Is it necessary for modern slavery legislation to include a responsibility for businesses to investigate their own supply chains?

The shocking discovery of a distress note allegedly written by prisoners from Shanghai Qingpu prison within one of Tesco UK’s charity Christmas cards in December 2019[1] not only managed to attract media attention but also reminded us about the prevailing issue of forced labour and slavery within our society. This is unfortunately just the tip of the iceberg as there are many more similar incidents that demonstrated the vulnerability of workers involved in supply chains where cost-effectiveness has been commonly prioritised over the rights and welfare of its labour force.

Alongside the increase of public concern and belief that “no one shall be held in slavery or servitude and all forms of slave trades shall be prohibited”,[2] several countries have enacted legislation to tackle modern slavery within their borders. There are also provisions specifically created to include a responsibility for businesses to investigate their supply chains for any traces of slavery or forced labour. Building upon that, we will discuss in-depth whether it is necessary for countries to impose such a duty on companies. This essay is structured as follows:

Firstly, an overview of the current situation will be provided which focusses on how supply chains based especially in poorer third-world countries are vulnerable to the exploitation of forced labour. Secondly, we will examine the approaches taken by Section 54 of the UK’s Modern Slavery Act 2015 (“MSA”) as well as similar legislation in the US and Australia. Lastly, we will critically analyse their impact before drawing conclusions to infer how governmental legislative efforts are necessary and should not be undermined.

Modern Slavery and Supply Chains

As mentioned by the UN Secretary-General António Guterres, [3] to chart our path forward to eradicate modern slavery, we need to first have a clear understanding of our current stance. According to the International Labour Organisation (ILO),[4] at any given time in 2016, an estimated 40.3 million people are in modern slavery, including 24.9 million people trapped in forced labour. In the private economy where supply chains are highly responsible for the exploitation of forced labour, more than 2,400,000 people are victims in the manufacturing sector, and nearly 1,920,000 people were involved in the commercial agriculture and fishing industry. [5] To better understand the term “modern slavery”, we shall apply the definition[6] whereby slavery is the status or condition of a person over whom any or all of the powers attaching to the right of ownership are exercised. [7] Instead of emphasising on the form, the mere condition of having the right to possess an individual or deprive a person’s liberty would be regarded as enslavement.[8]

Furthermore, typical abuse suffered by forced labours include employers imposing excessive working hours, the illegal beating of workers, non-payment of wages and many more.[9] It is not by chance that global supply chains are one of the most susceptible sectors towards modern slavery as they operate under different legal and cultural value systems.[10] Not only the victims are difficult to identify purely through an auditing procedure conducted by a parent company that is located on the other end of the world, it is also complexed and usually involves several underlying contexts.[11] They include the Industry, Socioeconomic, Geographic, Cultural and Regulatory context whereby supply chain slavery occurs commonly in circumstances where there is a need for low-cost labour-intensive work in a more remote and less regulated society.

Like a harmful parasite that has long attached itself to its host, slavery in supply chains should be uprooted but at the same time dealt with equal parts of caution and care. Sudden abolishment or rash decision-making may only negatively affect the lives of vulnerable individuals.

The Modern Slavery Act 2015 and other modern slavery legislations

             The main legislation that we will be evaluating is the UK’s Modern Slavery Act 2015 (“MSA”). This is because it is one of the first legislation that specifically addresses slavery and trafficking, enhances support and protection for victims as well as having a great influence globally where companies established in the UK are encouraged to take action to ensure their end-to-end supply chains are slavery-free.[12] To be specific, Section 54 of the MSA is implemented to promote better transparency within large corporations. It requires every organisation that carries out businesses in the UK with a global annual turnover of ￡36 million or more, to produce a slavery and human trafficking statement for each financial year. The statement should include the steps taken by the organisation to identify and eradicate modern slavery from its business and supply chain.

This requirement is timely and necessary as up to 2015, around 71 percent of UK companies[13] believe there are a likelihood of modern slavery occurring within their supply chains, especially migrant and vulnerable lower-tier workers. There is a dire need for companies to formulate effective measures to stop indirectly supporting the employment of forced labours. Moreover, in English Law,[14] since multinational companies are regarded as separate legal entities from their suppliers, businesses hold no vicarious liability for the crimes or torts they commit. With the MSA, even though they may still not be held vicariously liable, but an explicit responsibility for businesses to investigate their suppliers and bear the burden of reputational damage if their products were manufactured by forced labours mark a positive start within the commercial industry.

Aside from the MSA, California’s Transparency in Supply Chains Act 2010 [S.B. 657] (“TSCA”) was one of the first state-imposed law that requires large firms in retail and manufacturing with annual worldwide gross receipts larger than $100 million and annual Californian sales larger than $500,000 to make a public declaration of their efforts towards eradicating human trafficking and slavery from its supply chain and to publish the information on their websites. Besides, the US Federal Acquisition Regulation (“FAR”) also complies companies with deferral contracts for goods and services to be acquired outside the US with an estimated value of more than $500,000 to produce a compliance plan ensuring that modern slavery is being addressed seriously amongst their employees.

Moving on to a different continent, Australia had recently enacted the Modern Slavery Act 2018 (“the Act”), requiring entities operating within its borders with annual consolidated revenue of more than AUD$100 million to disclose the risks and actions taken to curb modern slavery within their operations and supply chains. The Australian government had also demonstrated its commitment to helping mitigate modern slavery risks in public procurement and investments by publishing an annual Modern Slavery Statement under the Act every year.[15]

By comparing the MSA with FAR and the Act, a key difference is that modern slavery statements of companies are being collected by the US and Australia government and they are easily accessible to members of the public.[16] Contractor performance information is collected in the Contractor Performance Assessment Reporting System under the FAR whereas modern slavery reports are kept by the Australian government within the Modern Slavery Statements Register under the Act. However, this is not the case for Section 54 of MSA whereby companies are required to put a link to their modern slavery statements on a prominent place of their main page if they have a website. There is an absence of any central government-run repository that collects and disclose company statements free of charge to the public.

However, they share more similarities than differences. Firstly, they all play an important role and are necessary to tackle modern slavery in supply chains, both nationally and globally. Moreover, they also share a common legislative approach which is to strike a balance between promoting transparency within large corporations that involved multi-tiered supply chains and relying on consumers or investors to make informed choice therein to influence their business models. However, the actual consequences of non-compliance in the UK currently are arguably lax as they do not lead to a statutory offence nor any fine will be issued if companies failed to issue accurate slavery and human trafficking statement.[17]

The only remedy for section 54 Is that the Secretary of State can seek an injunction to compel an organisation to issue the statement in accordance to the MSA, and a breach of such injunction is punishable by an unlimited fine. This is also happening in both the US and Australia[18] whereby the law does not require firms to make specific policies, but simply to report the measures that they have voluntarily put in place within their businesses. As long as they are able to show that they had “tried their best” or maybe not even “the best” is required but just certain due diligence measures had been conducted then that’s adequate.

We will expand our discussion on these shared challenges to learn how and why it has been disrupting modern slavery legislation around the world. Furthermore, we will explore whether if these similarities could devalue the necessity for our society to legislate against modern slavery within supply chains.

Slowly but surely: a necessary step that is not necessarily flawless

Being a legislation that is highly dependent on the cooperation of businesses and the spending habits of consumers, the MSA has been constantly at war with immense uncertainties.

According to the annual assessment of transparency statements by the FTSE 100 conducted by the Business & Human Rights Resource Centre after the enactment of MSA, up till 2018, most companies still only publish generic statements committing to fight modern slavery. Only a handful of leading companies demonstrated a genuine effort in their reporting to identify and mitigate risks.[19] It is also worth noting that by investigating the FTSE 100 which are the largest companies in the UK, we will be able to draw a meaningful overview of how industry standards are influenced by MSA. Currently, the average score of key areas such as the transparency, due diligence, and effectiveness of addressing modern slavery amongst FTSE 100 companies still score below 40 percent (with “Effectiveness” scoring the lowest at 17 percent).[20] Furthermore, approximately 45 percent of companies did not disclose their supply chain structure, goods and services procured as well as the country or region where their suppliers are located.[21] There are even around 25 percent of the companies assessed are yet to have a code of conduct in place for suppliers or business partners to comply.[22]

Moreover, modern slavery seems to be an issue that inclines towards tackling the form rather than the actual matter itself under the MSA.

For example, fewer than 20 percent of companies reported any prohibition on the imposition of financial burdens on the worker hired by their suppliers or recruitment agencies.[23] However, high recruitment fees as mentioned earlier is one of the primary factors that lead to the indebtedness of migrant workers thus increasing the risk of debt bondage slavery. Besides, fewer than 15 percent of companies have engaged directly with key stakeholders such as workers, trade unions and local NGOs.[24] This means there a major barrier still exists between the central organisation and its less visible or lower tiers supply chains. Without incentives for companies to take the extra effort besides complying by publishing public statements or setting up a standardised code of conduct, actual exploitation of forced labour in supply chains remains largely untouched.

Curious readers at this point may start to question the necessity of imposing responsibilities on businesses via governmental legislation since the impact of MSA had not been very ideal.

To answer this question, we would like to emphasise that their weaknesses, by all means, should not devalue its necessity on mankind’s journey to curb modern slavery once and for all. The way we interpret these numbers since the law is relatively new and companies need time to readjust are also very important. Thus, we would argue that not only did the MSA affected approximately 12,000 UK and non-UK companies upon its enactment,[25] it has become a significant agent of change that is constantly pushing companies to comply with a more transparent business model. Moreover, the existence of the MSA has also put companies at risk of corporate criminal liability for offences committed under sections 1, 2 or 4 MSA.[26] If a company defendant knows, or ought to have known that an offence was being carried out, then they will still be able to be held liable. This may not extend yet to section 54 of the MSA, but since the courts have previously decided that a corporate entity can commit an offence of harassment by fulfilling an objective/subjective mens rea test,[27] then it could potentially apply on the MSA in the future, leaving corporations no option to turn a blind eye.

In terms of the TSCA, it faced similar challenges whereby in 2015 only 31 percent of companies had a disclosure statement available due to the ambiguity of the law in identifying the names of the companies that should comply.[28] Moreover, 47 percent[29] of the companies identified by KnowTheChain did not disclose sufficient information on how they engage in the process of verification, auditing, certification, internal accountability, and training. The notion of exactly which suppliers should be covered, and even what counts as a “supply chain” is also unclear,[30] thus companies find it challenging to comply accordingly. Besides, a common criticism of uniform and weak auditing requirements of the auditing requirements under the TSCA, leading to a “pseudo-panopticon”[31] – transparency that reveals very little useful information. It can also be seen as a potential contributory factor to the problem addressed by Locke[32] where extensive compliance policies may displace meaningful efforts such as mundane process improvements which might have a greater effect on working conditions. Stephen[33] also highlighted similar views where standard initiatives of anti-modern slavery are themselves part of the enabling mechanism for modern slavery to persist. It creates a fa?ade made up of unified company statements that may divert our attention from the persisting forced labour in supply chains that are usually fragmented and multi-tiered.[34]

Moreover, the idea of using informed consumer choices to drive companies to be more ethical does not always work as consumers may be too indifferent to respond or unwilling to change their existing buying habits. For example, in 2014, Krispy Kreme Doughnuts[35] explicitly states that they do not engage in specific measures to verify its product supply chain is free of slavery and trafficking, nor do they provide training for their employees who have direct responsibility for supply chain management. This officially disclosed statement, however, did not lead to any measurable impact on sales or corporate reputation besides being highlighted by KnowTheChain. Even though this may not be a common approach by corporations nowadays, but it demonstrates the weakness of a legislation that only require corporations to disclose their anti-slavery efforts and rely mainly on consumers’ reactions to “punish” and influence business ethics.

             Since the TSCA has been implemented longer than most of the recent modern slavery legislation mentioned and more data that measure its impact had been produced, we chose to only discuss both the MSA and TSCA’s influence to date. The shortcomings listed above proves to be the areas that future lawmakers should be aware of, but at the same time without the TSCA, it will be nearly impossible for the public to monitor the internal workings of major enterprises. Tackling modern slavery will be purely on the whims of the individual companies’ “Corporate Social Responsibility”. A level playing field will also be absent whereby implementing due diligence measures to ensure supply chains are slavery-free could potentially be deemed cost-ineffective or reducing the competitiveness of responsible businesses.

In short, both the TSCA[36] and MSA[37] had proven to be necessary to raise the standards and make companies more responsible and cautious while dealing with supply chains that are more susceptible to forced labour. Even though it takes some time for all companies to comply and there are still rooms for improvement, these legislation have kickstarted the gears of a society that deters and determined to eradicate modern slavery for good.

Going the extra mile to create a slave-free world

Moving forward, we firstly agree that public accessibility should be improved by setting up a central government-run repository managed by an independent body to which companies are required to upload their modern slavery statements.[38]

Moreover, regulatory measures or intervention by states on corporations should be enforced. Even though it may be politically difficult[39] to have substantial control in how private enterprises operate, we agree that at least a mandatory due diligence[40] should be implemented besides only requiring companies to publish generic statements that make little difference to the problem. Companies should be required to publish and act on an effective due diligence plan that applies to their sub-contractors and suppliers abroad. Victims of modern slavery should also be able to access civil and criminal remedy, and goods of companies that fail to demonstrate due diligence from high-risk regions should be seized. This is to create a substantial deterrence effect to businesses that are profiting from forced labour.

Besides, we also believe that consumer awareness and a change in buying patterns are pivotal to stamp out modern slavery. If consumers actively choose to deal only with businesses that take modern slavery seriously, then real changes in attitudes within the wider society will be possible.[41]

In conclusion, we strongly agree that there is a necessity for states to legislate against modern slavery by imposing responsibility for businesses to monitor their supply chains. However, it may not be a straightforward journey and a more proactive approach should be taken by both the government, corporations, and consumers. Only with a concerted and gradual effort can we all put an end to modern slavery, a hideous and sad problem that puts millions of innocent lives around the world at great risk.

Written by Yi Kang Choo, on a submission for his QUB Property Law Module Assessment.

[1] Editorial, ‘Tesco halts production at Chinese factory over alleged 'forced' labour’ BBC News (United Kingdom, 22 December 2019) <www.bbc.co.uk/news/uk-50883161> accessed 26 March 2020.

[2] Universal Declaration of Human Rights (adopted 10 December 1948 UNGA Res 217 A(III) (UDHR) art 4.

[3] United Nations, ‘The Sustainable Development Goals Report’ (2018) <https://unstats.un.org/sdgs/files/report/2018/TheSustainableDevelopmentGoalsReport2018-EN.pdf> accessed 26 March 2020.

[4] International Labour Organisation, ‘Global Estimates of Modern Slavery: Forced Labour and Forced Marriage’ (Geneva September 2017).

[5] ibid 34.

[6] Research Network on the Legal Parameters of Slavery, ‘The Bellagio–Harvard Guidelines on the Legal Parameters of Slavery’ (2012) <https://glc.yale.edu/sites/default/files/pdf/the_bellagio-_harvard_guidelines_on_the_legal_parameters_of_slavery.pdf> accessed 9 April 2020.

[7] Slavery Convention (adopted 25 September 1926, entered into force 9 March 1927) 60 LNTS 253 art 1.

[8] Bellagio-Harvard Guidelines (n 9) 16.

[9] International Labour Organisation (n 8).

[10] Lund-Thomsen, P and Lindgreen, A, ‘Corporate social responsibility in global value chains: where are we

now and where are we going?’ (2014) Vol. 123 No. 1 Journal of Business Ethics 11.

[11] Andrew Crane, ‘Modern Slavery as a Management Practice: Exploring the Conditions and Capabilities for Human Exploitation’ (2013) Vol. 38, No. 1 Academy of Management Review 49-69 <https://modernslavery.yale.edu/sites/default/files/pdfs/crane_modern_slavery_as_management_practice_0.pdf> accessed 9 April 2020.

[12] ‘Historic law to end Modern Slavery passed’ (UK Government, 26 March 2015) <https://www.gov.uk/government/news/historic-law-to-end-modern-slavery-passed> accessed 18 April 2020.

[13] Michelle Russell, ‘ Modern slavery in 71% of UK company supply chains’ (Just-Style, 22 October 2015) <https://www.just-style.com/news/modern-slavery-in-71-of-uk-company-supply-chains_id126459.aspx> accessed 18 April 2020.

[14] Adams v Cape Industries plc [1990] Ch 433.

[15] ‘Modern Slavery’ (Australian Government Department of Home Affairs, 17 February 2020) <https://www.homeaffairs.gov.au/criminal-justice/Pages/modern-slavery.aspx> accessed 18 April 2020.

[16] Secretary of State for the Home Department, Independent Review of the Modern Slavery Act 2015: Final Report (CP 100, 2019) 42-44.

[17] ibid 75-76.

[18] Alex Newton, The Business of Human Rights: Best Practice and the UN Guiding Principles (1st edn, Routledge 2019) 77.

[19] ‘FTSE 100 & the UK Modern Slavery Act: From Disclosure to Action’ (Business & Human Rights Resource Centre, 2018) 3 <https://www.business-humanrights.org/sites/default/files/FTSE%20100%20Briefing%202018.pdf> accessed 13 April 2020.

[20] ibid 21.

[21] ibid 14.

[22] ibid 15.

[23] ibid.

[24] ibid 16.

[25] Alex (n 17) 74.

[26] Sophie Wood, ‘The Modern Slavery Act 2015: What is it and how will it impact businesses?’ (Kingsley Napley, 28 September 2015) <https://www.kingsleynapley.co.uk/insights/blogs/criminal-law-blog/the-modern-slavery-act-2015-what-is-it-and-how-will-it-impact-businesses> accessed 18 April 2020.

[27] Kosar v Bank of Scotland Plc (T/A Halifax) [2011] EWHC 1050 (Admin).

[28] ‘Insights Brief: Five Years of the California Transparency in Supply Chains Act’ (KnowTheChain, 30 September 2015) 5 <https://knowthechain.org/wp-content/uploads/2015/10/KnowTheChain_InsightsBrief_093015.pdf> accessed 13 April 2020.

[29] ibid 6.

[30] Steve New, Roy Westbrook, Understanding Supply Chains: Concepts, Critiques and Futures (OUP Oxford 2004) 69-108.

[31] W. Timothy Coombs, Sherry J. Holladay, ‘The pseudopanopticon: the illusion created by CSR-related transparency and the internet’ (2013) Vol. 18 No. 2 Corporate Communication: An International Journal 212-227.

[32] Richard M. Locke, The Promise and Limits of Private Power: Promoting Labor Standards in a Global Economy (Cambridge Studies in Comparative Politics, Cambridge University Press 2013).

[33] Stephen John New, ‘Modern slavery and the supply chain: the limits of corporate social responsibility?’ (2015) Vol. 20 No. 6 Supply Chain Management: An International Journal 703 <https://www.emerald.com/insight/publication/issn/1359-8546> accessed 13 April 2020.

[34] Stefen (n 12) 488.

[35] Stephen (n 25) 700-701.

[36] Insights Brief (n 20) 9.

[37] FTSE (n 28) 22.

[38] Independent Review (n 15).

[39] Stephen (n 25) 703.

[40] ‘Modern Slavery in Company Operation and Supply Chain: Mandatory transparency, mandatory due diligence and public procurement due diligence’ (Business & Human Rights Resource Centre, September 2017) <https://www.business-humanrights.org/sites/default/files/documents/Modern%2520slavery%2520in%2520company%2520operation%2520and%2520supply%2520chain_FINAL.pdf> accessed 14 April 2020.

[41] Felicity Hannah, ‘The impossibility of shunning modern slavery (but how to try)’ Independent (4 February 2018) <https://www.independent.co.uk/money/spend-save/modern-slavery-consumer-products-services-nail-bars-cheap-clothing-human-trafficking-a8189236.html> accessed 14 April 2020.