Modern slavery in the UK: Reporting falling short

Generating an estimated US$150 billion annually, slavery affects approximately 50 million people globally, with one in four victims being children.

Yet poor reporting practice continues in areas such as due diligence, risk assessment, and performance measurement and effectiveness continues to be a problem, a recent review of
Modern Slavery Reporting Practices in the UK found.

It is hoped the review will lead to improved reporting practices that demonstrate action by companies and lead to further research and enquiry.

“Slavery, trafficking and human rights are critical issues for business and society,” says Professor Steve Young, of Lancaster University Management School, who co-authored the report with colleague Dr Mahmoud Gad, Assistant Professor of Accounting; the Financial Reporting Council; and the Independent Anti-Slavery Commissioner.

The review suggests these risks may be passing under the radar in some companies, while others seem to be concerned only with satisfying regulatory requirements rather than understanding and addressing fundamental concern, he says.

In the UK, the Modern Slavery Act 2015 made it compulsory for firms with a turnover of more than £36m to annually disclose their work to tackle modern slavery, but thousands still do not, says Dr Gad.

With the United States and European Union having introduced restrictions on imports that are aimed at stamping out offshore production with forced labour – including the Uyghur Forced Labor Prevention Act and the Tariff Act in the US, says Anti-Slavery International Business and Human Rights Manager Sian Lea.

“The UK risks becoming a dumping ground for goods unless it keeps up with the global community,” she says.

That global community is setting a standard:

• Canada can now prohibit the importation of goods made with forced labour through its Customs Tariff
• Mexico has published a resolution to enforce similar legislation as part of the US-Mexico-Canada Agreement
• The French Corporate Duty of Vigilance Law requires large corporations in France to mitigate human rights risk in their supply chains
• Germany’s Supply Chain and Due Diligence Act requires large companies to monitor their own operations and those in their cradle-to-grave supply chain for human rights violations, and mandates action.

Likely changes accounting professionals should prepare for

In May last year a legislative reform agenda for The Modern Slavery Act 2015 was published by the Prime Minister’s Office for the Queen’s speech.

Suggestions included strengthening the requirements for businesses to publish an annual statement on what measures they are taking to prevent modern slavery in their operations and supply chains, the introduction of civil penalties for those who fail to meet requirements, and stronger tools for law enforcement agencies to prevent modern slavery.

It is expected that the UK Government will table a Modern Slavery Bill, with proposed amendments, by spring 2023.

Lea’s organisation Anti-Slavery International is calling for tougher measures.

It suggests mandatory laws that require companies, financial institutions and the public sector to take meaningful action against forced labour in their operations and value chains, and hold them accountable when they fail to prevent abuses.

The organisation also wants laws that control the import of products made with forced labour; trade and customs measures that would allow products made by forced labour to be seized or blocked; and labour agreements that would result in greater labour rights and anti-slavery protections.

In the longer-term, Anti-Slavery International hopes that a Business, Human Rights and Environment Act, mandating all companies to undertake human rights and environmental due diligence across their value chains, will be introduced as new separate primary legislation in the UK.

This Act would establish supply chain disclosure requirements, including where raw materials are obtained, and include disclosure of information such as workers’ wages.

As well as empowering consumers to make informed decisions, it would also, as in the German example, mandate action and remediation by holding companies liable if they fail to prevent harm, providing access to justice for victims.

Actions accountants can take now

While debate over legislative reforms continues, Dr Gad believes that accountants occupy a critical position in recognising and combating modern slavery in supply chains.

“Their financial expertise equips them to scrutinise transactions and detect irregularities that might indicate unethical practices such as forced labour or human trafficking,” he says.

“As businesses worldwide aim for greater transparency, it's crucial for accountants to be equipped with the knowledge and tools to identify and report modern slavery.

“Their active involvement can not only protect businesses from potential legal and reputational risks but also contribute to the global effort to eradicate this grave issue.”

Lea says suggested reforms would affect both businesses and accounting professionals because allowing forced labour – whether deliberately or unwittingly – becomes a material risk for a company.

“Driving out harmful practice, including forced labour, across a company’s value chains must be considered as part of corporate strategies, risk registers and company performance,” she says.

“Companies, and therefore the professionals who work for them, must be proactive in how they identify and address potential or actual harm in their value chains otherwise they could face legal liability.”

Accountants employed by larger businesses can begin by conducting meaningful human rights and environmental due diligence across their value chains.

In complex supply chains, it may be necessary to consider macro issues such as the geopolitical, legal and regulatory environments.

Those contracted to SMEs also have an insight into the financial flows of a business and can spot red flags – anything that might indicate that people are not paid properly or that the cost of suppliers and services seems uncompetitive, Lea suggests.

Using integrated reporting to measure how an organisation uses financial, human or natural capital and the impact of that use, rather than single-capital financial reporting, can be valuable if a business has provided clean, detailed data.

Lauren Bowkett, a Principal Associate at Shoosmiths legal firm believes a review and preparation of business practices now makes sense considering businesses that fail to take modern slavery seriously will potentially face large fines and criminal sanctions.

Creating a detailed and objective modern slavery statement will fine-tune due diligence processes and help validate information related to supply chains, she suggests.

It would include slavery and human trafficking policies, as well as details of supply chains, due diligence procedures, risk management processes and training given to staff in relation to preventing modern slavery.

A study by the European Commission shows that for small and medium-size enterprises (SMEs), the additional recurrent company level cost of meaningful human rights and environmental due diligence would be around 0.14% of their revenue; for larger companies, the number is reduced to 0.09%, says Lea.