Releasing the shackles with the passing of the modern slavery act
Published on December 10, 2018 by Selwyn Black and Katherine Silvers
Following up from our Article last year where consultations on the inquiry into establishing a Modern Slavery Act in Australia were underway, on 29 November 2018 the Senate finally passed the Modern Slavery Bill 2018 (Cth) (the Bill).
While NSW took the lead in combatting modern slavery with the passing of the Modern Slavery Act 2018 (NSW) in June this year, the passing of the Commonwealth Bill reinforces the Government’s commitment to maintaining a robust approach to fighting modern slavery. The Bill also now finally brings Australia in line with the UK and puts the need to address (and eliminate) modern slavery both domestically and internationally on the business agenda.
As foreshadowed in our earlier article, the Bill establishes a Modern Slavery Reporting Requirement which is to apply to “reporting entities”. This new reporting requirement, a Modern Slavery Statement, requires certain large businesses and other entities in Australia to need to report on and publish their actions to address modern slavery in their operations and their supply chains.
A reporting entity has been defined in section 5 as:
An Australian entity or entity carrying on business in Australia which has a consolidated revenue of at least $100 million for the reporting period (being a financial year), noting that for modern slavery statements covering more than one entity within a corporate group joint modern slavery statements are permissible (section 14); or
- An Australian entity or entity carrying on business in Australia which has a consolidated revenue of at least $100 million for the reporting period (being a financial year), noting that for modern slavery statements covering more than one entity within a corporate group joint modern slavery statements are permissible (section 14); or
- The Commonwealth; or
- A corporate commonwealth entity or a Commonwealth Company which has which has a consolidated revenue of at least $100 million for the reporting period; or
- An entity which has volunteered to comply with the requirements of the Act.
While the Bill is still awaiting a date for royal assent, a reporting entity will likely need to provide a report for the FY19 in 2020 and so it is imperative that entities covered by the Act begin preparing if they haven’t already.
MODERN SLAVERY STATEMENTS
Mandatory Reporting Requirements
As per Section 16 Modern Slavery Statements must address the following mandatory criteria:
- Identify the reporting entity; and
- The reporting entity’s structure, operations and supply chains; and
- The risks of modern slavery practices in the operations and supply chains of the reporting entity, and any entities that the reporting entity owns or controls; and
- The actions taken by the reporting entity (and any entity it owns or controls) to assess and address those risks, including due diligence and remediation processes; and
- How the effectiveness of these actions is assessed;
- The process of consultation with any entities owned and controlled by the reporting entity; and
- Any other information considered relevant.
These mandatory reporting requirements are substantially based on the optional reporting criteria set by the UK Modern Slavery Act. Further the Bill provides for the establishment of a publicly available Modern Slavery Statements Register to be kept by the Minister for Home and Affairs. Certainly this will promote transparency and improve information available to businesses, consumers and investors about modern slavery and the steps being taken to eliminate it.
The Bill provides that for entities failing to comply with the reporting obligations, the Minister may request an explanation as to why a statement has not been provided, or that the entity undertakes remedial action such as providing a modern slavery statement. The Bill also grants to the Minister the power to publicly identify entities that do not comply, which may result in significant public criticism and reputational damage.
Significantly, the Bill provides the Minister discretion to not act for non-compliance within the first three years of enactment to enable reporting entities to become more familiar with what is expected of them.
Although there are currently no civil penalties provided for in the Bill, should it be necessary in the future the Bill has been drafted to enable their introduction.
COMPARED TO NSW ACT
While the Commonwealth Act is a significant step, two key differences to the NSW Legislation include:
- The lack of financial penalties compared to the significant penalties under the NSW Act of up to a maximum of $1.1 million. While the Commonwealth Act was amended to introduce the aforementioned power of the Minister to request a non-confirming entity to undertake ‘specified remedial action’ where non-compliance with that direction enables the minister to ‘name and shame’ the entity, this is a comparatively subdued approach.
- The significantly higher threshold of $100 million annual turnover compared to the $50 million turnover threshold under the NSW legislation;
DON’T GET CAUGHT UP IN CHAINS
With the first round of Modern Slavery Statements likely due in 2020, organisations should firstly determine if the Act (and the NSW Legislation) applies to them or whether they wish to voluntarily opt in. For organisations that fall under the ambit of the Act it is our recommendation that they begin, if they haven’t already:
- Understanding and mapping out each element of their supply chains;
- Reviewing existing contracts and policies and identify where any potential slavery issues exist and whether they have been addressed;
- Update existing policies or formulate new policies to address modern slavery exploitation and the proposed Reporting Requirements
- Identify and consider conducting requisite audit and due diligence measures to ascertain any operational or supply chain areas where there is a risk of modern slavery
- Consider establishing processes to monitor the effectiveness of steps taken, if any, to ensure modern slavery is not exploited and consider training required to be provided to employees to proactively identify issues and apply any new modern slavery policies and procedures implemented
With increasing consumer pressure and media attention failure to conduct the necessary due diligence and audits may greatly damage a business’ reputation and its brand.
Importantly, as the mandatory reporting criteria requires reporting entities to not only report on risks within their own operations but also in its supply chains, it now more than ever makes business sense to establish and maintain sustainable supply chains. In the absence of a definition of supply chain in the Act, the greatest challenge will arguably be the determination of where an entity’s reporting obligations end.