A successful approach to modern slavery

Evidence submitted by the National Crime Agency as part of a recent High Court ruling could set the tone for the next wave of UK modern slavery law, but not without the cooperation of the private sector.

A recent High Court case has opened up the potential for UK companies to be investigated for money-laundering offences if there is sufficient evidence of modern slavery in their supply-chains.

Analysis submitted to the court by the National Crime Agency (NCA) showed that the NCA would be willing to investigate firms under anti-money laundering laws, if there was sufficient evidence that they were importing goods derived from modern slavery, a practice punishable in the UK by sentences extending to life in prison. 

A non-governmental organisation (NGO), claiming to represent the rights of vulnerable workers abroad, argued before the High Court that UK authorities were duty-bound to investigate certain imports based on alleged human rights violations in their country of origin.

Specifically, the NGO claimed that these imports should be considered criminal property under the Proceeds of Crime Act (POCA) and investigated by the NCA accordingly.

In response, the NCA argued that an investigation was not justified, as the NGO had provided insufficient evidence and the case largely concerned a ‘hypothetical scenario’ related to crimes occurring in particular parts of the world, rather than an identifiable ‘consignment of goods’.

The NGO lost their case on this basis. However, evidence submitted by the NCA as part of the trial helpfully sets out its position on modern slavery offences occurring in the supply-chain of a UK private-sector organisation. Specifically, a letter given in evidence by the NCA clarifies that:

• Modern slavery offences would be viewed as predicate offences for money-laundering under POCA.
• In the context of its supply-chain, an organisation is liable to commit an offence specifically under POCA Section 329, i.e., ‘the acquisition, use and possession of criminal property’.
• The NCA is therefore willing to investigate modern slavery offences in an organisation’s supply-chain.
• An investigation will only be justified in cases where a ‘specific consignment of goods’ can be identified as the product of a modern slavery offence.

The NCA’s letter concedes that, in practice, the complexity of an organisation’s supply-chain will mean that identifying a consignment of goods as the product of modern slavery will be difficult.

Moreover, the NCA would need to consider the implications of increased investigations, and the required levels of international cooperation, on its already-strained resources.

Nevertheless, the nature of the case, and the specific arguments made by the NCA as part of it, offer us some insights into the ways in which UK modern slavery legislation could evolve. We address three of these below.

It is worth reflecting briefly on the genesis of this case. An NGO came close to affecting a wholesale revision of the way the NCA approaches modern slavery offences. 

This is part of a growing trend of increased pressure exerted by NGOs on the judiciary, exemplified variously by organisations such as Client Earth and Friends of the Earth.

These civil-society litigation cases have always had the potential to cause reputational damage to their private-sector protagonists. However, this latest example reminds us that NGOs will also aim to achieve cross-sector policy-change by putting pressure on government enforcement agencies to up their game.

If this trend continues, private sector organisations may need to prepare themselves for a simultaneous increase in civil-society litigation and regulatory enforcement. 

By the NCA’s own admission, meeting the evidentiary threshold required to justify an investigation will be difficult. Nevertheless, the case brings potentially significant implications for scope of supply-chain liability.

Although the NGO in this case was unsuccessful, other NGOs could be incentivised by the outcome of the case to look for evidence of a ‘specific consignment’ of goods identifiably derived from modern slavery. Where they are successful, the NCA has indicated its intention to follow up with investigatory action.

With the arrival of the Corporate Sustainability Due Diligence Directive, many private actors operating in Europe will soon be required to conduct supply-chain human rights due diligence as a matter of course.

However, the potential increases in liability highlighted by this case could incentivise UK-based organisations to get ahead of their European counterparts in this regard, by ensuring they have robust, risk-based screening and due diligence processes in place for suppliers.  

Finally, certain organisations will need to be aware of their reporting obligations in cases where modern slavery issues are identified as a result of the above.

Specifically, where those working in a regulated sector know or suspect (or have reasonable grounds to know or suspect) that there is illicit activity in their supply-chain, they have a responsibility to submit a Suspicious Activity Report (SAR) to the NCA. Where they believe they are already in possession of criminal property via their supply chain, they are required to seek a Defence Against Money Laundering (DAML).

Therefore, in addition to screening and due diligence, regulated organisations will have an incentive to ensure that robust reporting processes are in place, for instances in which concerns need to be escalated. 

The NCA acknowledges in its testimony that, given the complexity of most supply-chains, the possibility of identifying specific products of criminal activity is ‘currently doubted’.

Nevertheless, this case is already being described as a ‘warning’ for UK private-sector organisations about potential increases in their supply-chain liability.

Perhaps, at the very least, it gives us an early perspective on the shape of things to come, as private actors face increased pressure from NGOs to assume a moral responsibility for their supply-chains, combined with an increased willingness among government agencies to take action against those who do not.

While we wait for NGOs to adapt their approach to the parameters set by this latest judgement, a few short-term implications for private actors are clear:

• Litigation brought by NGOs in the court-system is challenging UK enforcement agencies to reconsider their role in relation to high-profile issues, such as modern slavery.
• With this comes the potential for increased liability, including in areas of the organisation where modern slavery issues are most complex, such as in the supply-chain.
• Where issues or suspicions are identified, as a result of supply-chain due diligence, regulated organisations will need to ensure they have appropriate reporting processes in place.

By showing a willingness to investigate supply-chain offences, where the right evidence is provided, the NCA has given the UK an opportunity to go a step beyond the reporting requirements of its Modern Slavery Act.

While we await long overdue updates to the Modern Slavery Act itself, these developments have the potential to re-establish the UK as a world-leader in the fight against slavery offences abroad. As with previous abolition attempts, civil-society pressure may be the first step, but private actors will also have a decisive role to play. 

For information on how we can support your organisation in meeting its obligations under international modern slavery laws, please contact Michael.Pollitt@KPMG.co.uk, Charlotte.Miller@kpmg.co.uk, or Simon.Stiggear@KPMG.co.uk.