Modern Slavery in the Manufacturing Sector – do accountants have a role to play?

The fashion and agricultural sectors have come under particular fire, but the manufacturing sector has not proved immune. Perhaps the most (in)famous case is that of the Kozee Sleep factory in Yorkshire where dozens were employed as slaves, even though this was a multi-million-pound bed-making business that supplied some of the biggest names on the high street, including John Lewis and Next.

Many would argue that any business should ensure that its employees are treated decently but the UK’s Modern Slavery Act 2015 takes this further. It introduced the requirement for some commercial organisations to prepare and publish an annual Section 54 Transparency in Supply Chains Statement. This set outs the risk of modern slavery occurring in an organisation’s business and supply chains and the action taken to combat this. The idea is that if you know where slavery might be then you can take action to stop it.

The main consequence of non-compliance is reputational damage as consumers, investors and even employees can choose to vote with their feet if a manufacturer or indeed any business is deemed to be taking no action or insufficient action. The government is promising to impose tighter penalties but so far has only set up a Modern Slavery Statement Register where all organisations in scope (and any that chose to do so on a voluntary basis) must file their statements. The aim is to make it easier for stakeholders to hold businesses to account and to compare good and bad practice.

1. Understand the signs of slavery
   Slavery is coercing another person to undertake labour. Coercion is not just physical force or the restriction of movement but includes the retention of identity documents, retention of wages and threats to the victim’s family. All of these make it very difficult for the victim to leave the employment. Low wages, long hours or an unsafe environment may be criminal offences or indicative of slavery but of themselves are not evidence of slavery.
   
   In the Kozee Sleep case the workers were hired by an intermediary in their native Hungary on the promise of £1,000 after six months, as well as tobacco, food and accommodation. In reality they received £10 per week, worked 20 hours, seven days a week and had their identity documents confiscated. The accommodation provided was squalid and overcrowded.
   
   If you suspect modern slavery report it to the authorities. Do not confront the victims themselves as this may put them and you in danger. ICAEW’s Modern Slavery Hub has more advice on spotting and reporting victims. 
2. Review your suppliers and take action
   Any manufacturer caught by the MSA should be probing their own business and asking all their suppliers (wherever located) whether there is any risk of slavery in their operations and how they are or are intending to mitigate it. These suppliers should also be holding their suppliers to account in a similar way.
   
   Perpetrators, however, are very adept at hiding what is going on. In the Kozee Sleep case, the company claimed adherence to ethical trading standards and employment law and even allowed regular ethical audits yet “nothing untoward” was ever uncovered. 
   
   If a supplier is unaware of the risks or not doing anything about it the business should continue work with them to resolve any issues. Cancelling the contract will only push the problem elsewhere not solve it.

Modern Slavery is as much a financial crime as a social crime and so accountants are uniquely placed to spot the signs. The ‘red flags’ for modern slavery are very similar to those for money laundering and other economic crimes including benefit and tax fraud. The accounting records and business practices of an organisation often contain vital clues. Examples include aggressive sales targets and supplier contracts that can only be met by cutting corners, a turnover level that seems unlikely given the number of staff on the payroll, over reliance on one recruitment agent, and unusual payment practices. For more examples see the Modern Slavery Hub.

The Business and Management Faculty’s Modern Slavery Hub is a wide range of resources guides and webinars on the legal requirements in the UK and elsewhere, how to spot modern slavery and what to do if you do.

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