UK modern slavery reporting: a missed opportunity?
25 June 2020: With the COVID-19 pandemic potentially increasing the prevalence of modern slavery and human trafficking, now is the time to strengthen requirements.
Much of the world is in almost complete lockdown due to the COVID-19 pandemic. The impact of this on jobs, household and corporate incomes and national economies has been profound. The International Labour Organization (ILO) has predicted, based on a conservative estimate, that 25 million jobs have been lost globally and workers may lose as much as $3.4 trillion in income.
The UK economy is forecast to shrink by 8.3% in 2020, the most significant decline since 1921. Many do not see a return to pre-crisis size until the end of 2021. Consumer and corporate spending have fallen equally dramatically. In the UK, for example, many workers are on furlough or have been made redundant.
Reduced consumer and corporate spending in the UK means many thousands of factory and farm workers supplying goods or raw materials to UK organisations will be laid off. Alternative sources of income are limited. Many will now be at a higher risk of falling prey to human traffickers or because there is no alternative, forced to work in conditions that equate to slavery.
Given the current crisis, why does it matter to the accountancy profession that garment workers in Cambodia, farmworkers in Kenya, or Vietnamese nail technicians in the UK are slaves? Should it care that because of the pandemic, more people, including children, may fall prey to human traffickers?
It should matter, quite apart from the moral imperative, because under the Modern Slavery Act 2015, UK organisations with an annual turnover of over £36 million must prepare and publish an annual "Section 54 Transparency in Supply Chains Statement" within six months of their financial year-end.
Australia, France and the Netherlands have legislation that imposes similar requirements on organisations. UK rules do not mean that organisations have to prevent slavery or human trafficking. However, they do need to assess the risk of it occurring within their supply chains, take steps to mitigate it and publish a report on their website outlining what they have done or will do.
The pandemic may make reporting and publishing this statement more of a challenge. The Home Office has agreed that the publication of an organisation's modern slavery statement may be delayed by up to six months without incurring any penalty.
If an organisation does delay publication, it must explain why within the statement. It is not meant to give organisations an excuse to avoid assessing the risk of slavery within their supply chain, although one could be forgiven for thinking otherwise. The Home Office (HO) states that the statement can only be delayed, not avoided.
When it is eventually published, it must reflect any new or increased modern slavery risks in the supply chain caused by the pandemic. There is a risk that the due diligence process usually followed may be sacrificed due to the need to secure business or even safeguard the future of the organisation.
The HO has (rather naively) assumed that all relevant organisations publish comprehensive and meaningful statements. The brutal truth is that many organisations have been 'avoiding' the issue for years. The Business & Human Rights Resource Centre observes that most organisations publish generic statements committing to fight modern slavery, without explaining how. So much so that the Business & Human Rights Resource Centre concludes that: "very few have demonstrated a genuine effort in their reporting to identify vulnerable workers and mitigate modern slavery risks." To date, no organisation has been sanctioned for not publishing a statement nor for an inadequate statement.
A review of the Modern Slavery Act commissioned by the government also noted that a lack of enforcement and penalties, as well as confusion surrounding reporting obligations, resulted in 'poor-quality' statements. Best estimates suggested that over a third of eligible organisations did fully comply with the legislation.
The review concluded that a central registry was necessary to monitor compliance, increase scrutiny and engagement, as all the statements would be available in one place. The government pledged to develop an online registry for modern slavery statements and to amend the legislation to mandate publication on this registry but as yet has not done either.
It seems to suggest the government is reining back on its commitment to eradicate slavery and seems content to let the well-documented weaknesses inherent in the current system to remain. There is no apparent ministerial desire to give the legislation teeth.
It seems that the pandemic has allowed us to consider what sort of future we want. If we're going to end modern slavery and human trafficking once and for all, we need to press for legislative change. An easy win for the UK government would be to adopt, in full, the recommendation of the Independent Review. But more needs to be done and in particular, the Modern Slavery Act needs to be amended to include sanctions.
If the UK government is unwilling, the EU Commission appears to be taking a more proactive stance. In April 2020, it announced plans to develop legislation requiring EU companies to conduct mandatory human rights and environmental due diligence on their operations and global supply chains by 2021.
If passed, the new law would also include provisions for corporate liability with possible sanctions imposed for non-compliance. The UK will not be covered by this (although if the EU legislation is extraterritorial in its scope, UK organisations will be included), but the UK government could follow suit.
The problem is not necessarily just governmental resistance, but the prevailing view that 'what can be measured gets managed and then valued.' To put it another way, if an organisation fears its reputation or economic wellbeing will be damaged by non-compliance, this can incentivise positive action.
The UK's Bribery Act 2010 is a useful pointer as to how prevention of economic crime can be incentivised. The Bribery Act includes a corporate offence to prevent bribery, punishable by an unlimited fine. The act goes further: any director, manager, secretary or similar officer of the entity will also be guilty of the same offence if it was committed with that person's consent or connivance.
It means the management cannot turn a blind eye but must put in place 'adequate procedures' to prevent bribery, although the legislation recognises that bribery cannot be eliminated. A similar approach could be adopted concerning modern slavery and trafficking.
As when the Bribery Act was first discussed, many would say this places an unbearable burden on an organisation, but surely the real weight is on those who are enslaved or trafficked. No one should profit from the imposition of the burden, however far removed they think they are from the act of enslavement or trafficking.