With the introduction of the Modern Slavery Act 2018 (Cth) (Federal Act), entities with an annual consolidated revenue of $100 million or more per financial year will now have to generate yearly modern slavery statements to demonstrate the effort taken to reduce or eradicate modern slavery within its operations and supply chains. This new legislative regime in Australia has been largely inspired by existing modern slavery and transparency legislation in the UK and the USA, however the Modern Slavery Act 2018 (NSW) (NSW Act), which is yet to commence, is the first statutory scheme internationally that includes penalties for non-reporting.
What is modern slavery?
At its simplest, modern slavery is any instance of slavery, servitude or forced labour to exploit children or other persons taking place in the supply chains or internal operations of government, non-government agencies or commercial organisations. It can also include actions such as deceptive recruiting for labour or services. Under the NSW and Federal Acts it also includes any conduct which constitutes a 'modern slavery offence' within other existing criminal law regimes.
Contextualising modern slavery: the numbers
Modern slavery is a significant problem on both a global and local scale. It is estimated that over 40 million people globally are victims of modern slavery practices. Of that, 23,990,000 people are located in the Asia Pacific region.
Australia is estimated to have at least 15,000 people in modern slavery conditions, the majority of which are from Australian supply chains linked to the Asia Pacific region. This number is an estimate only – modern slavery practices within supply chains are often underreported.
Which modern slavery reporting regime applies to your business?
The NSW Act, if commenced, will apply to commercial organisations with employees in NSW that supply goods and services for profit or gain with a total turnover of $50 million or more in the financial year. It was previously estimated that the NSW Act would commence on 1 July 2019, however the NSW Parliament has recently referred the Act to the Standing Committee on Social Issues to be reviewed due to alleged inconsistencies with the Federal legislation. It may be the case that the NSW Act will not commence as expected, however it remains prudent for organisations to take preliminary steps to understand modern slavery risks within its supply chains should the NSW Act go ahead.
Although the first reporting period has not yet been triggered, if the NSW Act were to commence as planned, companies will need to adhere to the obligations as outlined in the Act.
Under the NSW Act, the term commercial organisations means:
- a company
- any body corporate (whether incorporated in Australia or elsewhere)
- an unincorporated body that under the law of its place of origin, may sue or be sued, or may hold property in the name of its secretary or of an office holder of the body duly appointed for that purpose
- incorporated partnership
- an association (including a partnership) other than one referred to above, or other body of persons
The Federal Act commenced operation 1 January 2019 and applies to entities based or operating in Australia with an annual consolidated revenue of more than $100 million. The relevant reporting period is the first Australian or international financial year after this date (e.g. 1 July 2019 – 30 June 2020 or 1 October 2019 – 30 September 2020). The modern slavery statement must be submitted within six months after the relevant reporting period. The term entity includes any of the following:
- an individual
- a body corporate
- a body politic
- a partnership
- any other unincorporated association or body of persons
- a trust
- a superannuation fund
- an approved deposit fund
If an entity has submitted a modern slavery statement under the Federal Act, it does not have to provide a second modern slavery statement under the NSW Act.
Mandatory reporting requirements
Companies that fall within either the Federal or NSW reporting regime will have to prepare a modern slavery statement addressing the risks of modern slavery within the organisation and its supply chains. Mandatory reporting increases the transparency at each level of the supply chain by uncovering the structure and key business operations from the farming, primary production and manufacturing stages to the final distribution and sale of goods. It is important to note that both the Federal and the NSW Acts apply to activities outside of Australia, so when entities are investigating supply chains, the review must be conducted beyond the confines of Australia and must include any activities and production of goods by international manufacturers, suppliers, wholesale providers, farmers, etc.
While the mandatory minimum reporting requirements differ between the Federal and NSW Acts, the process is generally the same, such as:
- Obtain approval of the modern slavery statement from the 'principal governing body', which in most cases will be the Board
- Have a Director(s) sign-off on the statement
- Lodge the statement with the relevant Minister or Department
- Ensure that it is published online and on the public register
Preparing your Modern Slavery Statement under the NSW reporting regime
Commercial organisations must prepare a modern slavery statement in accordance with the provisions within the NSW Act. The commercial organisation must demonstrate the steps taken during the financial year to ensure that its goods and services are not a product of modern slavery either in its own business or in its supply chains.
This may include providing information on:
- The organisation's structure, its business and its supply chains
- Due diligence processes in relation to modern slavery in its business and supply chains
- Parts of its business and supply chains where there is a risk of modern slavery taking place, and the steps it has taken to assess and manage that risk
- Training about modern slavery available to its employees
Statements must be submitted after the end of the reporting period and be made publicly available on the NSW modern slavery public register.
Preparing your Modern Slavery Statement under the Federal reporting regime
Similarly, under the Federal Act, entities must prepare either a single or joint modern slavery statement in accordance with the provisions within the Federal Act.
The minimum reporting criteria that organisations must address within its modern slavery statement includes:
- Identify the reporting entity
- Describe the structure, operations and supply chains of the reporting entity
- Describe 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
- Describe the actions taken by the reporting entity and any entity that it owns or controls, to assess and address those risks, including due diligence and remediation processes
- Describe how the reporting entity assesses the effectiveness of such actions
- Describe the process of consultation with:
- any entities that the reporting entity owns or controls
- in the case of a reporting entity covered by a statement - the entity giving the statement
- Any other information that the reporting entity, or the entity giving the statement, considers relevant
The entity must submit the modern slavery statement within six months after the end of the reporting period and must submit it to the relevant Minister so that it may be added to the Federal Modern Slavery Statements Register.
Penalties for non-compliance
Under the Federal Act, the Minister has the power to issue a written request if an entity fails to prepare a modern slavery statement within the reporting period. The failure to respond to the request does not attract a penalty, however the Minister has the power to name and shame the entity and provide details of its non-compliance to the public, creating a significant risk in terms of reputational damage globally.
Unlike the Federal Act, the NSW Act attracts annual penalties with a maximum penalty each of $1.1 million if mandatory reporting and other obligations are not met. An entity will be penalised if it:
- Fails to prepare a modern slavery statement
- Fails to make its modern slavery statement publically available
- Provides information in connection with a matter under this section that the person knows, or ought reasonably to know, is false or misleading in a material particular
How to get ready
Modern slavery reporting will now become commonplace across Australia for both Australian and international businesses. Commercial organisations and entities must now account for this modern slavery reporting regime during annual reviews and should begin the investigation into its supply chains as soon as possible in order to meet its first modern slavery statement deadline.
It is essential that commercial organisations begin to understand where the risks may lie internally as well as in its supply chains and whether there are appropriate due diligence processes to capture information on a yearly basis to feed into the annual reporting cycle.
In preparation for the first reporting cycle, entities and commercial organisations should consider taking the following action:
- Allocate resources and set up an internal multi-disciplinary team who will be responsible for modern slavery reporting and compliance - engage senior management, executives and the Board
- Map and assess existing (and any upcoming) operations and supply chains to assess where the modern slavery risks lie
- Consider engaging a Human Rights expert or non-government organisation to assist in tackling supply chain issues (including how to handle complaints and corrective actions if modern slavery practices are uncovered)
- Revise current supplier terms and policies and current employee codes of conduct and policies to cover these new obligations
- Provide training to employees on modern slavery risks
- Create due diligence frameworks to continually monitor risk both internally and within the supply chains already mapped
- Look for markers of modern slavery, e.g. unlawful withholding of wages or identity/travel documents or lacking appropriate clothing or safety equipment for work
- Increase supplier awareness and engagement to ensure that supply chain participants are aware of these new obligations, and encourage ongoing communication and collaboration on tackling modern slavery issues that may arise
Moving forward, it is essential that both Australian and international businesses understand the expectations and objectives of the new modern slavery laws, including the consequences for businesses if the reporting obligations, ministerial powers and penalties attached to the NSW Act are not properly understood.
Although it is unclear whether the NSW Act will commence as it stands, for those commercial organisations who will likely fall into this mandatory reporting regime, preparation with a view to compliance is important moving forward.
Entities under the Federal regime must now demonstrate that legitimate and genuine steps are being taken to combat and reduce the potential infection of modern slavery within its own business as well as in its supply chains, whether those activities occur in Australia or beyond. Organisations should now start preparing for the first reporting cycle to avoid naming and shaming by the Minister and penalties for non-compliance, as well as ensure that effective policies and procedures are formulated and implemented as soon as possible to reduce the direct or indirect risk of modern slavery practices within its supply chains.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.