Uyghur forced labour in Xinjiang and UK value chains Contents

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3UK Government action- the next steps

34.In the previous chapter, we made a series of recommendations for businesses regarding their links to Xinjiang. We now focus on the steps the UK Government must take to guarantee that businesses and consumers in the UK do not perpetuate the forced labour of Uyghur peoples in Xinjiang and more widely.

35.Responsibility for the initiatives and legislation governing this area of policy are spread across several Government Departments: the Home Office is responsible for modern slavery legislation and enforcement, the Foreign, Commonwealth and Development Office (FCDO) leads on the UK’s diplomatic efforts and sanctions regime, and the Department for International Trade (DIT) determines import and export policy. While close collaboration is required across Government to tackle these issues - our work has focused on BEIS Department (the Department) policy regarding businesses with UK operations that have supply chains and commercial interests in Xinjiang.

36.Our recommendations to the Department focus on two key areas: First, we identify the need for the Department to scope out a new policy framework that would oblige companies to prove they are not profiting from slave labour or face legal penalties. Second, we propose amendments to the Modern Slavery Act 2015 that will ensure that the legal requirements regarding transparency and supply chains are fit for purpose and call for further resources to be allocated to the Department to ensure effective monitoring and enforcement of supply chain transparency and other Modern Slavery Act 2015 obligations that exist for UK companies.

37.In its written submission to our inquiry, the Department affirmed that the UK Government is “committed to upholding human rights and ensuring that UK businesses act responsibly in tackling modern slavery”.57 The Department’s evidence also sets out the steps that the Government is taking in “backing these expectations with action”:

The Home Office is strengthening the Modern Slavery Act 2015 to toughen up transparency requirements of large businesses and extend the requirements to the public sector. In addition, the FCDO, BEIS and DIT provide a range of advice to businesses on human rights issues across their supply chains, including pressing them to undertake appropriate due diligence to satisfy themselves that their activities do not support, or risk being seen to support, any human rights violations or abuses.58

38.The Department provides various kinds of support and guidance to businesses relating to supply chains and the conduct of businesses domestically and internationally. These include:

• The UK’s National Action Plan to implement the UN Global Principles on Business and Human Rights.
• Statutory guidance for how organisations should meet their obligations under the Modern Slavery Act.
• The promotion of the OECD Guidelines for Multinational Enterprises, which provide guidance for businesses of all sizes, with principles and standards on responsible business conduct, including on human rights concerns.
• Encouraging companies to monitor their supply chains with rigour to uncover and remedy any associations they may find with forced labour or other labour abuse.
• Regularly engaging with UK businesses to provide support and advice on doing business internationally. The Department for International Trade and the Foreign, Commonwealth and Development Office provide country specific advice through the Overseas Business Risk Guidance, including on forced labour risks.59

39.The Department also set out several actions that the Government has taken more broadly in response to reports of human rights abuses in Xinjiang, specifically in relation to UK value chains and forced labour in the region. These include:

• Drawing attention to the issue in the UN Human Rights Council (HRC) and UN Third Committee.
• Highlighting concerns about forced labour in the UK’s national statements at the UN Human Rights Council.
• Financing projects to better understand and spread awareness of how international business is contributing to human rights abuses in Xinjiang (including the Australian Strategic Policy Institute’s Uyghurs For Sale policy brief).
• Speaking out publicly when China does not meet its obligations under international law.60

40.Minister Scully summarised further BEIS specific activity. First, the Government is working with other countries at the UN on guidance regarding human rights and the effects on businesses. Secondly, they are working with companies regarding domestic enforcement and on further evidence-based action. They also are studying the US Government’s Magnitsky sanctions and the EU’s work on human rights declarations. Finally, they are striving to showcase good behaviour by learning from others and using their convening power to work with companies, share best practice and influence the behaviour of consumers.61

41.We believe the Department must do more to meet its commitments to uphold human rights, particularly in relation to businesses with links to China. While transparency of supply chain legislation falls under the remit of the Home Office, business transactions are a BEIS responsibility. Despite mounting evidence, the Department has shown little sign that it is taking a proactive or meaningful lead on investigating UK business links to forced labour and other human rights abuses in China or elsewhere. The Department must take urgent action in order to eradicate the use of forced labour in UK value chains, as set out below.

Company Directors Disqualification Act 1986

42.The first area to be considered in order to eradicate forced labour in UK business supply chains is to strengthen existing legislation. In evidence submitted to our inquiry by the anti-slavery organisation Arise, concerns were raised about the limitations of the Company Directors Disqualification Act 1986, which requires company directors to ensure their organisations abide with all relevant laws and regulations. The Company Directors Disqualification Act 1986 does not currently extend to instances where companies fail to meet their anti-slavery reporting obligations, but Arise recommended that this legislation should be amended to include this requirement.62 In evidence to us, the Minster agreed to reflect on whether a disqualification of businesses element or clause, which would disqualify businesses and Directors from setting up further companies if they are seen to be exploiting slave labour, could be added to the Company Directors Disqualification Act 1986.63 He added that the Department is “committed to introducing a more effective corporate governance and reporting structure”.64

43.We recommend that the Department reviews the Company Directors Disqualification Act (1986) to determine whether breaches of the Modern Slavery Act 2015 obligations on companies and directors should be the basis for future disqualification for company registration or director duties.

A new BEIS policy framework?

44.The BEIS Department’s risk advice to businesses regarding Xinjiang is outdated and regulation around supply chain due diligence (and penalties for non-compliance) are not sufficiently robust. As previously noted, the US Government’s determined on 19 January 2021 that the Chinese Government’s actions against the Uyghur constitute genocide. The Department must now take urgent steps to support companies in clarifying their supply chain links to the region.

45.The Government cannot stand idly by while some companies keep operating with wilful blindness. We recommend the creation of a Director-led working group within the Department to tackle the ongoing lack of transparency in supply chains specifically linked to the use of forced labour of, but not limited to, Uyghurs in Xinjiang. The working group should coordinate action across Government in relation to the enforcement and strengthening of business compliance with relevant legislation, UN diplomacy, Magnitsky sanctions and human rights declarations.

46.In addition, we call on the Government to report to the Committee on the feasibility and legal basis of further measures in respect of supply chains linked to Xinjiang, including i) a whitelist of companies that have taken significant and clearly evidenced actions regarding their supply chain links to Xinjiang, and ii) a blacklist of firms that have failed to provide evidence that they do not have supply chain links to Xinjiang or refuse to answer questions about possible links. These lists should also include companies that secure contracts from the UK Government, and an updated version should be published every six months. Companies that are operating in Xinjiang must prove that they are not in breach of the Modern Slavery Act 2015.

The Modern Slavery Act 2015

47.Under the Modern Slavery Act 2015, companies with a turnover of more than £36 million must publish an annual statement on transparency in their supply chains. This can include information about modern slavery policies and due diligence processes. However, this only applies to modern slavery, which includes slavery, forced labour and human trafficking, but not to other forms of exploitation like underpayment.65 A Government-commissioned independent review found that publication of these statements is not monitored and there are no penalties for not doing so.66

48.In the 2018/19 Labour Market Enforcement Strategy, Sir David Metcalf, the then Director of Labour Market Enforcement (DLME), noted that there are serious gaps in labour market enforcement, and suggested several interventions to improve compliance in supply chains.67 The DLME recommended a more cooperative approach involving joint responsibility between suppliers and brands.68 The DLME also proposed a ‘hot goods’ model, where products can be temporarily embargoed if workers’ rights were violated in their production.69

49.The Government is considering the DLME’s proposals, particularly in relation introducing joint responsibility and ‘hot goods’ rules.70 The Government has sought views on these issues in its consultation on establishing a single labour market enforcement body to improve enforcement and create a level-playing field for businesses,71 and “will respond in due course”.72

50.The Transparency in Supply Chains legislation which forms part of the Modern Slavery Act “established the UK as the first country in the world to require businesses to report annually on their work to prevent and address risks of modern slavery in their operations and global supply chains”.73 However, the Department also admits that the Act does not currently require companies to guarantee their supply chains to be free from slavery or forced labour, arguing that “no business operating in any sector can consider themselves immune from the risks of modern slavery and the prevalence of this abhorrent practice”.74

51.The Department has identified further plans to strengthen the Modern Slavery Act, including plans to extend the reporting requirement to public bodies, to enhance the transparency and accessibility of modern slavery statements and to develop options for civil penalties for non-compliance.75

52.On 12 January 2021, the Foreign Secretary made a statement regarding business measures over Xinjiang human rights abuses, which included a recommitment to strengthening modern slavery legislation. The statement announced the publication of new guidance for businesses on Xinjiang, the launching of a review into export controls as they pertain to the region, and the introduction of financial penalties for organisations who fail to meet their statutory obligations to publish annual modern slavery statements.76 While these measures aim to compel businesses to take the necessary steps to ensure transparency in their supply chains, they fall significantly short of requiring companies to guarantee that they are not complicit in modern slavery or other human rights abuses.

53.The Foreign Secretary also stated that UK public bodies with a budget of £36 million or more will be required to publish their own annual modern slavery statements from 2021. While we support this measure, it was announced by the Home Office several months earlier in September 2020.77 The Foreign Secretary’s statement therefore did little to advance the Government’s position in terms of the fight against modern slavery and forced labour in Xinjiang.

54.In terms of more concrete actions the Government could take, the Arise Foundation drew a useful comparison with France’s Corporate Duty of Vigilance Law, which goes further than the UK’s Modern Slavery Act by requiring French companies to take steps to identify and prevent exploitation in their supply chain.78 Arise noted that French businesses are required to publish a vigilance plan that “must be both ‘adequate’ and ‘effectively implemented’”.79 Arise further stated that the Corporate Duty of Vigilance Law “also includes enforcement mechanisms, including providing for any interested party to petition a judge to ask for a compliance order to be issued”, but it “stops short of placing the burden of proving compliance upon the company in question”.80 When challenged on what more the Government could do to ensure that the UK is in line with France at the very least, Minister Scully restated the Government’s commitment to strengthening the Modern Slavery Act and future-proof transparency legislation but did not lay out a timetable for this.81 We are worried that Ministers are not exploring all possible avenues for action despite the urgency of the situation in Xinjiang.

55.We are concerned by the Government’s slowness to take the necessary actions on this urgent issue, especially as its own guidance on overseas business risk relating to China notes that it is difficult for UK businesses to conduct effective auditing procedures in China. The Government acknowledges that “[b]usinesses should be aware that conducting due diligence in Xinjiang is challenging due to limits on access, including for auditors”.82

56.As Bloomberg noted in a 2014 article, there is a conflict between auditing processes underlying the financial statements of China-based companies listed overseas and China’s State Secrecy Laws, which prohibit the sharing of ‘State Secrets’ that could “harm state security and national interests in the fields of political affairs, economy, national defence and diplomacy”.83 This represents a significant impediment to the Government’s aim to future-proof transparency legislation, especially given that China does not allow minimum standards of transparency.

57.The Transparency in Supply Chains legislation in the Modern Slavery Act was important when it was first introduced, but it has not kept pace with changes in business supply chains. The Modern Slavery Act is out of date, has no teeth, and we do not accept that businesses should be excused from doing basic due diligence to guarantee that their supply chains are fully transparent and free from forced labour and slavery.

58.The Department’s commitment to working with other ministries to strengthen the Modern Slavery Act and Transparency in Supply Chain legislation is welcome. However, there is little evidence that BEIS-specific issues around corporate governance and audit regulations are being given sufficient prominence in these cross-departmental discussions in Government.

59.We are disappointed by the Government’s refusal to commit to a clear timetable for making changes to the Modern Slavery Act. We recommend that the Government strengthen the supply chain transparency obligations for companies and introduce tough fines for non-compliance in line with other price/ earnings to growth responsibilities for companies.

60.We further recommend that the Government a) accelerate its plans to extend the reporting requirement to public bodies, b) enhance the transparency and accessibility of modern slavery statements, and c) develop options for civil penalties for non-compliance. We ask the Government to bring forward concrete plans for the implementation of these proposals as a matter of priority. These proposals should include a commitment to creating a publicly accessible digital depository on the Government’s website containing annual modern slavery statements.

Magnitsky sanctions and international cooperation

61.Campaigners have long called for the Government to use the international sanctions regime (sometimes referred to as Magnitsky-style sanctions), to target entities in China implicated in the exploitation of Uyghurs in Xinjiang. However, as noted by William Browder, Head of the Global Magnitsky Justice Campaign, the Rights Lab, University of Nottingham, and Anti-Slavery International and CORE Coalition among others, the Government has thus far resisted calls to expand its sanctions regime to include Chinese entities accused of facilitating crimes against the Uyghur.84 It is hard to understand why the FCDO has not yet used Magnitsky-style sanctions against Chinese officials officiating in Xinjiang, and an explanation for this would be welcome.

The UK has yet to sanction a Chinese official accused of facilitating crimes against the Uyghur.

62.Sergei Magnitsky was a Russian lawyer who uncovered large-scale tax fraud. While working for Hermitage Capital, a firm based in London and run by the financier William Browder, he discovered that millions of dollars of Hermitage tax payments had been syphoned off into the pockets of Russian officials.85 A Magnitsky Act naming the Russians involved was passed by the US Congress in 2012. It was later broadened to become the Global Magnitsky Act of 2016, applying to gross human rights abusers anywhere. Other countries, including Canada, Lithuania and Estonia have introduced their own versions of the legislation.86

63.The UK Government announced the first new sanctions using the Sanctions and Anti-Money Laundering Act 2018 in July 2020. They imposed asset freezes and travel bans on Saudi citizens alleged to have been involved in the murder of Jamal Khashoggi, the Saudi journalist murdered in the Saudi Embassy in Istanbul. Also targeted were Russian officials allegedly involved in the mistreatment of Sergei Magnitsky in a Moscow jail.87

64.In his written evidence, William Browder, Head of the Global Magnitsky Justice Campaign and CEO of Hermitage Capital Management, notes:

While it may be financially and politically impossible to implement broad sanctions against China, it wouldn’t be impossible to impose Magnitsky Sanctions in relations to the perpetrators of human rights abuses against the Uyghurs. […] There appears to be ample evidence regarding who bears responsibility for the network of concentration camps and who is implementing the policy of repression. There is also a precedent with Magnitsky Sanctions already being applied by the United States.88

Strengthening the UK’s sanctions regime

65.The Coalition to End Forced Labour in the Uyghur Region emphasised that the time has come for the UK to expand its new Magnitsky sanctions regime to include Chinese and UK businesses and individuals who are profiting from the forced labour of Uyghurs in Xinjiang.89 Minister Scully noted that the FCDO, which leads on the UK’s sanctions regime, is studying the US Government’s sanctions of Chinese entities and the Government is keeping all the evidence and any listings under close review.90 We note that the FCDO has not provided any evidence to show they have asked the US Government how they collated the evidence to employ their own sanctions. As noted in the introduction, the US Commerce Department has already blacklisted around 30 Chinese companies and individuals implicated in human rights abuses in Xinjiang, including companies such as Huawei and Hikvision.

66.Minister Scully further asserted that introducing sanctions against Chinese entities could pose challenges to UK businesses if these were met with retaliatory economic measures, but he added that the Government “will not resile from our obligations on human rights, that extends to supporting businesses in the UK for ongoing situations post-sanctions”.91

67.We are disappointed that Magnitsky sanctions have not yet been imposed on Chinese officials implicated in human rights abuses in Xinjiang. Given that the US Government has imposed such targeted sanctions, we do not accept the argument that the UK Government has insufficient evidence to impose new sanctions. We are also disappointed that the BEIS Department has failed to take a lead on determining the efficacy of sanctions against perpetrators of human rights abuses in Xinjiang.

68.We recommend that the Department, in collaboration with the FCDO and DIT, fully assess the options for introducing targeted sanctions against Chinese and international businesses implicated in human rights abuses and the exploitation of Uyghurs in Xinjiang.

BEIS Official Development Assistance spending in China

69.Finally, Arise raised concerns in their evidence about the BEIS Official Development Assistance (ODA) directed by the BEIS Department to projects in China, and whether ODA funding is being channelled to the Xinjiang region. Arise noted that “it is unclear what, if any, due diligence is performed on the companies which participate in these programmes”, and recommended that the Department should conduct a review of its ODA projects in China.92

70.The Department’s Allocation of Official Development Assistance (ODA) 2016 - 2021 notes that ODA funding is directed to China via the Newton Fund.93 The Newton Fund promotes the economic development and social welfare of 17 partner countries on the OECD Development Assistance Committee (DAC) list of ODA recipients, including China.94 It does so through strengthening partner country science and innovation capacity to address their development priorities.

71.The Newton Fund has a total budgeted UK investment of £735 million. For the spending review period of 2016 to 2021, the UK budget committed is £585 million, with partner countries providing matched resources.95

72.The Minister confirmed that “none of BEIS’s ODA funding is going into the Xinjiang region, either through funding projects based in the region, or through research partners based there”.96 He added, however, that “BEIS cannot specify who researchers can contract with for materials or services, as is standard practice for grant management. However, these suppliers must be compliant with wider fund policy on matters such as safeguarding and anti-slavery compliance”.97

73.We were disappointed that the information provided by the Minister about the deployment of BEIS Department ODA funding in China only gave a high-level overview of the various research and training programmes taking place in China under the umbrella of BEIS ODA. This is important because it does not guarantee effective oversight of the use of BEIS funding in China.

74.We recommend that the Department commit to full transparency in terms of its ODA funding being used in China to ensure that no Government funds are being used to underpin human rights abuses. The use of taxpayer funds needs to be addressed. The Department should conduct an urgent review of its direct expenditure, including those via other UK Government departments - in particular the DIT and FCDO - or public bodies in China, to ensure it is compliant with the principles expressed in this report.

75.The Department should also publish a comprehensive supply chain review of Newton Fund-supported projects in China and provide the Committee with a full list of the organisations it works with in administering the Newton Fund and the sums of money involved.