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Supply Chain Transparency - New Legal Obligations

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Increased focus by enterprises large and small on corporate social responsibility, and the substantial growth in social enterprise and the government passing a new act "Modern Slavery Act 2015".

Supply Chain Transparency – New Legal Obligations

Over the past few years there has been an increased focus by enterprises large and small on corporate social responsibility, and there has been a substantial growth in social enterprise.  It is clear that the impact of business on human society (at the macro level) and community (on a smaller scale) is becoming increasingly important to businesses which need to be seen as ethical to satisfy their customers, as well as to satisfy their own 'corporate consciences'.

This shift towards ethical commercial practices has also been reflected in legislation.  It is now just over five years since the introduction of the Bribery Act 2010, which required businesses to put in place adequate procedures to prevent themselves and their suppliers from acting in an improper manner.  This is not just a point of interest for compliance functions, but for anyone dealing with contract negotiations.  The impact of this legislation will not have escaped your notice as customers seek contractual assurances from suppliers (and vice versa) that they act in accordance with the law, and ethical business practices more generally.

Earlier this year, the government passed the Modern Slavery Act 2015, which makes provision regarding slavery, servitude and forced/compulsory labour, as well as human trafficking.  Whilst at first glance many organisations may be tempted to assume that the new law will have no real relevance to their business, this may prove to be an unsafe assumption.

Section 54 of the new Act will apply to any commercial organisation that supplies goods or services and has a total turnover meeting the threshold set by government, and will require such organisations to prepare a 'slavery and human trafficking statement' for each financial year.  'Commercial organisation' in this context refers to any corporate body or partnership which carries out business in the United Kingdom, whether or not it is registered there.  There is no requirement for a minimum footprint, so any commercial organisations doing business in the UK will be affected if they meet the threshold.

On 29th July, the government published its response to consultation stating its intent to set the threshold at £36m, and to bring the provision into force in October this year.  The government determined that businesses with this level of turnover would have the influence (e.g., purchasing power) to drive change in supply chains, and it is also the figure used in the Companies Act 2006 to define large businesses.  There is no requirement for this turnover to derive from the UK element of the business, and it can therefore be taken to refer to global turnover of the commercial organisation.

Therefore, from October 2015, it will be a requirement on all commercial organisations doing business in the United Kingdom and having a turnover of not less than £36m to prepare an annual report describing what steps they have taken to eliminate modern slavery from their supply chains and their own businesses.  It is worth noting that it remains open for the Secretary of State to adjust this threshold, and it may be reduced in the future.

According to the new Act, a slavery and human trafficking statement may (and arguably should) include information about the organisation's:

(a) structure, business and supply chains;

(b) policies in relation to slavery and human trafficking;

(c) due diligence processes in relation to slavery and human trafficking in its business and supply chains; and

(d) effectiveness in ensuring that slavery and human trafficking is not taking place in its business or supply chains, measured against such performance indicators as it considers appropriate.

The statement may also include information about the parts of its business and supply chains where there is a risk of slavery and human trafficking taking place, and the steps the business has taken to assess and manage that risk.  The training available to its staff may also be described.

If your business falls within the scope of Section 54, you must publish your slavery and human trafficking statement on your website and include a link to the statement in a prominent place on your homepage.

Given that the statements must be approved by the board and signed by a director (or designated member for LLPs), it would not now be surprising to see obligations appearing on suppliers in supply and service contracts to enable customers falling within the scope of Section 54 to be able to demonstrate that they are taking steps to ensure that their supply chains are free from slavery and human trafficking.

For information on how Fieldfisher can help, see our further information.

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