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11 December 2024

Australian Government Publishes Response To Modern Slavery Act Review – Takeaways For U.S.-based Multinationals

RG
Ropes & Gray LLP

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Ropes & Gray is a preeminent global law firm with approximately 1,400 lawyers and legal professionals serving clients in major centers of business, finance, technology and government. The firm has offices in New York, Washington, D.C., Boston, Chicago, San Francisco, Silicon Valley, London, Hong Kong, Shanghai, Tokyo and Seoul.
Last week, the Australian Government issued its response to the 2023 statutory review of the Modern Slavery Act. In this post, we discuss the Response...
Worldwide Corporate/Commercial Law

Last week, the Australian Government issued its response to the 2023 statutory review of the Modern Slavery Act. In this post, we discuss the Response, next steps, possible amendments to the Act and take-aways for U.S.-based multinationals that report under the Act.

The Current Act

The Australian Modern Slavery Act took effect in 2019. Like other disclosure-based modern slavery statutes, the goal of the Act is to reduce modern slavery in businesses and their supply chains through transparency. The Act requires Australian entities and other entities carrying on business in Australia with consolidated worldwide revenue of more than A$100 million to annually prepare a modern slavery statement and submit it for inclusion in a central government Register. The statement is required to describe, among other things, the potential risks of modern slavery in the reporting entity's operations and supply chains and the actions taken to assess and address those risks.

The Act does not require a reporting entity to engage in modern slavery due diligence. It also does not impose monetary penalties for non-compliance.

The Act is described in further detail in Ropes & Gray Alerts here, here, here and here.

The Review Process

By its terms, the Act was required to be reviewed three years after it commenced. A 12-month review began in March 2022. The purpose of the review was to consider the efficacy and operation of the Act and whether improvements may be merited.

The review included the publication of an Issues Paper in August 2022, an online questionnaire based on the Issues Paper, an online survey sent to all entities that had submitted a statement under the Act and targeted consultations and meetings with select committees and individuals. The review received 136 written submissions, 30 responses to the online questionnaire and 496 responses to the online survey.

Additionally, the review involved 38 consultation meetings attended by 285 representatives from governmental and non-governmental organizations and another 65 meetings with government officers in Australia and abroad. Participants in the consultation and submission process came from business, government, civil society, academia, unions, charitable organizations and professional associations.

In May 2023, the Australian Attorney-General's Department tabled the Review Report reviewing the first three years of practice under the Act. The Review Report contained 30 recommendations, consisting of both changes to the Act and administrative actions, such as amended guidance. The recommendations generally seek to align the Act with evolving global trends in human rights due diligence, supply chain transparency and corporate accountability. In this Alert, we discuss the key recommendations made in the Review Report and compare them to the current Act and other existing modern slavery legislation.

The Government Response

The Government's Response outlines its position on the 30 recommendations contained in the Review Report. The Government "agrees" or "agrees in principle" with most of recommendations.

The Government has indicated that its implementation of the Response, and further consideration of reforms to the Act, will progress under four focus areas: (1) an effective compliance and enforcement framework; (2) increased clarity and simplicity; (3) enhanced support and guidance; and (4) continuous improvement.

Effective Compliance and Enforcement Framework

  • The Review Report recommended the introduction of penalties for non-compliance with the Act (Recommendation 20). The Government is aligned in principle, in part with this recommendation. It agrees with the need to strengthen the compliance and enforcement framework in the Act.

The Attorney-General's Department will consult on the introduction and operation of civil penalties for (1) failing to submit a modern slavery statement, (2) providing false information in a modern slavery statement or (3) failing to comply with a request for specified remedial action. In addition, the consultation will include consideration of complementary and best practice regulatory powers, including powers to issue an infringement notice or enter into an enforceable undertaking and information gathering powers. The Response notes that the introduction and form of administration of a penalty framework will be subject to a future Government decision.

  • The Attorney-General's Department will explore the practicability of establishing a procedure for the receipt and examination of complaints from the public regarding entity reporting under the Act (Recommendation 24).

Increased Clarity and Simplicity

The Review Report emphasized the importance of clear mandatory reporting criteria in achieving the transparency objectives of the Act, particularly noting the variable quality of statements published during the first three years.

  • The Government will explore amending the mandatory reporting criteria (Recommendation 8). Amendments to the criteria (if any) will be intended to provide clarity to reporting entities and assist with the comparability of statements year-over-year. Changes to be considered include the following:
    • Replacing "operations and supply chains" with "operations and supply networks." Under the Act, subject entities are required to report on the risks of modern slavery in their operations and supply chains.
    • Revising the following mandatory reporting criteria:
      • Criterion 3: the risks of modern slavery practices in the operations and supply chains of the reporting entity and the entities it owns or controls.
      • Criterion 4: the actions taken to assess and address modern slavery risks, including due diligence and remediation processes.
      • Criterion 5: how the reporting entity assesses the effectiveness of the actions taken.
      • Criterion 6: the process of consultation with any entities the reporting entity owns or controls and entities coming within a joint statement.
    • Adding new criteria requiring entities to report on (1) modern slavery incidents or risks identified by the reporting entity during the reporting year, (2) grievance and complaint mechanisms and (3) internal and external consultation on modern slavery risk management.
  • The Government will consider whether to require a mandatory coversheet (Recommendation 15). This would require entities to list where in their statement they have addressed the mandatory reporting criteria. A coversheet would assist with the comparability of statements.
  • Consideration will be given to requiring entities that will not be submitting a modern slavery statement, in a year following the submission of a statement, to notify the Government before the end of the reporting year, with an explanation (Recommendation 21). The Attorney-General's Department will consider how this notification would occur in practice, including any necessary changes to the Register.
  • The Attorney-General's Department will consider the practicability of making additional high-level information available regarding reporting entities' compliance with the requirements of the Act (Recommendation 23).

Enhanced Support and Guidance

  • In the Response, the Government indicated it is strongly committed to continuing to provide relevant, clear and easily accessible guidance to help reporting entities understand their obligations and responsibilities under the Act. Areas specified for consideration include the following:
    • Greater clarity on the definition of "reporting entity" (Recommendation 6). The Response indicates this also could involve an amendment to the Act.
    • Explanations in the guidance of the terms "operations" and "supply chains" (Recommendation 7).
    • Clarifying compliance with the approval and signature requirements (Recommendation 16). This work will be undertaken alongside developing an optional template, which is discussed below.
  • To further support reporting entities and enhance comparability of statements, the Government will develop an optional template for statements (Recommendation 13). The template will provide a standardized format for statements and outline information that should be included in statements.
  • The Review Report recommended that the Act be amended to allow the Minister or the Anti-Slavery Commissioner to declare a region, location, industry, product, supplier or supply chain as carrying a high modern slavery risk, and to prescribe the extent to which reporting entities must have regard to the declaration in preparing a statement under the Act (Recommendation 27). In the Response, the Government recognized that reporting entities would benefit from a high risk declaration mechanism. The Government will consult with stakeholders and the Anti-Slavery Commissioner on a model for declarations, taking into account international law obligations and potential implications for Australia's economy, trade, national security and foreign policy objectives.

Continuous Improvement

  • The Government will initiate discussions with other jurisdictions in Australia and internationally on options for defining "modern slavery" for mandatory reporting laws (Recommendation 1). A report on these discussions will be provided to any later review of the Act.
  • The Government will consider the desirability of amending the Act to allow mandatory reporting criteria to be prescribed in a rule or regulation, i.e., via delegated legislation (Recommendation 9). This will be considered together with amending the reporting criteria (Recommendation 8).
  • The Attorney-General's Department will consider further options to improve the Register (Recommendation 28).
  • The Government will conduct a future review of the Act (Recommendation 29). This is expected to occur following the implementation and operation of future reforms.

Responses to Other Recommendations from the Review

The Government "noted" the following recommendations from the Review Report in its Response. It did not agree or agree in principle with these recommendations in the Response.

  • Lowering the reporting threshold from A$100 million to A$50 million (Recommendation 4).

The Government does not consider it appropriate at this stage to lower the revenue threshold, given the need to first consider other recommendations that would impact reporting requirements. The Response indicates this recommendation will be further considered once additional scoping on other key recommendations has progressed.

  • Introducing obligations for a due diligence system (Recommendation 11).

However, the Attorney-General's Department will undertake consultations to identify how the Act could be amended to enhance its due diligence requirements. This will include consideration of how enhanced due diligence requirements on modern slavery would align with broader global developments towards human rights due diligence (in that regard, see our recent post describing the EU Corporate Sustainability Due Diligence Directive here).

  • Allowing an entity to submit a full modern slavery statement every three years and in the intervening two years to submit a report that updates the information in the full triennial statement (Recommendation 12).

The Government considers it preferable to retain the current annual reporting requirement while it considers changes to the mandatory reporting criteria and the impact of those potential changes. The Government proposes that a future review of the Act further explore this recommendation.

  • The Review Report recommended that reporting entities be able to submit an online modern slavery statement through an online portal, rather than having to upload a separate statement to the Register (Recommendation 14).

In the Response, the Government indicated it believes it is important for reporting entities to have sufficient flexibility in drafting their modern slavery statements and the opportunity to provide additional information in the statement beyond the mandatory reporting criteria (for example to address requirements under the Canadian Fighting Against Forced Labour and Child Labour in Supply Chains Act). The Government indicated it will examine this recommendation alongside Recommendation 13 (optional template), Recommendation 15 (mandatory coversheet) and Recommendation 28 (Register enhancements).

Next Steps

The Attorney-General's Department will lead the next stage of implementation and further consideration of reforms arising from the Response. This process will include:

  • Consultation on amended reporting criteria, the introduction and operation of penalties and related regulatory powers and a model for high-risk declarations;
  • Enhancements to the current guidance and supplementary guidance material;
  • Consideration of enhancements to the Register; and
  • Engagement with stakeholders on the introduction of a due diligence system requirement.

The Attorney-General's Department also will provide further advice to the Government on the outcomes of the consultation and reforms required to strengthen the Act, including amendments.

Three Quick Take-aways

  • For the time being, it is compliance as usual under the Act. At a minimum, at some point, there likely will be updated guidance. It is highly unlikely there will be any developments that impact upcoming reporting for calendar year companies (those statements are due June 30, 2025).
  • Changes to modern slavery reporting requirements can take a long time, if they even occur. As many of our readers will recall, the U.K. Modern Slavery Act also had a three-year review clause. In 2020, the U.K. Government published its response to a 2019 public consultation on the U.K. Modern Slavery Act (see this Ropes & Gray Alert). In the response, the then-Government indicated it was "committing to an ambitious package of measures to strengthen and future-proof the Modern Slavery Act's transparency legislation." Among other things, the Government indicated it would require specific topics to be addressed in modern slavery statements, establish a single reporting deadline for all companies and require companies to submit their statements to a new Government registry. Those enhancements have thus far not been implemented.
  • A significant percentage of U.S.-based multinationals publish a single statement to meet their modern slavery reporting requirements globally, covering California, the U.K., Australia and Canada as applicable. As earlier noted, this practice is explicitly contemplated and condoned by the Australian Government in the Response. We continue to generally recommend that U.S.-based multinationals publish a global statement. This is more efficient and reduces the risks associated with reporting discrepancies. Reporting consistency also is becoming more important as U.S.-based multinationals prepare for EU Corporate Sustainability Reporting Directive and Corporate Sustainability Due Diligence Directive compliance and manage compliance with forced labor import bans across a growing number of jurisdictions.

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.

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