Senate passes Modern Slavery Bill

On 28 November 2018, the Senate passed the Modern Slavery Bill with amendments.  This landmark legislation requires certain business entities to disclose on an annual basis the actions they have taken to address modern slavery (exploitation such as slavery, forced labour and human trafficking) in their operations and supply chains.

The Government’s amendments to establish a non-punitive mechanism for non-compliance, strengthen oversight, and provide a pathway for the introduction of future penalties were agreed to.  Amendments moved by the Labor Party to impose civil penalties for non-compliance, remove forced marriage from the definition of “modern slavery”, and introduce a requirement for the responsible Minister to provide a list of entities required to report and entities that failed to report in an annual report to Parliament, were all defeated.  Australian Greens and minor parties’ amendments to appoint an Anti-Slavery Commissioner and ensure a rolling three-year review of the legislation were withdrawn to ensure the passage of the Bill in this term of the Australian Parliament.

The Bill will now return to the House of Representatives for its third reading (a formality) prior to presentation to the Governor-General for Royal Assent.

This alert explains the new laws and the actions that will be required by businesses.

Entities required to report

The reporting requirement will apply to:

  • Australian entities;
  • foreign entities carrying on business in Australia;
  • Australian Government (on behalf of all non-corporate Commonwealth entities); and
  • corporate Commonwealth entities.

Australian entities include companies, partnerships and trusts.

Foreign entities will be considered to be carrying on business in Australia if (among other things) they have a place of business in Australia; use a share transfer or registration office in Australia; or deal with property in Australia.

Entities that are not required to report can ‘opt in’ to the reporting requirement.

Revenue threshold

Entities with an annual revenue below $100 million will not be required to report.  “Revenue” includes the consolidated revenue of the reporting entity and any entities it controls.  The revenue threshold is calculated on the reporting entity’s own financial year or reporting period.  Consolidated revenue is to be determined in accordance with the Australian Accounting Standards, even if those standards do not otherwise apply to the entity.

Modern slavery statements

Depending on their corporate structure reporting entities may prepare either single or joint modern slavery statements.  These statements must identify the reporting entity and address mandatory criteria:

  • the reporting entity’s structure, operations and supply chains;
  • modern slavery risks in the reporting entity’s operations and supply chains (including subsidiary entity operations and supply chains);
  • actions taken (including actions by subsidiary entities) to assess and address those modern slavery risks, including due diligence and remediation processes;
  • how the reporting entity assesses the effectiveness of actions taken; and
  • the process of consultation with subsidiary entities in preparing the modern slavery statement.

Joint statements must address the mandatory criteria for each reporting entity covered by the statement.

The Australian Government is to provide guidance on the meaning of ‘risks’, ‘operations’, ‘supply chains’, ‘due diligence’ and ‘remediation processes’.  It is anticipated that these definitions will align with the UN Guiding Principles on Business and Human Rights.  The expectation is that entities will initially report only on the most severe modern slavery risks, but this will not be restricted to tier 1 (direct) suppliers.

Formal guidance will also be provided on each form of exploitation that comprises ‘modern slavery’: slavery; servitude; forced labour; forced marriage; debt bondage; deceptive recruiting for labour or services; trafficking in persons; harbouring a victim; and the worst forms of child labour.

Further, a template modern slavery statement will be provided to assist businesses in reporting.

The Act enables businesses to submit revised modern slavery statements.  This will allow reporting entities to correct any false or misleading statements, errors, or to revise market sensitive information.

Approval of modern slavery statements

Single reporting entities must ensure their modern slavery statement is approved by the principal governing body of the entity (e.g. a board of directors) and is signed by a responsible member (e.g. a director or trustee).

Joint reporting entities have three options for approval and signature:

  1. the principal governing body and a responsible member of each reporting entity;
  2. the principal governing body and a responsible member of the entity which is in the position to influence or control each reporting entity; or
  3. if the first and second options are not practicable, the principal governing body and a responsible member of at least one reporting entity, accompanied by an explanation as to why the other approval options were not practicable.

The Act authorises the Minister to make rules to clarify the terms ‘principal governing body’ and ‘responsible member’.

Timeframe for reporting

The timeframe for submission of modern slavery statements depends on an entity’s financial year or other annual accounting period (reporting period).

Single reporting entities will be required to submit their modern slavery statement within 6 months from the end of the entity’s reporting period.

Joint reporting entities will be required to submit their modern slavery statement within 6 months from the end of the reporting period that applies to all the reporting entities or within a period to be determined by the Minister.

Modern slavery statements register

The Act requires the Minister to establish and maintain a register of modern slavery statements.  This will be in the form of a freely accessible public website.  Entities can also make their statements available on their own webpages if they wish to do so.

The Minister may decline to register a modern slavery statement that does not comply with the mandatory reporting criteria or the relevant approval, signature and timeframe for reporting requirements.  This discretion is not subject to a merits review.  It is anticipated that the exercise of the discretion to decline registration would only apply in cases of egregious non-compliance and after reasonable attempts to work with such entities in rectifying issues.

Non-compliance

The Act empowers the Minister to request a suspected non-compliant entity to explain why it has not complied with the reporting requirement or to require that entity to undertake specified remedial action.  Remedial action is likely to be limited to giving a modern slavery statement or revising an existing statement to ensure all criteria have been addressed.  Reporting entities will have 28 days to respond to any such requests, however the Minister has a discretion to extend this deadline.

If a reporting entity does not comply with a request, the Minister may then publicly identify the non-compliant entity and disclose:

  • the date and details of the request made, including the period for response and any extensions given;
  • the reasons why the Minister is satisfied the entity has failed to comply with the request; and
  • if the request relates to the entity’s failure to provide a joint modern slavery statement, the identities covered by that joint statement.

This information could be published on the publically accessible Modern Slavery Statements Register, or in any other way the Minister considers appropriate.

A decision by the Minister to identify a non‑compliant entity can be subject to review by the Administrative Appeals Tribunal.

Annual report to Parliament

The Minister must report annually to the Parliament about the implementation of the Act.  The annual report must include an overview of compliance by entities (e.g. the number of entities that have submitted modern slavery statements) and identify best practice modern slavery reporting.  The latter may include identifying reporting entities that demonstrate leading business practices.

Three-year review of the Act

The Act is subject to a three‑year review.  This review must evaluate the operation of the legislation generally and determine whether amendments are required, including the need for the introduction of civil penalties or other compliance mechanisms.

Commencement

The Act will commence on a date to be fixed by Proclamation or six months from Royal Assent (so is currently not known).  However, this will enable the reporting requirement to commence at the beginning of either a calendar year or the Australian financial year.

Entities subject to the Modern Slavery Act (NSW)

On 21 June 2018, the NSW Parliament passed its Modern Slavery Act.  This Act also establishes a modern slavery reporting requirement for certain business entities.

It is anticipated that the NSW Act will not apply to entities required to prepare a modern slavery statement under the Australian Government’s reporting requirement.

Actions businesses need to take

The modern slavery reporting requirement means businesses will need to gain visibility into their local and global supply chains and take action to manage identified risks.  This will involve a range of operational measures and updating of supplier contracts.

Operational measures include:

  • establishing a policy for responsible supply chains that articulates a commitment to responsible business conduct in its own operations and sets out expectations of suppliers;
  • undertaking due diligence, such as the pre-screening of suppliers and supplier assessments or audits;
  • designing and implementing a strategy to respond to identified risks, which may involve a range of responses such as corrective action plans, training and assistance to suppliers;
  • verifying that the actions taken have been effective, which involves the development of performance indicators and data monitoring;
  • training key personnel in the entity’s own business as well as training suppliers on how to identify and mitigate modern slavery; and
  • establishing a clear chain of responsibility with senior level policy oversight and approval of modern slavery statements.

Supplier contracts should be updated to include:

  • commitments to eradicate modern slavery from supply chains;
  • the right to call for compliance statements;
  • assessment/audit rights, including the right to undertake announced and unannounced assessments/audits, assessments/audits by third parties, and the requirement for full cooperation;
  • immediate notification of actual or potential non-conformance;
  • a commitment to follow corrective action plans in instances of non-conformance;
  • the right to suspend or terminate the contract for failure to meet required standards, failure to cooperate with an assessment or audit process or failure to follow a corrective action plan; and
  • the right to inform relevant authorities of the above.

Modern Slavery Bill 2018: Government moves – a little – on non-compliance

The Modern Slavery Bill 2018 aims to establish a modern slavery reporting requirement to strengthen Australia’s approach to combating modern slavery.  Under the Bill, entities with $100 million annual consolidated revenue must prepare a ‘modern slavery statement’ each financial year.  The modern slavery statement must identify the reporting entity and describe:

  • its structure, operations and supply chains;
  • the risks of modern slavery practices in its operations and supply chains, and those of any entities that the reporting entity owns or controls;
  • the actions taken by the reporting entity and any entity that the reporting entity owns or controls, to assess and address those risks, including due diligence and remediation processes.  This may include the development of policies and processes to address modern slavery risks, and providing training for staff about modern slavery; and
  • the consultation process with entities that the reporting entity owns or controls.

Follow this link for our previous Alert on the introduction of the Modern Slavery Bill.

On 12 September 2018, the Bill received its second reading in the House of Representatives.  The Labour Party moved a number of amendments:

  • the definition of modern slavery exclude forced marriage;
  • the Minister be required to report annually to Parliament on compliance by reporting entities, including a list of entities required to report and entities that have failed to report;
  • a civil penalty ($210,000) for reporting entities that fail to submit a modern slavery statement within the first two years;
  • a civil penalty ($210,000) for reporting entities that fail to submit, or submit inadequate modern slavery statements, to be introduced after two years; and
  • the appointment of an Anti-Slavery Commissioner.

These amendments were defeated.  The Bill is now before the Senate.  It is anticipated that further debate on these matters will occur at the next sitting of the Senate in November 2018.

With this in mind, the Government has moved to address the central issue of non-compliance, introducing into the Senate amendments to improve the operation of key aspects of the Bill, including by leaving the door open for the future introduction of civil penalties.  Whether the Government’s preparedness to look at penalties in the future is enough to secure passage of the Bill in its current form remains to be seen.

Non-compliance

The Government has proposed empowering the responsible Minister to require a suspected non-compliant entity to explain why it has not complied with a modern slavery reporting requirement or to require that entity to undertake specified remedial action.  Remedial action may include a requirement to give a modern slavery statement or revise an existing statement to ensure all necessary criteria have been addressed.  Reporting entities will have at least 28 days to respond.

If a reporting entity does not comply, the Minister may then publicly identify the entity and disclose:

  • the date and details of the request made, including the period for response and any extensions given;
  • the reasons why the Minister is satisfied the entity has failed to comply with the request; and
  • if the request relates to the entity’s failure to provide a joint modern slavery statement, the identities of the entities covered by that joint statement.

This information could be published on the publically accessible Modern Slavery Statements Register which is proposed by the Bill, or in any other way the Minister considers appropriate.

Any decision by the Minister to identify a non‑compliant entity will be subject to review by the Administrative Appeals Tribunal.  This will ensure that a reporting entity that considers it may have been incorrectly publicly identified by the Minister is able to seek a formal review of the Minister’s decision.

Other Government amendments

The Government has also proposed that the responsible Minister report annually to the Parliament about the implementation of the legislation.  The annual report must include an overview of compliance by entities (e.g. the number of entities that have submitted modern slavery statements) and identify best practice modern slavery reporting.

Another amendment seeks to clarify the focus of the three-year review of the legislation.  This review must evaluate the operation of the legislation generally and determine whether amendments are required, including the need for introduction of civil penalties or other compliance mechanisms.  No doubt this amendment will attract some debate.

Implications for Australian businesses following release of landmark modern slavery and supply chains report

The Parliamentary Committee inquiring into whether a Modern Slavery Act should be introduced in Australia has now released its final report.

The Committee heard that Australian business supply chains are closely linked with countries and businesses in the Asia-Pacific region, and many products sourced from that region are at high risk of being produced by modern slavery (that is, serious exploitation such as slavery, forced labour and human trafficking), particularly at lower tiers of supply chains.

The Committee recommends a mandatory global supply chain reporting requirement for certain businesses operating in Australia.

The Australian Government will now consider the Committee’s recommendations. Draft legislation is expected in the first half of 2018.

Background

In February, the Committee commenced its inquiry into establishing a Modern Slavery Act in Australia. This included consideration of whether a modern slavery supply chain reporting requirement for business should be adopted in Australia. This would require businesses to disclose publicly their actions to address modern slavery in their supply chains.

In its interim report in August, the Committee expressed its strong support for the introduction of a mandatory reporting requirement for entities operating in Australia. Following the Committee’s interim report, the Australian Government announced its support for a reporting requirement and released a proposed model.

The Committee, in its final report, has responded to the Australian Government’s proposed model.

This alert will explain the Committee’s recommendations and actions business needs to take.

Committee recommendations

Application

The Australian Government proposed that the reporting requirement apply to bodies corporate, unincorporated associations, superannuation funds and approved deposit funds.

The Committee recommends a broader range of business entities be covered by the new laws, including, sole traders, trusts, religious bodies, public bodies, Commonwealth Government agencies and the Australian Government itself.

Entities required to report

The Australian Government proposed that all entities headquartered in Australia, or entities that have any part of their operations in Australia, and which meet an annual revenue threshold, be required to report on the steps they have taken to eliminate modern slavery in both their operations and supply chains.

The Committee supports entities operating in Australia, regardless of where they are headquartered, being required to report. The Committee also agrees that reports should discuss modern slavery in both the operations and supply chains of entities.

Revenue threshold

The Australian Government proposed that the revenue threshold be at least $100 million global revenue and allow for entities below this threshold to opt in to the reporting requirement.

The Committee considers a threshold of $50 million global annual revenue would be most appropriate and provide for international consistency. The Committee also supports an opt in mechanism.

Reporting areas

The Australian Government proposed that entities report on:

  • their structure, operations and supply chains;
  • the modern slavery risks present in their operations and supply chains;
  • policies and processes to address modern slavery and their effectiveness; and
  • due diligence processes relating to modern slavery.

The Committee suggests including an additional reporting area – further action taken to eradicate modern slavery.

Further, the Committee recommends enabling smaller entities to provide modern slavery statements to other entities as evidence of them having found no modern slavery in their own supply chains.

Supply chain

The Australian Government indicated that the definition of supply chain should extend beyond tier 1 suppliers.

The Committee considers the definition of supply chain should be consistent with international standards. International standards may be found in numerous instruments, for example, the OECD Guidelines for Multinational Enterprises and the United Nations Guiding Principles on Business and Human Rights. Both instruments provide for a broader definition of supply chain that includes lower tier entities.

Due diligence

The Australian Government proposed that entities report on due diligence processes and their effectiveness.

The Committee considers a requirement for entities to report on their due diligence is an appropriate first step. The Committee recommends that any further measures, such as mandatory due diligence implementation, should be considered as part of a review after three years.

Approval

The Australian Government proposed that modern slavery statements be approved at the equivalent of board level.

The Committee supports this proposal.

Time frame for reporting

The Australian Government proposed the time frame for reporting to be within five months after the end of the Australian financial year.

The Committee agrees with this time frame. However, the Committee is also of the view that entities should have the option of making a supplementary modern slavery statement at any stage to address any changes in circumstances.

Penalties

The Australian Government did not propose to include punitive penalties for non-compliance.

The Committee recommends the introduction of penalties for entities that fail to report, applying to the second year of reporting onwards. The Committee called upon the Australian Government to consider the appropriate level of penalties and how penalties should be administered, including a possible role for the Australian Securities and Investments Commission.

Monitoring and evaluation

The Australian Government proposed that entities be required to publish modern slavery statements on their websites and that the Australian Government provide a publicly accessible and searchable central repository of such statements.

The Committee supports this approach. In the event that an entity does not have a website, the Committee recommends that the statement be available in its annual report or other public document. The Committee further recommends that the central repository contain a list of entities required to report, entities that have reported, and entities below the threshold who have reported voluntarily.

The Australian Government also proposed mechanisms for independent oversight of the reporting requirement.

The Committee supports the establishment of an Independent Anti-Slavery Commissioner to provide oversight of the reporting requirement.

Phased introduction

The Australian Government proposed a phased introduction of the reporting requirement to ensure the business community had sufficient preparation time.

The Committee supports the phased introduction of penalties, not the requirement to report.

Other recommendations

The Committee recommended that the Australian Government publish and regularly update a list of at-risk products, industries and population groups both within Australia and internationally, and consider legislated import restrictions on goods produced using modern slavery, similar to the approach taken in the United States.

Actions businesses needs to take

The proposed modern slavery supply chain reporting requirement means businesses will need to gain visibility into their global supply chains and take action to manage identified risks. This will involve a range of operational measures and updating of supplier contracts.

Operational measures include:

  • establishing a policy for responsible supply chains that articulates a commitment to responsible business conduct in its own operations and sets out expectations of suppliers;
  • undertaking due diligence, such as pre-screening of suppliers and supplier audits;
  • designing and implementing a strategy to respond to identified risks, which may involve a range of responses such as corrective actions plans, training and assistance to suppliers;
  • verifying that the actions taken have been effective, which involves the development of performance indicators and data monitoring;
  • training key personnel in the entity’s own business as well as suppliers on how to identify and mitigate modern slavery
  • establishing a clear chain of responsibility and assigning senior level approval for policy oversight and in relation to the modern slavery statement; and
  • developing a web page dedicated to the publication of the modern slavery statement.

Supplier contracts should be updated to include:

  • audit rights, including the right to undertake announced and unannounced audits, audits by third parties, and the requirement for full cooperation;
  • immediate notification of actual or potential non-conformance with policy;
  • commitment to follow corrective action plans in instances of non-compliance with policy;
  • right to suspend or terminate the contract for failure to meet policy standards, failure to cooperate with an audit process or follow a corrective action plan; and
  • right to inform relevant authorities.