18 June, 2018
Earlier this year, Hong Kong Legislative Councillors Dennis Kwok and Kenneth Leung proposed a private member's bill on modern slavery modelled on the UK Modern Slavery Act 2015. The Hong Kong government indicated on 5 June that it did not support the bill as it considers the existing patchwork of laws on aspects of human trafficking and forced labour to be adequate. Whilst the proposers intend to table the bill for debate in the Legislative Council, in the absence of government support, it is unlikely to be passed into law at this stage.
From a business perspective, this means that companies and partnerships operating in Hong Kong are not – for the time being – required to adhere to additional legal or reporting requirements.
However, as the government has highlighted, there is an existing legal framework imposing potential criminal liability for human trafficking for the purposes of prostitution, slavery and forced labour. In addition, suspecting that any property represents the proceeds of such offences (wherever they are committed) also triggers anti-money laundering regulatory requirements under separate legislation, potentially giving rise to reporting obligations and restrictions on dealing. It is understood that Hong Kong regulators will be asked to enhance their supervision in this area. In addition, many corporates operating in Hong Kong with a presence either in the UK or Australia will face reporting requirements pursuant to existing UK and forthcoming Australian legislation.
In light of the above, companies operating in Hong Kong should be cognisant of the existing criminal framework and their money laundering obligations, as well as their reporting requirements under applicable regulatory rules in Hong Kong and overseas legislation. Please contact the authors if you have any questions or would like to discuss your organisation's compliance framework.
The Hong Kong bill
The draft bill introduces and defines serious criminal offences of slavery, servitude, forced or compulsory labour, human trafficking, forced marriage, illicit sex tourism and related offences. Corporates and partnerships conducting business in Hong Kong whose annual turnover exceeds a threshold amount would also be required to publish a slavery and human trafficking statement, including to detail the steps they had taken to ensure that modern slavery was not occurring in their business or supply chain. This reflects the UK Modern Slavery Act as well as legislation being introduced in Australia.
The debate
The draft bill was discussed by the Panel on Security of the Legislative Council on 5 June 2018. During the discussion, the proposers emphasised the importance of consolidated legislation to combat modern slavery effectively and to plug loopholes in the existing legal framework, including:
- the inability to trace and freeze proceeds of crime relating to human trafficking overseas;
- the failure of the existing legislative framework to cover all forms of modern slavery;
- inadequate penalties; and
- the lack of protections for victims.
During the discussion several Panel members expressed concern that Hong Kong has been placed on the Tier 2 Watch List in the Trafficking in Persons Report of the US State Department in 2016 and 2017. The government stated it was not in a position to comment on the US classification.
There was no discussion during the Panel session on the proposed introduction of a requirement for commercial entities to publish an annual slavery and human trafficking statement, based on the equivalent requirement under the UK Modern Slavery Act 2015.
The government indicated that it does not support the draft bill on the basis that it considers the existing legal framework to be adequate. This means that the patchwork of existing laws prohibiting aspects of modern slavery, principally human trafficking for the purposes of prostitution and certain forced labour, remain the primary legislation with which individuals and companies must comply.
Money laundering and modern slavery
Modern slavery is in many cases linked with organised crime. Global profits generated from modern slavery are estimated to be in the region of US$150 billion. As such, institutions subject to Hong Kong's Anti-Money Laundering Ordinance need to consider the existing human trafficking related predicate offences when monitoring financial activity in their business to identify and report suspicious transactions. In addition, Hong Kong's Oganised and Serious Crimes Ordinance imposes a general obligation on anyone who knows or suspects that any property or funds represent the proceeds of an indictable offence to report it to the government's Joint Financial Intelligence Unit. A failure to report in the face of reasonable suspicion may lead to criminal liability for money laundering. These obligations already exist and in practice would attach to most instances of modern slavery even without the draft bill's introduction of an omnibus predicate offence.
Enhanced regulation
Hong Kong's regulators, for example HKEX, the HKMA and SFC, could be asked to ramp up their supervision in the area of modern slavery. For example, the Hong Kong Stock Exchange's Listing Rules contain environmental, social and governance reporting requirements and these cover labour standards, including child and forced labour. Whilst this represents only part of the crimes the draft bill seeks to address, greater regulatory scrutiny and enforcement in this area would mean that listed companies will at least see an uptick in their compliance burden.
The international perspective
Many corporates operating in Hong Kong and which also have a business presence in the UK will face reporting requirements pursuant to the UK Modern Slavery Act. This legislation requires organisations with a business presence in the UK and an annual global turnover exceeding £36 million per year to produce a slavery and human trafficking statement. This should cover the company's operations and supply chains and the due diligence procedures undertaken to identify risks of forced labour.
On the horizon
It is expected that a federal Modern Slavery Bill will be tabled for debate in the Australian parliament in the coming weeks. This is likely to pass into law with bipartisan support. In the meantime, state legislation in New South Wales has already been passed. Like the federal bill, the New South Wales legislation is also modelled on the UK Modern Slavery Act and will require organisations with a business presence in New South Wales and an annual global turnover in excess of A$50 million per year to produce a slavery and human trafficking statement. Similar to the UK Act, the statement should cover the organisation's operations and supply chains and due diligence undertaken to identify risks of forced labour.
To keep up to date on the very latest developments, please visit our Business and Human Rights hub.
For further information, please contact:
Kyle Wombolt, Partner, Herbert Smith Freehills
kyle.wombolt@hsf.com
