The Modern Slavery Act: Are You Ready to Report?
Two years ago, the Modern Slavery Act 2018 (Cth) came into effect, commencing on 1 January 2019. This legislation shifted abolishing modern slavery from being a corporate responsibility endeavour, to becoming a legal requirement.
Under this legislation, Australian businesses are required to report on their exposure to modern slavery risk. This shouldn’t be news to you.
However, as reporting deadlines approach, this is a timely reminder of the requirements under the Modern Slavery Act to ensure your organisation is ready to report by 31 March 2021.
This blog covers what you need to know about the modern slavery reporting requirements, including practical steps to help you comply by the upcoming due date.
What is modern slavery?
The term ‘modern slavery’ covers a range of exploitative practices including human trafficking, slavery, servitude, forced labour, debt bondage and forced marriage. These are considered serious crimes under Australian law.
According to the International Labour Organisation, a staggering 40 million or more people are in modern slavery conditions worldwide. Australia is not immune from this. An estimated 15,000 of these people are living in Australia.
Further, research conducted by the Australian Council of Superannuation Investors identified financial services as a high-risk sector for modern slavery.
The Modern Slavery Act 2018 (Cth)
Previously, modern slavery legislation in Australia only addressed slavery which occurred in Australia.
The Modern Slavery Act 2018 (Cth) now also addresses slavery conduct occurring overseas where the practice forms part of the supply chain of an Australian business or an overseas entity conducting business in Australia.
What about the NSW Modern Slavery Act?
New South Wales was the first state in Australia to introduce legislation aimed at eradicating modern slavery practices. The Modern Slavery Act 2018 (NSW) was passed on 21 June 2018 but it still yet to come into force.
Since its passing, the NSW Government commenced a parliamentary inquiry into its deficiencies and inconsistencies with the Commonwealth Act. A final report was issued in March 2020 and a letter response issued by the NSW Government to Parliament on 24 September 2020.
After discussions, the NSW Government has agreed to introduce necessary amendments to the NSW Act and to commence the sections of the NSW Act that are consistent with the Commonwealth Act. However, until the issues raised regarding the differences between the two legislations are resolved, the NSW Act cannot come into effect.
Who needs to report?
Under the Commonwealth Act, Australian entities or entities conducting business in Australia with a minimum annual consolidated revenue of $100 million are required to report.
Under the NSW Act, companies with a minimum annual consolidated revenue of $50
million are required to report.
Although the NSW Act is yet to commence, it is prudent for NSW entities with annual consolidated revenue of at least $50 million to begin preparing with the expectation that the NSW Act will take effect in the foreseeable future.
What are the reporting requirements?
Section 16 of the Modern Slavery Act 2018 (Cth) requires the submission of a modern slavery statement covering:
· The identity of the reporting entity.
· The entity’s structure, operations, and supply chain.
· Risks of modern slavery practices in the entity’s operations and supply chain and any entities owned or controlled by the reporting entity.
· Actions taken to assess and address modern slavery risks, including due diligence and remediation processes.
· How the entity assesses the effectiveness of its actions.
· The process of consultation with entities owned and/or controlled by the reporting entity.
· Any other information considered relevant.
The modern slavery statement is due within six months of the reporting entity’s financial year end. This applies to reporting periods from the entity’s first full financial year that commenced after 1 January 2019.
For many financial firms with a 1 July to 30 June financial year, the previous due date for the financial year ended 30 June 2020 has now been extended from 31 December 2020 to 31 March 2021.
Before submission for approval by the Minister for Home Affairs, the modern slavery statement must be approved by the reporting entity’s board and signed by a director. The approved statement is then to be provided to the Australian Border Force for publication on an online public register.
Are there penalties for failing to submit a modern slavery statement?
Under the Commonwealth Act, no. Though the Commonwealth Act does not contain penalties, it empowers the Minister to ‘name and shame’ entities who are not complying with their reporting obligations.
Under the NSW Act, there are criminal penalties of up to $1.1 million for failure to prepare or publish a modern slavery statement and for providing false or misleading information. However, again it should be noted that the NSW Act is yet to come into force.
What actions are required?
By now, your organisation should be well underway with reviewing your supply chains and operations to comply with the new reporting obligations. Key actions to consider include:
1. Design and implement a modern slavery management framework (including anti-slavery policies and practices).
2. Identify modern slavery risks – mechanisms for identifying levels of exposure. Consider how you will engage with your suppliers (including second tier suppliers and beyond) to assess their exposure.
3. Mitigate risks – perform due diligence on supply chain practices.
4. Resolve risks – actions to reduce and manage exposure to modern slavery risks.
5. Review the effectiveness of measures taken to manage risk.
6. Develop a framework for internal and external monitoring and reporting on risk exposure.
Supply-chain due diligence
Developing a detailed assessment framework to support due diligence efforts on suppliers is key to identifying risks deeper in your supply chain. At a minimum, standard contractual terms with suppliers should address modern slavery obligations and expectations.
Companies have developed modern slavery risk assessments including supplier surveys and questionnaires to conduct due diligence reporting on modern slavery risks. Many have adopted a risk-based approach to due diligence, issuing surveys only to suppliers which exceed a materiality threshold determined by the company. For some companies, this is based on the annual expenditure on the supplier, for others, the nature of the relationship with the supplier.
Some examples include:
· Ansell focuses on engagement with its tier 1 suppliers (i.e. suppliers from whom Ansell directly purchases goods and services).
· Qantas subjects all new and renewing suppliers to their due diligence process, which includes a prequalification questionnaire. Third-party technology is used to perform a human rights due diligence assessment to initially assess the risk level for each supplier. Where a potential risk is evaluated as medium or above, the supplier is referred for a more detailed assessment. Suppliers identified as presenting a risk through the due diligence process are subject to continuous monitoring by Qantas’ third-party technology platform.
· Fujitsu Oceania Supply Chain undertakes a thorough analysis of its supply chain with all suppliers categorised by risk profile based on the product and services provided to Fujitsu Australia. In-scope suppliers for its 2020 Modern Slavery Statement were all suppliers with a spend of greater than $100,000 in FY2019, excluding landlords, charities/government agencies, and one-off suppliers. Out of scope suppliers will be investigated in FY2021.
How Hall Advisory can help
At Hall Advisory, we specialise in governance, risk management, compliance and strategy.
We can assist you with preparing your modern slavery management framework and statements to ensure they adequately cover the regulatory requirements.
If you’re yet to finalise your modern slavery management framework, we would be happy to assist you with its development. This includes:
· Drafting and reviewing anti-slavery policies and annual modern slavery statements.
· Design and administration of supplier surveys (including identifying modern slavery risks and due diligence procedures).
· Independent review of high-risk supplier practices.
· Assessing the potential effectiveness of proposed measures.
· Review of internal and external reporting practices.
· Review and update of associated policies and frameworks (e.g. outsourcing).
Remember, curbing modern slavery requires a commitment beyond simple compliance. To eradicate such exploitative practices in Australia requires the adoption of best practice. We can help you play your part in moving our country in the right direction on this human rights issue.
To actively be part of the solution and report on time, contact us for a confidential, no-obligation consultation to discuss how we can support your governance, risk management, compliance and strategy efforts.