Last month we reported on possible new supply chain legislation relating to China (see https://www.corderycompliance.com/new-supply-chain-laws-china/). We talked about a UK Parliamentary enquiry from the influential Business, Energy and Industrial Strategy (BEIS) Committee. On 17 March, the BEIS Committee published its report.
The report criticizes the UK Government’s response to growing supply chain issues, especially concerning China, and calls for new legislation. The report says “We received evidence from several companies laying out the steps they have taken to deliver transparency in their supply chains and to ensure that they are not profiting from human rights abuses in Xinjiang and other parts of the world. However, we remain deeply concerned that companies selling to millions of British customers cannot guarantee that their supply chains are free from forced labour, and that modern slavery legislation and BEIS Department Policy are not fit for purpose in tackling this serious situation”.
What are the recommendations?
The BEIS Committee report makes a number of recommendations including:
- That the UK accelerates proposals to amend and strengthen the Modern Slavery Act 2015 (MSA 2015).
- That the upgrade to the MSA 2015 includes civil penalties for non-compliance.
- That the UK Government develops a policy framework for creating a “whitelist and blacklist” of companies which do and do not meet their obligations to uphold human rights throughout their supply chains.
- Making specific requests of TikTok regarding its governance.
- Criticising fashion retailer Boohoo for the lack of accountability in its supply chain. It welcomes however Boohoo’s announcement of an additional review and encourages other companies to undertake independent enquiries into their due diligence.
- Criticising The Walt Disney Company for its failure to give evidence to the Committee’s enquiry.
- Saying that the UK Government should “fully assess” the introduction of targeted sanctions against Chinese and international businesses implicated in events in Xinjiang and relating to the exploitation of Uyghurs.
- Recommending that UK Government review the Company Directors Disqualification Act 1986 to look at whether breaches of MSA 2015 obligations should be the basis of future disqualifications for directors. This could have personal consequences for individuals within an organisation if the change in legislation is made.
- Recommending that the UK Government looks at sanctions for companies with a connection to forced labour. It may well be that the UK has more ability to put sanctions in place post-Brexit. Our note here explains the UK sanctions regime post-Brexit https://www.corderycompliance.com/post-brexit-sanctions-aml-export-control/. Today the UK used that new regime to sanction 4 senior Chinese officials and the Public Security Bureau of the Xinjiang Production and Construction Corps http://bit.ly/3vOMinH. These new sanctions were co-ordinated with the United States, Canada and the EU.
What are the “whitelist and “blacklist proposals?
The “whitelist” would be for “companies that have taken significant and clearly evidenced actions regarding their supply chain links to Xinjiang”. The “blacklist” would be for “firms that have failed to provide evidence that they do not have supply chain links to Xinjiang or refuse to answer questions about possible links”. The proposal is that the UK Government would have to consult these lists when procuring goods and services and an updated version of both lists would be published every six months. The committee suggests that companies that are operating in Xinjiang “must prove that they are not in breach of the MSA 2015”.
Are these issues just limited to Xinjiang?
No. The BEIS Committee looked at the dispersal of Uyghurs by the Chinese authorities and picked up on reports by the BBC and The Guardian. To avoid forced labour in their supply chains organisations will need to look at suppliers outside of Xinjiang as well, given the dispersal of Uyghur workers to other factories around China. Reliable information is hard to get. Some of the reports identifying concerns about suppliers and their links to brands are inaccurate. The Committee heard that there are problems with auditing in China and elsewhere – the Committee heard of similar concerns for example about audits which had taken place in Boohoo supply chains in the UK.
The report mentions the Foreign Affairs Committee’s related enquiry and talks about invitations to give evidence to other businesses including Primark and UNIQLO.
What happens next?
As we said in our alert last month (https://bit.ly/mschinalaw), the UK Government is considering a number of steps to toughen up modern slavery law and the BEIS Report shows that there is likely to be some Parliamentary consensus behind that. The BEIS Committee and others are pressing the UK to raise these issues on an international stage at the upcoming G7 conference which will be hosted by the UK in June.
It is important to remember that since the BEIS Committee took its evidence, the UK’s online registry for modern slavery statements has been launched. We know that a number of organisations have had official letters inviting them to join the register. We discussed the register and the possible ramifications for businesses, particularly with regard to additional pressure group activity in our alert last week here www.bit.ly/msregister. The creation of the online register was one of the BEIS Committee’s recommendations.
It is clear that supply chain compliance is a growing area of activity. Pressure groups are active in this area too and litigation has been brought over supply chain issues. Given the BEIS Committee’s report we can expect more activity in this area in the coming weeks.
Cordery’s Modern Slavery Action service helps organisation with their compliance in this area. There is more information here https://www.corderycompliance.com/solutions/modern-slavery-action/.
You can find more materials about modern slavery including a review of the impact of Brexit on modern slavery law here https://www.corderycompliance.com/category/modern-slavery/.
For more information, please contact Jonathan Armstrong or André Bywater who are lawyers with Cordery in London where their focus is on compliance issues.
|Jonathan Armstrong, Cordery, Lexis House, 30 Farringdon Street, London, EC4A 4HH||André Bywater, Cordery, Lexis House, 30 Farringdon Street, London, EC4A 4HH|
|Office: +44 (0)207 075 1784||Office: +44 (0)207 075 1785|