On January 1 2019, the Modern Slavery Act 2018 (Cth) (the MSA) came into effect.
The MSA requires reporting entities to prepare annual Modern Slavery Statements (Statements). These Statements are to be lodged with the relevant Minister and will be recorded on a register and accessible publicly.
The MSA is reflective of international concerns in respect of modern slavery, and is modelled substantially on the United Kingdom’s Modern Slavery Act.
The MSA establishes a reporting framework that requires all relevant Australian businesses (including Direct Selling Organisations (DSO’s)) to identify modern slavery risks in their operations and supply chains, and to implement appropriate measures to ensure identified risks are lessened or remediated, as necessary. This reporting framework is aimed at promoting transparency for consumers and potential investors, placing a business’ reputation at stake if it fails to report or mitigate identified risks.
Modern Slavery Concerns for Australian Businesses
Minimising the risk of modern slavery is of particular concern because these practices occur predominantly in the Asia-Pacific region, where many Australian businesses source products, raw materials or services as part of their supply chain.
Modern slavery is not defined clearly in international or domestic law. However, for the purposes of preparing a Statement under the MSA, it covers trafficking in persons, slavery and slavery-like practices and the worst forms of child labour. For example, servitude, forced labour, forced marriage, debt bondage, deceptive recruiting for labour or services, organ trafficking and using children for prostitution or dangerous work fall within its scope.
What is a Reporting Entity?
Any entity that carries on business in Australia with an annual consolidated revenue of AUD$100 million or more has an obligation to prepare a Statement. This obligation applies to both publicly listed and non-listed companies, trusts and partnerships, as well as foreign entities conducting business in Australia through a subsidiary.
Entities that operate in Australia, but fall outside this parameter, may prepare voluntarily a Statement and provide it to the Minister.
Commonwealth entities are also subject to the reporting requirement.
What is a Modern Slavery Statement?
Each Statement must contain the following information, in respect of a reporting entity:
- its identity;
- its structure, operation and supply chains;
- the potential modern slavery risks in its operations and supply chains; and
- the process for assessing and addressing any modern slavery risks which it has identified, including due diligence and remediation processes and processes for assessing the effectiveness of its actions.
Generally, whether information should be included in a Statement is likely to be determined (having regard to confidentiality requirements) by factors, such as the industry sector in which the reporting entity operates, the complexity of the reporting entity’s group corporate structure and supply chains, and/or the jurisdictions in which the reporting entity’s suppliers conduct business.
When preparing a Statement, reporting entities should consider developing various business practices to complement its obligations under the MSA and to ensure that a fulsome Statement is prepared. Those practices could include the following:
- engaging with internal and external stakeholders (including third parties with expertise in modern slavery, such as Non-Government Organisations) to develop a deeper understanding of the modern slavery concerns in the jurisdiction in which the business’ supply and operation chains exist, and to assess accurately those jurisdictions in which there is the highest risk of modern slavery;
- establishing policies and procedures for suppliers to reduce the risk of modern slavery, including grievance and whistleblowing procedures;
- establishing management systems for supply and operation chains, including due diligence checks prior to the appointment of suppliers to confirm the supplier’s credibility and ability to manage the rights of its employees.
Statements should be tailored to reflect accurately a business’ particular circumstances and should consider how the business can make ongoing, tangible improvements in identifying and mitigating modern slavery risks.
Example – Qantas
Under the United Kingdom’s Modern Slavery Act, Qantas is required to prepare and submit annual Modern Slavery Statements.
Qantas, in its 2017 Statement, communicated the business’ salient human rights priorities, which included a commitment to the introduction of its Supply Chain Assurance Program (the Program) to identify, assess and mitigate any risk of modern slavery in its supply chains.
In its 2018 Statement, Qantas indicated that it had begun drafting a comprehensive statement of its commitment to human rights.
In its 2018 Statement, Qantas indicated that, in implementing the Program, it had identified a specific issue in Malaysia where foreign workers were required to pay excessive recruitment fees, placing the workers in a situation of bonded labour. Qantas took steps to ensure that all relevant workers had their bonds repaid in full. Subsequently, the facility has since been audited twice to improve work practices.
By 2021, Qantas aims to have assessed all new and recontracted suppliers through the Program.
A Statement can be submitted by a single reporting entity or by a corporate group of entities in the form of a joint Modern Slavery Statement.
This allows a holding company to submit a Statement on behalf of its subsidiaries and other entities in its group.
Certain governance requirements apply to the lodgement of a joint statement. This includes ensuring that the joint statement is approved by the principal governing body of the holding entity, and is signed by a responsible member of that entity (for example, a director or secretary).
If an entity is required to report in multiple jurisdictions (for example, in the UK and Australia), a single Statement can be prepared and lodged in each jurisdiction, to the extent that the Statement complies with the requirements in all of those jurisdictions. Notably, the requirements under the MSA are more rigorous than those in the UK.
Reporting entities must lodge a Statement within 6 months of the conclusion of each financial year.
The first reporting period will commence on 1 July 2019.
Accordingly, entities with a standard Australian financial year (period ending 30 June) will be required to lodge their first Statement by 31 December 2020. Alternatively, entities with a calendar financial year (period ending 31 December), which will be the case for many Australian subsidiaries of a US corporate group, will be required to lodge their first Statement by 30 June 2021.
The Modern Slavery Statement Register
All Statements lodged with the Minister will be published on a public register.
One of the objectives of the Statements being available for public inspection is to seek to ensure the transparency of businesses in Australia and to encourage businesses to improve risk management practices in respect of modern slavery.
However, the collection and retention of information relevant to a Statement will be regulated carefully to ensure that only limited information is required to be disclosed.
Mechanisms to Address Non-Compliance
No penalties are prescribed in the MSA in respect of non-compliance with the MSA.
However, the MSA establishes various mechanisms to address non-compliance. These mechanisms are concerned predominantly with reputational repercussions. For example, the Minister has the power to require suspected non-compliant entities to explain their reasons for non-compliance and to undertake specified remedial action. Also, the Minister may publish information about entities that fail to comply with a request (including the name of the non-compliant entity, the date and details of the requests made and the reasons why the Minister is satisfied that the entity has failed to comply).
The MSA will be subject to a three-year review to consider whether there is a need for additional measures, such as penalties, to improve compliance.
New South Wales (NSW) Requirements
On 21 June 2018, the Modern Slavery Act 2018 (NSW) (NSW Act) was passed by the NSW Parliament. The NSW Act is expected to commence on 1 July 2019.
In a manner similar to the MSA, the NSW Act requires reporting entities to prepare annual Modern Slavery Statements (NSW Statement) detailing the steps undertaken by the entity to address modern slavery risks within its operations and supply chains.
For the purposes of the NSW Act, a reporting entity is an entity which:
- supplies goods and services in New South Wales;
- has employees in New South Wales; and
- has a total revenue exceeding AUD$50 million in its financial year.
It is likely that the NSW Act will provide entities with an exemption if those entities are subject to the MSA. Thus, the NSW Act will likely apply only to entities that satisfy the above criteria, but do not have an annual total revenue of over AUD$100 million. However, the position under the NSW Act relating to entities that are required to comply with the MSA is not clear.
NSW Government entities will also be subject to the reporting requirements under the NSW Act.
No guidance has been released yet as to the specific content required to be included in the NSW Statement. However, it is likely that a NSW Statement will be required to contain information similar to that required in a Statement. This will include details of the following in respect of each reporting entity:
- its structure, business and supply chains;
- its due diligence processes in relation to modern slavery in its business and supply chains;
- the parts of its business and supply chains where there is a risk of modern slavery taking place, and the steps taken to assess and manage that risk; and
- the training about modern slavery available to its employees.
The most significant difference between the MSA and the NSW Act is that, under the NSW Act, a maximum penalty of 10,000 penalty units (AUD$1,100,000) may be imposed on a reporting entity that fails to prepare a Statement, fails to make its Statement public, or provides information which it knows, or ought reasonably to know, is false or misleading. Interestingly, the NSW Act is the first statute globally to impose monetary penalties for failure to identify and manage modern slavery risks.
How Should Businesses Prepare?
Reporting entities will need to act promptly to prepare for the new modern slavery reporting requirements.
Australian businesses will need to consider whether they will be subject to compliance with the MSA or the NSW Act, and gather information accordingly about modern slavery risks in their supply chains and set out the measures that they utilise to mitigate best any risks.
Failure to comply with the MSA or the NSW Act may damage significantly an entity’s reputation, harm investor confidence and undermine its ability to do business with other entities. However, if prepared in compliance with the relevant laws and regulations, an entity can use its Statement as an opportunity to advance its brand and reputation, creating a sustainable competitive advantage.
The reporting requirements are intended to form part of an ongoing process of continuous improvement. This enables entities to minimise progressively any risks within their supply chain to eliminate modern slavery.
Additionally, Australian businesses will need to consider, in any commercial transaction or dealing moving forward, modern slavery risks. For example, when entering into commercial transactions, such as mergers and acquisitions, or commercial dealings, such as supply or distributor arrangements, businesses should ensure that they have an opportunity to conduct due diligence on matters relating to modern slavery requirements and broader corporate social responsibilities. Regular priorities to ensure compliance should also be included.
Addisons has already been approached by one DSO to address modern slavery concerns. We anticipate that all leading DSO’s will take steps, as part of their corporate social responsibility practices, to put in place practices that enable these concerns to be identified and addressed. It is expected that many DSO’s will prepare Statements and lodge them with the relevant Minister, irrespective of whether they are required to do so.
If you would like further information or wish to discuss how these legislative changes may affect your business and what your business can do to prepare to address these requirements, please do not hesitate to contact us.
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