In the context of Jersey’s financial services industry, the risk of modern slavery occurring in the operations of financial institutions is generally considered low, mainly because of the use of a skilled, professional workforce. However, all financial institutions have supply chains, which carry some risk.
As an officer of a commercial organisation carrying on business in the UK which has Jersey suppliers, or a Jersey based business supplying UK customers/clients, you likely view the supply chain to be straightforward and therefore the vulnerability to modern slavery within it to be low.
Granted, that is very likely to be the case. However, the introduction of the Modern Slavery Act 2015 into UK law has nevertheless placed an obligation on larger commercial organisations, wherever incorporated or headquartered, that operate in the UK to disclose the steps they have taken to ensure there is no slavery or human trafficking either in their own businesses or their supply chains.
Legislation Impact
The legislation’s impact is therefore potentially equally relevant to overseas suppliers of goods or services into the UK (small or large), as it is to those organisations operating in the UK themselves.
The UK legislation targets organisations with a global turnover of £36 million or more, and the obligations placed upon them include the production of a slavery and human trafficking statement every financial year. This statement identifies the steps the organisation has taken during the financial year to ensure that slavery and human trafficking is not taking place in any of its supply chains, and in any part of its own business.
Guidance issued by the U.K.’s Secretary of State identifies that in order for businesses to produce an effective statement, they will need to have a good understanding of their own supply chains in order to define the boundaries of the report and to support the identification of risk.
Requests for CSR Related Information
Suppliers of goods and services can therefore expect, at the very least, a number of requests for CSR related information. Their customers may however go further, and want this placed on a contractual footing. It is increasingly common for supply agreements to regulate the actions of suppliers and sub-suppliers, including provisions giving the customer rights to information (including the obligation for suppliers / sub-suppliers to respond to audit and due diligence enquiries) and warranties and undertakings as to compliance with the Act and other applicable anti-slavery and human trafficking laws and regulations. This in turn raises the prospect of ensuring appropriate insurance is in place to cover these risks.
All financial institutions have supply chains, which carry some risk
In the context of Jersey’s financial services industry, the risk of modern slavery occurring in the operations of financial institutions is generally considered low, mainly because of the use of a skilled, professional workforce. However, all financial institutions have supply chains, which carry some risk.
Outsourcing of business processes, often to overseas service providers, has become common among financial services businesses globally, to an extent driven by wage differentials and a desire for cost savings. In addition, IT, communications and technology services, purchase of office supplies (including IT hardware and consumables), property and operational services (e.g. facilities management, security, cleaning), and marketing, print and promotional goods are all areas identified as potentially presenting an exposure to modern slavery risk for the sector.
This begs the question as to whether the fight to combat modern slavery and human trafficking will eventually become an intrinsic aspect of conducting financial services businesses, in the same way that AML/CFT compliance and related reporting obligations have become.
The UK was among the first countries in the world to adopt laws aimed at combating modern slavery and human trafficking, but the global momentum to end slavery by 2030 is increasing (Australia, for example, is expected to table proposed legislation early in 2018).
Some observers point to a natural synergy between, on the one hand, regulatory and reporting based measures to combat modern slavery, and, on the other, existing AML/CFT compliance and related cross-border reporting obligations which have been embedded within the regulated financial services sector for a number of years.
NGOs have heralded the use of technology in the future fight against slavery, human trade and also digitally based exploitation, such as cyber trafficking. They cite the use of reporting obligations (e.g. at a basic level, mandatory registration of work placement agencies in high risk jurisdictions) and systematic data and information platforms, with algorithms to recognise irregularities, which can be shared by law enforcement and NGOs internationally. These platforms, they say, can in turn populate systems for profiling traffickers and smugglers, enabling the creation of typology reports of the mechanisms and approaches used, which can then be fed back to financial services institutions to enhance their existing AML client due diligence processes.
Jersey’s Position
Jersey is recognised for its mature and sophisticated regime for tackling money laundering and the financing of terrorism. It has also shown itself to be at the forefront of innovation in the regtech space, being one of the first jurisdictions to adopt a regulatory regime for virtual currency, and having also developed digital tools to facilitate the automatic transfer of beneficial ownership information to assist regulated businesses satisfy international reporting obligations.
With that expertise and experience in applying technological solutions to meet regulatory and compliance requirements, it could be that Jersey also finds a place on the frontline for developing tools to combat slavery, human trade and cyber trafficking.
Our lawyers have experience of advising on the Modern Slavery Act 2015 and, in particular, its application in supplier contracts so please don’t hesitate to contact us if you have any queries or require advice on this area.
Author – Mason Birbeck
For more information contact Mason Birbeck at our Jersey office on +44 01534 630 530 or David Hill at our London office on + 44 020 3793 0345
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