A number of countries have recognised the need for action and have introduced legislation to combat modern slavery. The adopted measures focus on supply chains placing a duty on businesses to monitor and publicly report on the controls they have in place.
Therefore, in addition to the moral motivation to stamp out modern slavery an international business should also be aware of its legal obligations in these countries.
It’s easy to assume that modern slavery isn’t relevant to your business, however agency labour, out-sourced services, office cleaning, transportation, catering and hospitality are all areas at risk of forced labour.
The BBC recently reported on a criminal gang operating out of the Czech Republic who coerced Czech nationals to work in the UK for McDonalds and in food processing factories. Most of the victims were vulnerable – either homeless or recovering from addiction and living in cramped unheated accommodation in the UK while the gangmasters spent their wages on luxury cars and property in the Czech Republic. Red flags were missed – their wages were paid into one bank account controlled by the gang, members of the gang accompanied them to interviews because they couldn’t speak English, they worked extreme hours, they had the same home address. A number of major supermarkets were also named and shamed given that the food processing factories were their suppliers.
The case serves to highlight that in the absence of controls just how susceptible businesses are to modern slavery and fully justifies the stance taken by the countries who are leading the charge against modern slavery. Countries that have so far enacted legislation are Australia, Hong Kong, France, Germany, Italy, The Netherlands, Norway, Switzerland, UK, and the US. However the laws in France, Germany, Italy and Norway apply only to large local businesses, the Netherlands legislation is only focussed on child labour, while the Swiss legislation targets child labour and businesses involved in mineral and metals extraction. The legislation of Australia, Canada and the UK is much wider in its scope and more likely to apply to international businesses – we set out the requirements below.
Section 54 of the UK’s Modern Slavery Act requires in scope businesses to publish an annual Modern Slavery Statement which discloses the steps taken to ensure that slavery and human trafficking is not taking place in its operations or supply chains, or that it has taken no steps
Only organisations with annual revenue of £36 million or more need to publish a statement however for international organisations this figure is easy to trigger.
If the UK business activities are managed by an overseas parent company then the parent company will be assessed as ‘doing business in the UK’ and will fall under the scope of the Act. If the parent company and its global subsidiaries meet the £36 million threshold then the parent company will need to publish a Modern Slavery Statement.
If instead the UK business is controlled by a UK company independent of its overseas parent then only the revenue of the UK company would be relevant and it would avoid the requirement to produce a statement if its revenue was below £36 million. (If the UK company and its activities are managed by an overseas parent then it will be the parent company that has the responsibility to report).
An organisation can be forced to prepare a statement by way of injunction - a failure to comply could result in a fine (currently unlimited).
However, non-compliance has a material impact on an organisation’s reputation – this was evidenced by the recent investor lawsuit that hit fashion retailer Boohoo after allegations of modern slavery breaches wiped more than £1bn from its share price.
For international organisations hoping to win UK government contracts or contracts with large UK companies a Request For Proposal (RFP) will often require evidence of a published Modern Slavery Statement.
It’s worth noting that there is an appetite within government for greater sanctions including new criminal offences and corporate liability.
Under the Commonwealth Modern Slavery Act 2018 businesses are required to report annually on the risks of modern slavery in their operations and supply chains and detail any actions that have been taken to address those risks. The statement must be approved by the board of directors, signed by a director and filed with the Australian Border Force whereupon it is added to the Modern Slavery Statements Register and available for public view. Statements must be submitted within 6 months of the reporting entity’s financial year.
Businesses that carry on business in Australia and have a consolidated annual worldwide revenue of AU$100 million.
International businesses that do not have a local Australian subsidiary will only be required to report if they have a worldwide revenue of AU$100 million and are ‘carrying on business in Australia’. Entities will be considered to be ‘carrying on business’ if, among other things, they have a place of business in Australia, use a share transfer or registration office in Australia, or deal with property in Australia.
For international business that have an Australian subsidiary the local subsidiary will only have to report if its revenue of it and that of any entities it controls meets the AU$100 million threshold (i.e. not factoring any overseas parent that may control it - the Act is not intended to apply to foreign parents that do not directly carry on business in Australia.
Currently there are no criminal or financial sanctions for a breach, however the Minister of Home Affairs can disclose breaches on the Modern Slavery Statements Register leading to reputational damage for the business.
On 28 May 2024 the Australian government passed a bill which if it becomes law will see the appointment of Australia’s first Anti-Slavery Commissioner. The introduction of the Commissioner role will undoubtedly lead to increased awareness and enforcement. Additionally in 2023 the government released a report in which a number of recommendations for reform were proposed which included expanding the scope of the slavery statements, introducing penalties and also lowering the threshold for reporting entities to AU$50m from the current AU$100m.
Under the Fighting Against Forced Labour and Child Labour in Supply Chains Act ( the Act) in scope businesses are required to submit an annual report describing their business and supply chains and what measures have been put in place to prevent it (training, due diligence, monitoring, policies etc).
The Act applies to ‘entities’ producing, selling, or distributing goods in Canada or importing into Canada.
‘Entities’ are organisations listed on the Canadian stock exchange or an organization that has a connection to Canada (either has a place of business in Canada, does business in Canada or has assets in Canada) and meets at least two of the following conditions for a minimum of one of its two most recent financial years:
Tax and employment records will be a factor in determining whether an organisation has a place of business in Canada and in assessing whether an organisation is ‘doing business’ the factors used by the Canada Revenue Agency in determining whether a non-resident is ‘carrying on businesses for GST /HST purposes will be taken into account.
With regards to the revenue and headcount thresholds recent government guidance has confirmed it should include the ‘entity’ and any entity that it controls but not a parent entity. It is therefore possible for a foreign organisation without a Canadian subsidiary to trigger the obligation to report if they are deemed to be doing business in Canada, however, if the same organisation was doing business through a local subsidiary in Canada which didn’t meet the thresholds then no reporting would be required.
Recent government guidance also suggests that entities that are only engaged in selling and distribution of goods rather than production or importation are subject to the Act, although this view maybe be subject to future change.
An organisation that fails to meet its requirements could be subject to sizeable fines up to CAD 250,000. Additional fines can be applied to organisations that make false or misleading statements.
Given the potential to trigger reporting requirements in Australia, Canada and the UK the approach taken by many international businesses is to publish or submit the same statement in all three countries. However it’s important to note that each country has its own reporting criteria and therefore it’s important to ensure that a single statement is checked against the requirements of all three countries. Recent guidance from Canada’s federal government specifies that reports used for other jurisdictions can be submitted but only if the report meets all of the criteria and requirements of the Canadian Act such as including attestation and board signature). It’s also advisable to update a ‘global’ report to reference the relevant local legislation before submission.
Modern slavery should be a key agenda item for all international organisations. Irrespective of compliance there are increasing customer, investor, media and societal expectations and for businesses that can demonstrate their commitment there are measurable reputational and commercial benefits.
If you have any questions or need further assistance please get in touch with Stuart Buglass.
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