UK: The UK's Modern Slavery Act And Supply Chain Transparency In The Resources Sector

Modern slavery is a broad concept encompassing slavery, servitude, forced and compulsory labour and human trafficking and is prevalent in sectors such as manufacturing, agriculture, construction, shipping and transport, and mining. For multinational resource companies, forced labour and child exploitation in supply chains can be particularly problematic when, for example, operating in parts of Africa, Asia and South America where control over local operations may be relatively weak or local labour conditions opaque.

The Modern Slavery Act 2015 (MSA) is the UK's latest response to the problem of modern slavery, and has brought transparency in supply chains to the forefront and, for the mining sector in particular, it coincides with a greater focus on conflict minerals and supply chains at the EU and broader international level. Under the MSA, commercial organisations (body corporates or partnerships) with a minimum global turnover of GBP 36 million and carrying on any part of their business in the UK will be required to publish an annual "slavery and human trafficking statement". The reporting obligation is expected to commence in October 2015 with statutory guidance on the kinds of information that may be included in a statement to be published by the Government to coincide with the reporting duty coming into effect.

The New Reporting Obligation

A slavery and human trafficking statement is a statement of the steps (if any) taken by an organisation to ensure modern slavery is not taking place in its own business operations or in its supply chains. For those meeting the reporting threshold, the statement is required to be published each financial year on the organisation's website and, depending on the type of organisation, must be approved by the board of directors and signed by a director (body corporates), approved by members and signed by a designated member (limited liability partnerships), approved and signed by a general partner (limited partnerships), or a partner (for any other form of partnership).

The MSA sets out a high-level framework of what may be included in a statement and covers the following key areas:

• a brief description of an organisation's business model and supply chain relationships;
• policies relating to modern slavery, including due diligence and auditing processes implemented;
• training available on modern slavery;
• the principle risks related to slavery and human trafficking (including how risks are evaluated and managed in their organisation and supply chains); and
• key performance indicators (allowing third parties to assess the effectiveness of the activities described in the statement).

The statutory guidance should include more specific guidance on the contents of a statement and is likely to also address broader issues including how modern slavery can be identified by businesses and good practice on due diligence processes.

Drivers of Compliance

Legal sanctions for non-compliance with the reporting requirement under the MSA are limited - the Secretary of State is merely empowered to commence proceedings for an injunction requiring an organisation to prepare a statement. Instead, public scrutiny and the press are intended to be the primary divers of compliance. Negative attention from customers, activist shareholders, trade unions and civil society will likely prove an effective incentive for many organisations, particularly those already in the spotlight (such as resource companies operating in conflict zones or jurisdictions where modern slavery is prevalent). California has similar legislation and NGOs, such as KnowTheChain, are actively engaged in 'public shaming' activities, publishing details on their website of companies that are non-compliant with reporting requirements under the California Transparency in Supply Chains Act 2010. The Business and Human Rights Resource Centre has also been active in this space and is very likely to turn its attention to non-compliant organisations under the UK regime. Resources companies subject to the reporting requirement under the MSA should therefore ensure their slavery and human trafficking statement is underpinned by appropriate and proportionate action that it is defensible in the face of scrutiny from both inside and outside of the organisation and from home and abroad (eg, from local communities displaced by a mine site or that have supplied labour to construct a pipeline).

Resources companies will undoubtedly take different approaches to supply chain due diligence, management and the reporting requirement depending on their particular sectoral and jurisdictional risk profiles (eg, offshore gas operations may attract relatively fewer supply-chain issues than land-based extractive activities). Nevertheless, whatever the particular risk profile, most organisations will benefit by focusing on the development of clear procurement policies that address modern slavery, inclusion of contractual protections in supply contracts (such as warranties and audit rights), clear labour and whistleblowing policies, and consistent messaging throughout the supply chain. For those organisations operating in high risk jurisdictions, enhanced due diligence and implementation of more stringent preventative measures will likely be required. Although the allegations have been vehemently denied by the company concerned, the recent filing of a lawsuit in British Columbia by three Eritreans accusing a Canadian miner of complicity in the use of forced labour by its local contractor in Eritrea, drive home the legal and public relations risks that the resources sector faces now that modern slavery is clearly in focus.

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