The requirement for qualifying companies to produce a modern slavery statement is now in force - so now is the time to check again whether your organisation needs to produce one. We have had a number of queries from clients who have been evaluating whether or not the Modern Slavery Act 2015 (the 'Modern Slavery Act') applies to overseas companies in their group structure by virtue of their having UK subsidiaries.
Section 54 of the Modern Slavery Act requires organisations that supply goods or services and have a consolidated global turnover of £36 million per annum or more to prepare a slavery and human trafficking statement (a 'Statement') for each financial year. All bodies corporate and partnerships that meet the turnover requirement will be caught, regardless of where they are incorporated, if they carry on any part of their business in the UK. Notably, organisations that primarily pursue a charitable or educational aim have not been excluded from the requirements.
SLAVERY AND HUMAN TRAFFICKING STATEMENT
An organisation that is caught by the Modern Slavery Act must prepare a Statement and publish it on its website setting out the steps it has taken to ensure that there is no slavery or human trafficking in its business and supply chain.
The Government's guidance on section 54 of the Modern Slavery Act, 'Transparency in Supply Chains' (the 'Guidance') seeks to assist organisations in determining whether they are subject to the requirements and, if so, what information their Statement needs to include. The Guidance requires organisations to be transparent about the steps taken both in their own businesses and their supply chains, and if the organisation has taken no such steps, it must publish a Statement to this effect.
THE RELATIONSHIP BETWEEN AN OVERSEAS ENTITY AND UK SUBSIDIARIES
Many international organisations are finding it difficult to determine whether an overseas entity within its group structure is caught by the Modern Slavery Act by virtue of carrying on a business or any part of its business, in any part of the UK through a UK subsidiary. Accordingly, to determine this issue, the overseas entity needs to consider its relationship with each UK subsidiary to establish whether or not such subsidiary is independent from the overseas entity or whether the overseas entity will be treated as carrying on business in the UK.
The Guidance does not define what is meant by 'carrying on business in the UK' but states that having a UK subsidiary will not automatically mean that an overseas parent company is caught by the Modern Slavery Act 'since a subsidiary may act completely independently of its parent or other group companies'. The Guidance goes on to state that a 'common sense approach' will be adopted when analysing whether an organisation is to be regarded as carrying on a business or part of a business in the UK and that the courts will be the final arbiter. The Guidance also encourages overseas entities to comply with the spirit of the Modern Slavery Act and states that a failure to do so may 'reflect badly on the parent company'.
COMPARATIVE POSITION WITH THE BRIBERY ACT 2010
Section 7 of the Bribery Act 2010 (the 'Bribery Act') and its guidance uses similar wording in explaining what is meant by a commercial organisation and notes that a common sense approach will be adopted when considering the issue of a foreign entity carrying on a business in the UK.
At the time the Bribery Act came into force, the director of the Serious Fraud Office, Richard Alderman, attempted to explain what was intended by the phrase 'carrying on business in the UK'. He said:
'A mere listing taken by itself with nothing else is unlikely to involve anything in the United Kingdom and certainly no economic engagement with the economy of the United Kingdom or a demonstrable business presence in the United Kingdom as it is put in the guidance. The position is likely to be different though when there is economic engagement. What constitutes economic engagement or carrying on business in the UK as the Act puts it? When is the engagement so insubstantial that it can be ignored and when does it cross the line and become substantial and demonstrable? It will be for the courts to decide on these and other issues.
Clearly, this gives an indication that the courts will need to undertake a fairly detailed analysis of the relationship between the parent and its subsidiaries, and in particular, the economic engagement between the entities, to consider whether the foreign entity could be deemed to be carrying on a business activity in the UK.
CONCLUSION
The guidance to both the Modern Slavery Act and Bribery Act acknowledges that a subsidiary may act completely independently of its parent and the mere fact that an overseas entity has a UK subsidiary will not in itself mean that a parent is carrying on a business in the UK.
Irrespective of the strict legal position as to whether a foreign company is legally required to publish a Statement, a foreign company may decide that it wishes to produce a Statement in any event.
If you have any queries in relation to the above, or would like to discuss in further detail as to whether your overseas entity is subject to the Modern Slavery Act, please speak to your usual Withers' contact or speak with one of the following: Christina Morton, Ben Simpson.
To read our latest advice on Modern Slavery please click here.
