Regulations to Prevent Modern Slavery in Supply Chains

July 19, 2023

Modern slavery in supply chains refers to the exploitation and forced labor practices that occur within global networks. According to the International Labour Organization (ILO), an estimated 50 million people are trapped in modern slavery worldwide — with migrant workers more than three times more likely to be in forced labor than non-migrant adult workers. Even worse, the global economic activity related to modern slavery is €150 billion, equivalent to $164 billion, each year.

Governments are taking initiatives to make organizations accountable for all activities in their supply chains that might involve modern slavery. This includes introducing or expanding legislation to require due diligence, risk assessment, and transparency in reporting.

Businesses that fail to address modern slavery face increasing legal consequences, reputational damage and loss of consumer trust. Ethically, companies have a responsibility to ensure fair recruitment fees, safe working conditions, and fundamental labor rights. By fostering a more ethical business environment, regulations aim to prevent and address modern slavery, promote responsible sourcing practices, and mitigate human rights abuses in supply chains.

In this article, we’ll look at the important regulatory acts that have been imposed to prevent modern slavery in supply chains, as well as how Exiger’s technology helps organizations comply in this landscape.

Regulations to Prevent Modern Slavery in Supply Chains

UK Modern Slavery Act 2015
German Supply Chain Act 2023
France Duty of Vigilance Act 2017
Norwegian Transparency Act 2022
Swiss Ordinance Act 2023
EU Duty of Vigilance Legislation
Australian Modern Slavery Act 2018
U.S. UFLPA
Canadian Forced and Child Labor in Supply Chain Act 2023
Global Conflict Minerals Legislation
EU Corporate Sustainability Due Diligence Directive (CSDDD)

UK Modern Slavery Act 2015

The Modern Slavery Act applies to U.K. companies with revenue of £36 million or more, covering large corporations and small and medium enterprises (SMEs) throughout the supply chain. Compliance has been expected since 2015, but the Act’s enhancement to allow improved enforcement has faced delays.

Companies must disclose their due diligence activities and publish modern slavery statements for accountability. Compliance relies on market-based regulations, but recommendations have been made to the United Kingdom government following an independent review to improve the Act’s effectiveness. The enactment of these recommendations is still pending.

German Supply Chain Act 2023

The German Supply Chain Act, effective since January 1, 2023, applies to German companies — and foreign-based companies with a registered German branch office — with 3,000+ employees in 2023. The law will expand to include companies with 1,000+ employees in 2024.

The Act covers all tiers of supply chain management, addressing labor practices, child labor, inadequate pay, working conditions, and environmental protection. Companies must take proactive measures, implement risk management systems and document supply chain activities.

The Act applies to all of an organization’s direct and indirect suppliers, starting with the extraction of the relevant raw materials through to the delivery to the end customer. This means that even if your operations are not based in Germany, if you have a German customer impacted by the Act, you will need to comply with the GSCA to ensure your customer’s compliance.

Annual reports on due diligence activities and risk management are required. Non-compliance may lead to fines, civil liability, and exclusion from public tenders, with fines ranging from €50,000 to a maximum of 2% of global average revenue. Civil liability is limited under the Act.

France Duty of Vigilance Act 2017

The France Duty of Vigilance Act 2017 mandates human rights due diligence for large multinational companies in France. It applies to companies meeting employee benchmarks of 5,000 in France or 10,000 in France and abroad.

The Act covers the entire supply chain, emphasizing comprehensive coverage. Compliance was expected in 2017. It focuses on reasonable measures to identify risks and prevent human rights violations and environmental impacts. Uncertainties remain regarding assessment standards, established business relations and violation definitions.

Companies must establish risk procedures to meet obligations. Non-compliance can lead to civil liability, where stakeholders like NGOs can sue for damages. The Act protects a company’s reputation and promotes ethical practices. It aligns with citizen expectations and looks to improve relationships with subcontractors and suppliers.

Norwegian Transparency Act 2022

The Norwegian Act drives transparency and the promotion of human rights and decent working conditions across organization’s operations and their supply chain. It applies to relatively smaller companies than other EU legislation. Compliance was required beginning in July 2022. It includes the rights of third parties to request information from a company in terms of how they are addressing actual or potential human rights impacts. The Act also establishes a human rights reporting obligation for companies. A company must publish an annual human rights statement by June 30 that is publicly available on the company’s website. It requires sign-off by all Board members.

The Norwegian Consumer Authority will be the public enforcement authority responsible for overseeing the Act’s implementation. It is responsible for publishing appropriate guidance and enforcement in the case of non-compliance by businesses, including by issuing orders and fines (amount is unspecified). So far, there has been limited guidance from the Consumer Authority on the sanction elements of the Act. They have however indicated they will start inspections in the autumn of 2023.

Swiss Ordination Act 2023

Swiss Ordinance on duty obligations and transparency regarding minerals and metals from conflict areas and child labor requirements. Applies to every company domiciled in Switzerland whose business area may potentially come into contact with conflict minerals or child labor. There are no current sanctions but these are expected to come in the future.

EU Corporate Sustainability Due Diligence Directive (2022)

The European Commission’s proposed Directive on Corporate Sustainability Due Diligence introduced legislation focusing on corporate social responsibility. It applies to EU companies that occupy one of two tiers for size and economic power, as well as non-EU companies of similar size operating in the EU. Small and medium enterprises (SMEs) are not directly in scope, but there are supporting measures.

Compliance deadlines depend on national adoption and transposition, estimated to take two years. The legislation mandates adverse human rights and environmental due diligence integration, including codes of conduct, process descriptions and impact identification. Companies must prevent, mitigate, and eliminate impacts, establish complaint procedures and monitor effectiveness.

While the Directive does not outline specific sanctions for non-compliance, it aims to improve corporate governance practices regarding the procurement of raw materials, increase accountability, expand access to remedies, and create legal certainty in the single market. Further details regarding sanctions and relevant potential fines are yet to be confirmed.

Australian Modern Slavery Act 2018

The Australian Modern Slavery Act 2018 applies to Australian companies, or those doing business in Australia, with a minimum annual consolidated revenue of $100 million.

Compliance requires submitting an approved modern slavery statement to the Australian Border Force within six months of the Financial Year’s End for publication on a public register. The Act encompasses multiple forms of modern slavery such as slavery, forced labor, human trafficking, child labour, debt bondage, forced marriage, and deceptive recruitment. Reporting entities must diligently evaluate and mitigate the risks of modern slavery practices in their operations, supply chains, and owned or controlled entities. Additionally, they are obligated to provide a detailed account of the identified modern slavery risks and the corresponding actions taken during the reporting year.

Noncompliance lacks financial penalties but allows civil society groups to access data and promote accountability through naming and shaming practices.

US UFLPA

The Uyghur Forced Labor Prevention Act (UFLPA) has been implemented in the United States to ensure strict adherence to the prohibition of importing products that are produced using forced labor from the Xinjiang Uyghur Autonomous Region (XUAR) in China. This legislation, which came into force on June 21, 2022, aims to combat the use of coerced labor and its associated human rights violations in the region.

Risks primarily involve Uyghur labor in Xinjiang, especially in cotton, tomato products, and polysilicon industries. Compliance necessitates conducting thorough due diligence, implementing efficient supply chain tracing systems, and taking preventive measures to avoid importing goods associated with forced labor from Xinjiang. U.S. Customs and Border Protection (CBP) requests information from importers and expects clear and convincing evidence to counter forced labor presumption. Importers must provide specific documentation for cotton, tomato products, and polysilicon to rebut slave labor involvement.

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Noncompliance results in sanctions, including prohibition and seizure of relevant goods. Importers can potentially receive exceptions from CBP by showcasing their due diligence efforts, effective supply chain tracing, implementation of management measures, and providing evidence that the goods they import do not originate from Xinjiang. The goal is to eliminate imports associated with forced labor and ensure human rights standards in global supply chains.

Canadian Forced and Child Labor in Supply Chain Act 2023 (FAFL)

The Fighting Against Forced Labor and Child Labor in Supply Chains Act follows similar lines to the Germany’s Supply Chain Due Diligence Act, UK Modern Slavery Act, France’s Duty of Vigilance Law, and Australia’s Modern Slavery Act, the Canadian Act requires government institutions and entities/organizations to assess human rights risks across their entire supply chain. This includes reporting on the steps taken during the previous financial year to prevent and reduce the risk that forced labour or child labour has been used.

An “entity/organization” is a corporation, trust, partnership, or other unincorporated organization that is listed on a stock exchange in Canada; or has a place of business in Canada, does business in Canada or has assets in Canada and (based on its consolidated financial statements) meets at least two of the following conditions for at least one of its two most recent financial years:

has at least $20 million in assets;
has generated at least $40 million in revenue; or
employs an average of at least 250 employees.

The term “government institution” (which has the same meaning as in the federal Access to Information Act) means (i) any department or ministry of state of the Government of Canada; (ii) any body or office listed in Schedule 1 to the Access to Information Act; and (iii) Crown corporations and their wholly owned subsidiaries.

The Act applies to all an organization’s multi-tier suppliers, starting with the extraction of the relevant raw materials through to the delivery to the end customer. This means that even if your operations are not based in Canada, if you have a Canadian customer impacted by the Act, you will need to comply with the FAFL to ensure your customer’s compliance.

Global Conflict Minerals Legislation

In the United States, the Dodd-Frank Wall Street Reform and Consumer Protection Act, specifically Section 1502, promotes transparency in corporate supply chains to reduce the funding of armed factions and human rights abuses associated with the mining of minerals in the Democratic Republic of the Congo (DRC) and neighboring countries.

The legislation requires publicly-traded companies to disclose using tantalum, tin, tungsten, or gold (3TG) in the making of their products. Compliance involves conducting a country of origin inquiry, disclosing findings on Form SD, and, if necessary, providing a Conflict Mineral Report (CMR) detailing due diligence efforts. The CMR determines whether products are “DRC conflict-free” or not and may require independent audits.

The EU has also implemented conflict minerals legislation to prevent the export of conflict minerals to the EU and ensure responsible sourcing. The EU regulation applies to a wider range of at-risk areas beyond the DRC and emphasizes diplomatic measures and development support. Both measures aim to enhance supply chain transparency, ethical sourcing, and sustainable practices beyond mandatory reporting.

Exiger Is Partnering with NGOs to Address Forced Labor

Exiger, a global leader in risk and compliance solutions, has formed partnerships with NGOs like the Human Trafficking Institute (HTI) and Slave-Free Alliance, part of Hope for Justice, to combat modern slavery in global supply chains. Exiger is proud to partner with leading nonprofits and NGOs, equipping global charity leaders with the same tools that major Fortune 500 companies and government agencies are using to gain insights and visibility into their supply chains.

Leveraging artificial intelligence (AI) and advanced data processing techniques, Exiger helps detect patterns and anomalies in large-scale data sets, significantly enhancing the ability of law enforcement and organizations to identify potential cases of human trafficking. Through machine learning algorithms and natural language processing, Exiger’s AI models analyze vast amounts of open-source data to identify red flags and outliers in business practices that may indicate labor exploitation. This enables investigators to draw conclusions about possible trafficking activities and intervene before they occur.

By collaborating with NGOs, Exiger not only aims to deliver transparency and insights into supply chains but also actively contributes to disrupting human traffickers and safeguarding vulnerable individuals. Through these partnerships, Exiger’s products empower individual companies and organizations to rescue victims of modern slavery in their operations proactively, aligning risk management with the moral imperative of protecting human rights and civil society.

The Exiger Platform Covers ESG Risks for Organizations

The regulations highlighted in this article establish guidelines and requirements for companies to identify, address, and prevent modern slavery within their supply chains, ensuring accountability and promoting ethical practices.

Last year Exiger tracked over 5 billion pounds of good back to their original sources and conducted 3 million assessments to uncover ESG risk, forced labor, cyber vulnerabilities and threats to national security.

Exiger’s DDIQ solution empowers companies to eradicate a number of risks including modern slavery in their supply chains by harnessing the power of AI and data analysis to identify potential risks and red flags associated with human trafficking. Further, Supply Chain Explorer and SDX enhance due diligence processes, promote transparency, and enable proactive measures to combat labor exploitation, to contribute to the goal of eradicating modern slavery in supply chains.

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