So You've Submitted Your Report Under Canada's Modern Slavery Act — Now What? Best Practices To Ensure Supply Chain Compliance

The first reporting deadline under Canada's Fighting Against Forced Labour and Child Labour in Supply Chains Act (the Modern Slavery Act or the Act) has passed. Entities and government institutions subject to the reporting obligation under the Act were required to submit their first annual reports on steps taken during the previous financial year to prevent or reduce the risk of forced labour or child labour in their supply chains by May 31, 2024. With reports having been submitted, now is an opportune time for businesses to turn their attention to the steps they can take to mitigate the risks of illicit conduct in their supply chains going forward.

Reporting requirements

As we have previously written, the Modern Slavery Act requires certain private sector entities engaged in (or controlling an entity engaged in) selling, producing or distributing goods in Canada or elsewhere — or importing goods in Canada — to report to the Minister of Public Safety and Emergency Preparedness on steps they have taken to prevent forced and child labour in their operations and supply chains. Reports must include information on the entity's structure, activities and supply chains; the entity's policies, due diligence processes and training in relation to forced labour and child labour; any remediation measures undertaken with respect to such matters; the parts of its business and supply chains that carry risk of forced labour and child labour; and the steps taken to assess and manage that risk. Reports are made publicly available on Public Safety Canada's website and must be posted in a prominent place on each reporting entity's website.

Through this first round of mandated reporting under the Act, many businesses have had to critically examine their supply chains and internal compliance mechanisms. With their reports now submitted, businesses should consider the steps they can take to remediate and enhance compliance processes to ensure compliance with various legal frameworks throughout their supply chains. Combatting the risk of forced labour or child labour may be top of mind, but compliance measures should also focus on other forms of economic crime such as corruption, money laundering, sanctions violations and fraud.

Risk mitigation strategies

While specific compliance measures implemented should be tailored to the risks faced by each business and the resources available, steps businesses can take to best ensure compliance throughout their supply chains include the following. Businesses may consider adopting some or all of these measures as part of their overall compliance strategy.

• Internal policies and procedures: Businesses should maintain policies and procedures setting clear expectations for all representatives — including employees, directors, officers and third-party representatives — to act ethically at all times. These may include a code of business conduct and ethics, a whistleblower policy, an anti-corruption and anti-bribery policy and an anti-money laundering and sanctions policy.
• Know-your-counterparty (KYC) measures: At all times, businesses should be familiar with counterparties with whom they do business. Related measures may include screening and identification measures to ascertain the identity of all counterparties before doing business with them, to understand the source of funds or products and to ensure compliance with all applicable sanctions. Information and records should be accurate and kept up to date.
• Formal procurement processes: Businesses should consider implementing formal procurement processes setting out how suppliers are selected, circumstances requiring formal RFQs, approval mechanisms, confidentiality and competition requirements, due diligence and risk assessments. Businesses may also consider implementing supplier questionnaires asking prospective suppliers to disclose their compliance processes prior to being engaged.
• Supplier codes of conduct: Depending on the nature and risk profile of the business, it may be appropriate to implement a formal supplier code of conduct or to formally extend obligations under internal policies to suppliers and contractors.
• Contractual representations and warranties: Appropriate compliance representations and warranties should be incorporated into supplier agreements. These contractual provisions may include requiring: compliance with all applicable laws (including anti-corruption, sanctions, anti-money laundering and anti-terrorist financing, and human rights); adherence to the organization's supplier code of conduct and/or other policies; taking reasonable measures to ensure compliance by their own suppliers, contractors, and representatives; and ensuring that their own supply chains are free from forced labour and child labour.
• Rights of audit: Where feasible, supplier agreements can include a right of audit over the supplier or contractor's compliance. Specific audits undertaken may vary according to risk factors and commercial considerations, and can range from ad hoc to periodic, and from smaller measures (such as running background checks) to on-the-ground inspections of supplier facilities in higher-risk scenarios.
• Training: Training should be provided to ensure that employees and representatives are aware of their compliance obligations under applicable policies. Where appropriate, businesses may also consider conducting such training for suppliers and contractors.
• Disciplinary procedures: Representatives and suppliers that fail to comply with applicable laws or the organization's policies should be subject to discipline up to and including termination of employment or the business relationship, which should be included in contractual agreements.

There is no one-size-fits all compliance strategy for all organizations, and the specific compliance measures undertaken should be tailored to the risks and resources of each business — including its size, industry, geographic locations and the counterparties with whom it does business. While not all of the above measures will be necessary or feasible for every organization, businesses should thoughtfully consider their areas of exposure and the steps they can take to prevent wrongdoing in their supply chains.

Looking forward

In the 2024 budget, the federal government expressed its intention to introduce legislation in 2024 "to eradicate forced labour from Canadian supply chains" and to strengthen the import ban on goods produced with forced labour amended by the Act. While no details have been made available to date as to the potential timing or scope of this legislation, other jurisdictions such as the European Union, Germany and France have implemented measures such as mandatory human rights due diligence requiring businesses to proactively assess, mitigate and prevent the risk of forced labour or child labour in their supply chains.

Regardless of whether such measures become formally required in Canada, businesses should strive to maintain effective measures to ensure compliance with all relevant laws throughout their supply chains. Such measures should be commensurate with their business risk and operations. Failure to do so can have significant consequences including hefty fines, criminal liability, the seizure of goods at the border, debarment and reputational damage. Implementing effective compliance measures will not only allow businesses to put their best foot forward in future reporting but will also guard against these adverse impacts to businesses.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.