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Why Should American Businesses Care about the United Kingdom’s Modern Slavery Act?

Despite much press attention when the UK’s Modern Slavery Act (the Act) came into effect on October 29, 2015, many businesses based outside the UK have not yet fully grasped how the new law could impact them.

The most significant new obligations under the Act are contained in section 54, which requires companies that carry on a business or part of a business in the UK, and that have a total annual turnover of £36 million or more, to publicly report their efforts to address slavery and human trafficking within their supply chains.  For international businesses, including those based in the United States, two important takeaways are that:

  • It does not matter under the Act where the business is headquartered or incorporated, only that it carries on a business or part of a business in the UK; and
  • The £36 million turnover threshold is not limited to turnover in the UK, but instead includes the organisation’s business activities anywhere in the world plus the turnover of any subsidiary undertakings (including those operating wholly outside the UK).

The broad jurisdictional reach of the Act and low turnover threshold mean the Act will apply to many US-based businesses with operations or customers in the UK.

In order to comply with the requirements of the Act, a business must publish annual statements on its website describing the steps it has taken to ensure that slavery and human trafficking is not taking place within its supply chains or in any part of its own business or, if it has not taken any such steps, a statement to that effect.  The idea behind this new reporting requirement is to make human rights abuses within supply chains more transparent to consumers, investors, and the public at large.  

An injunction to force a business to publish a statement is the only action for noncompliance provided for under the Act.  This could lead to contempt of court proceedings if the injunction is ignored.  

Companies need to think carefully about how they draft their statements under the Act, as well as the way they prepare disclosures under other laws that require statements concerning international human rights, such as the Dodd-Frank Act’s conflict mineral supply chain reporting requirement and the California Transparency in Supply Chains Act of 2010.  Perhaps proving the adage that no good deed goes unpunished, public disclosures on corporate responsibility efforts are being increasingly used in the United States to support litigation against companies that are alleged to be complicit in foreign human rights abuses. Businesses need to be mindful of these potential pitfalls as they get into compliance with these new laws.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.