Report on the statutory review of the Modern Slavery Act 2018 (Cth) – Australia’s journey in modern slavery compliance continues
After a three-month public consultation period, the publication of an Issues Paper in August 2022, 136 written submissions and a year in review, on the 25 May 2023, the landmark review of Australia’s Modern Slavery Act 2018 (Cth) (Act) was tabled as a report in Parliament (Report). The review was led by Professor John McMillan AO and assesses the impact of the Act in its first three years. Taken into consideration throughout the review and contributing to the 30 recommendations tabled by the Parliament in the Report, were international responses and strategies adopted to combat modern slavery risks in various other jurisdictions.
The recent 2023 Australian federal budget also introduced $8 million in funding over four years towards the creation of an Anti-Slavery Commissioner.
The Report highlights three main weaknesses of the Act, including the variability of modern slavery reporting standards in Australia, the incompatibility of modern slavery statements registered, and enforceability of reporting obligations. The recommendations proposed and tabled in the Report aim to address these weaknesses.
In summary, of the 30 recommendations tabled, we have explored the key recommendations proposed that are likely to have the greatest impact if and when implemented.
The implementation of a due diligence system (Recommendation 11)
Suggestions have been made that the due diligence requirements outlined in mandatory criterion 4 of the Act should go beyond ‘describing the actions taken by the reporting entity’ and should place an affirmative obligation on entities to implement and utilise a due diligence process.
Ways in which this could be implemented include through:
(a) regulatory oversight – for example, audits of modern slavery statements by an independent auditor;
(b) regulatory enforcement through monitoring and investigating compliance;
(c) voluntary compliance – the same as allowing entities to voluntarily submit modern slavery statements, entities could possibly voluntarily implement and comply with a due diligence system; or
(d) civil penalties for failing to comply or implement a due diligence process under the Act.
Ultimately, recommendation 11 is for the Act to ensure reporting entities have a due diligence system in line with the rules under section 25 of the Act, and the activities undertaken as part of this due diligence system are reported in each entities’ modern slavery statement.
It is proposed this duty not apply for the first two years an entity has become subject to reporting requirements, where the entity has a consolidated annual revenue between $50 million and $100 million.
Penalties for failing to report without a reasonable excuse (Recommendation 20)
Whilst the current ‘penalty’ for reporting entities that do not comply with the act is the ‘penalty’ of tarnishing their reputation, there has been indication that following this review penalties may be introduced. Submissions varied in the extent penalties should exist for non-compliance with the Act, however the review found that many believed penalties were inevitable and likely to be introduced in the future.
The review came to find, at minimum, penalties should exist in the following scenarios:
(a) not submitting a modern slavery statement when required to;
(b) not having a due diligence system in place (in line with the recommendation above);
(c) the entity recklessly or knowingly submitting false or misleading information in their modern slavery statements; and
(d) failing to comply with a statutory direction to take specified remedial action.
As previously mentioned above for recommendation 11, it is proposed that where these recommendations are implemented, they only exist for reporting entities two years into being subject to the Act, that have a consolidated annual revenue of between $50 million and $100 million.
Lowered reporting threshold (Recommendation 4)
Currently, entities that carry on a business in Australia with an annual consolidated revenue of $100 million or more are required to publish an annual modern slavery statement to a central register. Whilst this initial reporting threshold was adopted as a ‘pragmatic choice’ to balancing the benefit of the Act with the workload of preparing reports, the review found a higher percentage of responses suggested lowering the reporting threshold (29%) compared to those proposing that the current threshold be retained (24%) (as outlined in Chapter 5 of the Report).
Preliminary modelling presented in the Issues Paper outlined the possible effect of lowering the reporting threshold to $50 million, resulting in an additional 2,393 businesses becoming reporting entities in Australia, with the possibility of some of these businesses already publishing modern slavery statements voluntarily under the Act, or as part of a supply chain of a reporting entity.
Lowering the reporting threshold to an annual consolidated revenue of $50 million or more would raise awareness of modern slavery risks, but also align with reporting thresholds of other international jurisdictions to allow for streamline and consistency, and build on the principle that entities of all sizes should conduct modern slavery due diligence.
Inclusion of a coversheet to modern slavery statements (Recommendation 15)
To ensure clearer guidance and reporting under the Act, it is proposed a coversheet be attached to all modern slavery statements published. This would also allow for reporting entities and entities covered in joint statements to be accounted for and fed into an easier to interpret internal database. The standardised template coversheet would address specific matters for reporting entities such as any incidents of modern slavery identified in a particular year (for example, COVID-19 implications) and actions taken by the reporting entities to address these.
Declaration of factors carrying a ‘high modern slavery risk’ (Recommendation 27)
Specified risk focus is the target of the new proposed action under the Report of requiring entities to have regard to a declaration by the Ant-Slavery Commissioner or the Minister designating high risk topics involving particular regions, suppliers and supply chains, products or industries that present as ‘high risk’ for modern slavery reporting purposes (as outlined in Chapter 11 of the Report).
This process could potentially impose additional regulatory burden on those sectors considered to be high risk but already subject to a high amount of government regulations.
Are you prepared?
Have you submitted your modern slavery statement for this reporting period? With these recommendations being introduced we highly recommend entities consider their position, and prepare to report on modern slavery in line with the Act’s reporting requirements. Those entities not caught by the reporting requirements should also consider these recommendations and whether they may be considered a reporting entity in the future. We will continue to monitor these changes. The process in compiling and drafting a modern slavery statement can be time consuming, therefore we recommend attending to it as soon as possible. If you require any assistance, please contact one of the authors below.
This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.