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29 September 2016

Oil, Mining, Gas & Modern Slavery: new requirements for organisations

In an effort to improve human rights and eradicate slavery within the UK and beyond, the UK has introduced the Modern Slavery Act 2015 (the Act). The Act is particularly of significance for mining, oil and gas companies, whose worldwide reach and involvement in high risk countries mean an awareness of the new requirements is especially important. 

The Act came into force on 29 October 2015. As well as consolidating the current offences of slavery and human trafficking, introducing new civil preventative measures, establishing the office of Anti-Slavery Commissioner and introducing measures to support victims, the Act also imposes an obligation on all commercial organisations supplying goods or services within the UK with a turnover of £36 million or above to publish a yearly “slavery and human trafficking statement”. Both incorporated companies and partnerships (listed, limited or otherwise) are caught by this new requirement. 

Organisations with a financial year end on or after 31 March 2016 will need to publish their statement as soon as reasonably possible after the end of the financial year and the Government recommends no later than six months from the date of their financial year end.

The slavery and human trafficking statement requires organisations to publish the steps they have taken during the previous financial year to ensure that slavery and human trafficking is not taking place in any of the supply chains used, or within the business itself. Under the Act, businesses may also state that they have taken no steps. However, considering the negative reputational consequences of doing so, this would not be advisable.

Though there is no prescribed form of statement, the Act includes recommendations on what to include in the statement, being:

  • the organisation’s structure, its business and its supply chains;
  • its policies in relation to slavery and human trafficking;
  • its due diligence processes in relation to slavery and human trafficking in its business and supply chains;
  • the parts of its business and supply chains where there is a risk of slavery and human trafficking taking place, and the steps it has taken to assess and manage that risk;
  • its effectiveness in ensuring that slavery and human trafficking is not taking place in its business or supply chains, measured against such performance indicators as it considers appropriate; and
  • the training about slavery and human trafficking available to its staff.

Organisations without due diligence processes or policies, for example, will need to implement these to avoid any appearance of non-compliance upon publication of the statement. If one statement is to be used for the entire group, the statement should include an explanation of which entities are covered and be approved by each relevant entity’s Board.

Further, statements need to:

  • Have approval at the highest level of the entity (for example, approval by Board Resolution);
  • Confirm they are true and accurate;
  • Be signed by a responsible, named director from the Board, a designated member or a partner; and
  • Be exhibited on the organisation’s website, with a link to the statement in a prominent place on the homepage.

The legislation does not have much bite, with the threat of an injunction forcing the entity to disclose its statement (with a bill of costs to follow) the only option open to the Secretary of State in the event of non-compliance. Nevertheless, hostility from investors, the press and non-governmental organisations, as well as the risk of losing public contracts, are the more likely factors that will prevent organisations from defying the Act. Many organisations have a keen eye out for entities failing to publish a satisfactory annual statement, so attempts to avoid compliance with the Act are likely to be unearthed. The retail sector has already seen litigation and negative press for poor human rights compliance, with loss of revenue following those revelations. 

Not everything needs to be tackled in the first year of compliance; many businesses may choose to start by implementing steps to show they are taking the Act seriously before having a fully-fledged implemented due diligence procedure. Best practice for ensuring compliance with the Act is a “top down” buy in, beginning with the drafting and adoption of an anti-slavery and anti-human trafficking policy (in addition to the entity’s annual statements). This policy can then be referred to in any annual statement to demonstrate that the principles are embedded into the entity’s corporate culture. Third parties can be asked to sign up to mirror principles and policies to ensure compliance across all levels.

In order to promote compliance with the Act, entities should make sure their commercial contracts support compliance plans, make compliance a condition of any supply contract and incorporate audit rights into supply agreements, along with rights to visit premises and request information. This can be paired with a duty to cooperate with any audit carried out by the organisation from time to time, as well as a contractual “break right” for failure to comply with such duty to cooperate.

Particularly for mining, oil and gas companies transacting in high risk countries, a key step will be monitoring suppliers and the promises made; the “too good to be true” deals or migrant workers living on site are examples of where one should be wary. Businesses should be sure to conduct country due diligence before entering into any contractual agreements and try to identify inconsistencies from interviews and any recurring patterns from which non-compliance could be inferred. Compliance with the Act has become an important factor in the management of corporate risk, and it is one which the oil and gas industry in particular should make a priority.

We can assist your organisation with all elements of its response strategy and are currently assisting a number of clients on reporting strategies and due diligence processes. If we can help you, please do not hesitate to contact us.