Key Takeaways
- • Private equity and venture capital sponsors face previously overlooked compliance obligations under Canada's Fighting Against Forced Labour and Child Labour in Supply Chains Act (Modern Slavery Act), with reporting deadlines of May 31, 2024, and potential penalties up to $250,000 for non-compliance.
- • Sponsors may trigger reporting requirements by controlling entities that produce, sell, distribute, or import goods in Canada, or by directly selling, importing, or distributing goods—including office equipment—making the Act relevant beyond traditional goods-focused business models.
- • Threshold definitions for both "control" and the quantum of goods sold, produced, distributed, or imported remain ambiguous in the Act's statutory language, requiring sponsors to conduct individualized compliance assessments well before the deadline.
- • The Modern Slavery Act represents part of a broader environmental, social, and governance (ESG) compliance spotlight, creating legal, operational, and material reputational risks for affected funds, their sponsors, and individual directors and officers.
- • International templates for modern slavery reporting are being developed to streamline compliance for entities reporting under Canadian, Australian, and UK regimes simultaneously, reducing administrative burden for multinational fund sponsors.
Summary
Private equity and venture capital sponsors face an emerging compliance obligation that many have overlooked: reporting requirements under Canada's Fighting Against Forced Labour and Child Labour in Supply Chains Act (commonly referred to as the Modern Slavery Act), which came into force on January 1, 2024. According to Borden Ladner Gervais LLP, sponsors should treat the May 31, 2024 reporting deadline as a material compliance date, particularly given statutory penalties of up to $250,000 for affected businesses and their individual directors and officers.
The Act's scope extends beyond traditional manufacturing and goods importation, creating compliance exposure for fund sponsors who may not immediately recognize their applicability. Sponsors can trigger reporting obligations in two primary ways: by controlling an entity that produces, sells, distributes, or imports goods in Canada and/or elsewhere, or by directly engaging in the sale, import, or distribution of goods into Canada—including office equipment and other operational supplies. This broader interpretation means that fund sponsors managing portfolio companies or maintaining office operations may fall within the Act's reach despite not operating goods-focused businesses.
A critical challenge for compliance is the statutory ambiguity surrounding threshold definitions. The Act does not clearly delineate what constitutes sufficient "control" of an entity or the quantum of goods transactions necessary to trigger reporting obligations. This uncertainty requires each sponsor to conduct a fact-specific assessment of their own structure and operations well in advance of the May 31 deadline. Legal and operational risks are compounded by reputational exposure; the Act is part of a wider institutional focus on ESG-related matters and supply chain governance, making non-compliance visible to limited partners, regulators, and public stakeholders.
Recognizing the compliance burden across multiple jurisdictions, international templates for modern slavery reporting have been developed to streamline disclosure requirements for sponsors operating under Canadian, Australian, and UK modern slavery regimes simultaneously. These templates reduce redundancy and administrative overhead for multinational fund managers while maintaining substantive alignment with each jurisdiction's statutory requirements. Sponsors are advised to assess their applicability status immediately rather than waiting until late May 2024, given the complexity of threshold determination and the potential for material compliance costs.
The Act's scope extends beyond traditional manufacturing and goods importation, creating compliance exposure for fund sponsors who may not immediately recognize their applicability. Sponsors can trigger reporting obligations in two primary ways: by controlling an entity that produces, sells, distributes, or imports goods in Canada and/or elsewhere, or by directly engaging in the sale, import, or distribution of goods into Canada—including office equipment and other operational supplies. This broader interpretation means that fund sponsors managing portfolio companies or maintaining office operations may fall within the Act's reach despite not operating goods-focused businesses.
A critical challenge for compliance is the statutory ambiguity surrounding threshold definitions. The Act does not clearly delineate what constitutes sufficient "control" of an entity or the quantum of goods transactions necessary to trigger reporting obligations. This uncertainty requires each sponsor to conduct a fact-specific assessment of their own structure and operations well in advance of the May 31 deadline. Legal and operational risks are compounded by reputational exposure; the Act is part of a wider institutional focus on ESG-related matters and supply chain governance, making non-compliance visible to limited partners, regulators, and public stakeholders.
Recognizing the compliance burden across multiple jurisdictions, international templates for modern slavery reporting have been developed to streamline disclosure requirements for sponsors operating under Canadian, Australian, and UK modern slavery regimes simultaneously. These templates reduce redundancy and administrative overhead for multinational fund managers while maintaining substantive alignment with each jurisdiction's statutory requirements. Sponsors are advised to assess their applicability status immediately rather than waiting until late May 2024, given the complexity of threshold determination and the potential for material compliance costs.
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