According to the Modern Slavery Index, globally there were 40.3 million people in slavery in 2016. As part of its response to this global issue, Australia introduced the Modern Slavery Act 2018 (Cth) (the “Act”).
Currently Australian entities (or entities carrying on a business in Australia) with a consolidated revenue of at least $100 million (“Reporting Entities”) are required to report annually on the risks of modern slavery in their operations and supply chains, and identify actions to address those risks. Companies therefore need to ensure they are familiar with their reporting obligations under the Act.
Businesses under this threshold are also likely to be affected by this legislation if they form part of a Reporting Entity’s supply chain. And, as the important issue of modern slavery in supply chains becomes more widely understood, many more businesses and employees within the business will need to understand modern slavery and what it means for their business.
Reporting is not a quick exercise and Reporting Entities who have not commenced the process or have not given the Report proper consideration should immediately take stock. Businesses who fail to do so risk reputational damage.
We also recommend that all entities whether captured by the Act or not, start to consider what the legislation means for them, not only from an ethical standpoint, but also as part of any business strategy to work with clients or make their business more attractive to prospective clients who are Reporting Entities.
What is Modern Slavery?
Modern Slavery is a term used to describe situations where coercion, threats and/or deception are used to exploit victims and undermine or deprive them of their freedom. It covers a wide variety of activity, including forced labour, forced marriage, debt bondage and deceptive recruiting for labour or services. It is not a term to be applied to situations involving large scale wage underpayments or poor working conditions, but rather refers to situations where a person cannot refuse work because of threats or coercion or because they are deprived of their freedom.
Identifying your organisation’s ‘risks of modern slavery practices’ means considering the potential for your entity to cause, contribute to or be directly linked to modern slavery through its operations and supply chains. In the context of this legislation, risk is to be interpreted as ‘outward-facing’ rather than risks to an entity’s reputation. For example:
- If your entity owns and operates a factory that utilises labour of exploited workers, or workers that are not free to stop working or free to leave their place of work, there is a risk that your organisation causes modern slavery practices.
- If your entity sets unrealistic cost targets or delivery dates for suppliers that could only be achieved by using exploited labour, there is a risk that your organisation contributes to modern slavery practices.
- If your entity sells goods that are manufactured by another entity that uses raw materials obtained through exploited labour there is a risk that your organisation is directly linked to modern slavery practices.
Practically speaking, most entities with global operations and supply chains should be able to identify risks of modern slavery practices in their operations and supply chain. It is also important to note, however, that there are also modern slavery risks in operations and supply chains within Australia, and such risks should not be overlooked simply because Australia has relatively robust Industrial Relations laws. In identifying a risk, the entity is not admitting that modern slavery practices are occurring (or that it has knowledge of such practices), but is rather acknowledging there is an element of risk so as to allow for policies and procedures to be developed to monitor and address those risks.
The Department of Home Affairs has issued a Draft Guidance for Reporting Entities that sets out, in plain language, what entities need to do in order to comply with the reporting requirements under the Act. The Draft Guidance sets out:
- Definitions and examples of various types of Modern Slavery;
- Risk Indicators for Modern Slavery; and
- What information Reporting Entities need to set out in their reports, as well as guidance for those entities in compiling reports.
The Draft Guidance is a comprehensive document, and it is important that Reporting Entities review it carefully.
Reports are to be in the form of ‘Modern Slavery Statements’ and are to be provided to the Minister within 6 months of the end of the Reporting Entity’s reporting period. Due to COVID-19, temporary 3-month extensions have been provided in relation to this year’s ‘Modern Slavery Statements’ for Reporting Entities using the Foreign Financial Year (1 April 2019 – 31 March 2020) and the Australian Financial Year. Statements will be published on a public repository known as the Modern Slavery Statements Register (the “Register”), and such statements may be accessed by the public free of charge.
Not a reporting entity? You may still be impacted.
As noted above, if you are not a Reporting Entity, you might still be affected by this legislation if you form part of a Reporting Entity’s operations or supply chain.
While the Draft Guidance sets out that Reporting Entities should not outsource compliance obligations to their suppliers, practically speaking it is not unlikely that Reporting Entities will seek to shift some of the due diligence on to their suppliers and subcontractors, or at the very least, request information from their suppliers. In circumstances where your business might supply multiple Reporting Entities, you might be required to prepare multiple reports or undergo multiple audits.
In these circumstances, undertaking your own reporting and investigations into Modern Slavery risks and having policies and processes in place may assist your organisation in reporting to your clients.
It is also foreseeable that Modern Slavery reports, due diligence frameworks and comprehensive policies may become key requirements in tendering and procurement process for Reporting Entities, so adapting to the new legislative reporting requirements and being able to demonstrate your organisation has mechanisms in place to report on Modern Slavery may make your business a more attractive supplier for Reporting Entities.
What doesn’t the legislation do?
Whilst it is mandatory for Reporting Entities to report under the Act, the Commonwealth legislation in its current form does not impose financial penalties for non-compliance. However, Reporting Entities who do not comply may need to explain to the Minister why they have not reported and may be required to undertake remedial action. Ultimately, a Reporting Entity is likely to suffer reputational damage if it does not report because the Minister may publish information about the Reporting Entity’s failure to report on the Public Register including the Reporting Entity’s identity.
What about the NSW Modern Slavery Legislation?
It’s important to note that whilst not currently in force, NSW has also passed their own Modern Slavery Act 2018 (NSW) which would, if implemented, affect businesses in NSW with annual consolidated revenue of $50 million.
The NSW Government has stated that while it is committed to implementing a Modern Slavery regime in NSW, it will first seek to work with the Commonwealth Government with a view to achieving greater harmonisation as between the Act and the NSW Act. In particular, the NSW Government has announced an intention to try and achieve harmonisation of the reporting threshold at $50 million consolidated revenue (which would require an amendment to the Commonwealth Act, and would increase the number of Reporting Entities).
In the interim, we understand it is the NSW Government’s intention to make amendments to the NSW Act with a view to commencing components of the NSW Act that complement the Commonwealth Act and which are not inconsistent with it.
How can we help?
Terri Bell & Co can provide assistance and advice to Reporting Entities or businesses simply wishing to consider the risks of modern slavery occurring in their own supply chains. In particular, our team can assist with:
- Reviewing contracts with suppliers to address reporting requirements under the Modern Slavery Act;
- Interpreting the Modern Slavery Act and how it applies to your organisation;
- Identifying Modern Slavery Risks applicable to your organisation (whether you are a reporting entity, or a supplier to a reporting entity);
- Devising a framework for due diligence;
- Devising reporting channels and policies to assist board members and employees with responding to a case of modern slavery; and
- Assisting with the auditing process, including requirements for the auditing of your suppliers.
IMPORTANT NOTICE – The information contained in this article is not intended to be comprehensive. It is general in nature and is not intended to be used as a substitute for legal, financial or other professional advice. You must seek specific professional advice tailored to your personal circumstances before taking any action based on this article.
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