partner in Peters & Peters’ business crime department in London. “For other organizations, this could represent a fairly substantial new compliance obligation, although, given the £36 million ($55 million) turnover threshold, one would expect most of the companies to which the act applies to have already undertaken some work internally.”

The fact that no financial or criminal penalties are associated with violating the Modern Slavery Act has people wondering whether it has any bite. “The government can, in principle, bring proceedings in the High Court for an injunction requiring an organization to comply, but it remains to be seen whether or how frequently such a step will be taken,” says Laming. “In practice, the risk for businesses is that of negative publicity, the threat to brand value, company reputation and investor relations.” It is also possible that the required statements may be closely evaluated for any company bidding for government work.

The Modern Slavery Act applies to companies incorporated in the UK or that “carry on a business” there. This latter group, says Laming, is not clearly defined, but the language is the same as in the 2010 Bribery Act. “The UK subsidiary of foreign companies will be caught, as will overseas companies, which do not have an office or employees in the UK but which do business here—for example, supplying goods or services to the UK,” she concludes.