I think it is an obvious nonsense as, as has been pointed out, not everyone has a passport. If employed they with have an NI number though so I don't see what this is all about.
Although I am aware the government seems to think employers must act as policemen and catch illegal immigrants. The whole thing is wrong. Fair enough an employer ought not deliberately hire illegals at low pay because the illegals are desperate, but it is beyond the Pale to try to make them responsible for a task that is rightfully the responsibility of the law.
I think your management is making excuses for the decision they have made and don't want to take the flak for. Seems a typical thing for them to try on.