Developments to the Modern Slavery Act – should Australian (and global) corporates expect more stringent compliance obligations?

The spotlight on modern slavery and governmental response to tackle it has been given increased attention over the last week with the release of two milestone publications: the 5th edition of the Global Slavery Index (GSI) released 23 May 2023 and the tabling by the Australian Government of the report outlining recommendations for reform of the Modern Slavery Act 2018 (Cth) (MSA) on 24 May 2023.

The GSI presents national estimates of modern slavery for 160 countries, providing deep insight into the scale and composition of modern slavery. It is used as a benchmark in assessing modern slavery vulnerability and risk profiles by many organisations. According to the GSI, approximately 49.6 million individuals were trapped in situations of modern slavery on any given day in 2021, equating to nearly one in every 150 people globally. This can be compared with the 40.3 million people recorded to be living in modern slavery in 2016. Locally, the Asia-Pacific region accounted for the highest concentration of people in modern slavery (being 29.3 million people).

The GSI echoes international sentiment that modern slavery is a growing global problem against a backdrop of compounding risks, requiring an urgent need to move from intention to real action. Several recommendations were posited in the findings, including the introduction of mandatory human rights due diligence laws which should require businesses to conduct due diligence to proactively identify and remediate forced labour risks, covering the entire value chain.

 

How can businesses use the GSI?

Although the highest prevalence of forced labour is found in low-income countries, it is intrinsically connected to demand from higher-income countries. The GSI records that nearly two-thirds of all forced labour cases are linked to global supply chain. Walk Free have recommended four ways in which businesses can utilise the GSI data in assessing their modern slavery risk profiles, being:

1. Understanding geographic risk: what is the prevalence of slavery and vulnerability in countries you operate and source from? (refer to GSI prevalence data, GSI vulnerability data);
2. Understand who is at risk: what are the demographics of your workplace and what makes them vulnerable? (refer to GSI vulnerability data, GSI country studies);
3. Understand legal and policy gaps: how are workers protected in countries you operate and source from? (refer to GSI government response data, GSI country studies); and
4. Understand high-risk products and industries: what are the specific risks relevant to your business (refer to G20 imports: high-risk products, GSI country studies).

 

The statutory review of the MSA

The 2023 GSI is a call to action. It is therefore apt that shortly thereafter, on 25 May 2023, the eagerly awaited review of the MSA was tabled in Parliament (Report). Led by Professor John McMillan AO, the review spanned over a 12-month period, commencing on 31 March 2022 and which invited public consultation in responses to an Issues Paper released August 2022.

The primary objective of the review was to analyse the effectiveness of the MSA during its initial three years. Consensus among the responses received to the consultation was that the MSA is yet to have caused meaningful change for people living in conditions of modern slavery. Whilst it is acknowledged that the MSA has bred major cultural change with respect to modern slavery, the Report notes that for many entities, compliance with the MSA resembles a tick-box exercise. 

 

Key Recommendations

The Report makes 30 recommendations for legislative change aimed at bolstering the effectiveness of the MSA in combating modern slavery.

Summarily, if the recommendations are adopted, the breadth of the MSA will be extended to capture more organisations as reporting entities, introduce financial penalties for a failure to comply with the MSA and implement mandatory human rights due diligence systems (among other things). Whilst the MSA is often characterised internationally as imposing the most stringent reporting requirements on organisations, the recommendation to introduce mandatory due diligence systems would align the Australian framework with some of its international counterparts.¹

We set out the key recommendations below:

1. Lowered reporting threshold. The threshold for determining a ‘reporting entity’ for the purposes of the MSA be lowered from a consolidated revenue of AUD100 million to AUD50 million. In the initial Issues Paper, it was noted that, based on modelling derived from the Australian Taxation Office’s data, lowering the reporting threshold to AUD50 million would capture an additional 2,393 businesses.

2. Mandatory due diligence. Worldwide. there are now more than 20 legislative or quasi-legislative measures that involve or require some kind of modern slavery reporting either directly, or in the broader ESG context. Rather than the current regime which imposes a soft obligation on reporting entities to describe the actions they have taken over a reporting period to assess and address modern slavery risk (including due diligence processes), the Report calls for a mandatory obligation for reporting entities to have in place due diligence systems that meets stipulated requirements. The reporting entity’s modern slavery statement must also explain the activity undertaken by it in accordance with that system. In providing some reprieve, the Report does not recommend this be imposed on reporting entities with consolidated revenue between AUD50 million - AUD100 million, until they have been subject to the reporting requirement of the MSA for two years.

3. Penalties. Currently, the MSA imposes no financial penalties, with the intent instead being that the power of public scrutiny by investors, civil society, and academia, amongst others, would encourage compliance both in terms of reporting levels and quality of disclosure.

In moving away from this, the Report recommends that the MSA be amended to provide that it is an offence for a reporting entity to:

• fail, without reasonable excuse, to give the Minister a modern slavery statement within a reporting period for that entity (no guidance is yet provided on what would constitute a ‘reasonable excuse’);
• give the Minister a modern slavery statement that knowingly includes materially false information;
• fail to comply with a request given by the Minister to the entity to take specified remedial action to comply with the reporting requirements of the MSA; and
• fail to have a compliant due diligence system in place.

The Report does not go as far as to suggest the imposition of financial penalties for the failure to submit an adequate modern slavery statement, owing to the acknowledged subjective element involved in that decision-making.

In positing its recommendations, the Report found that ‘it is incongruous that the MSA imposes a reporting duty as regards a matter of fundamental global human rights importance but contains no robust procedure to ensure that duty is performed’.

4. Complaints and ‘name and shame’. As an extension to the introduction of financial penalties, the Report recommends that the Attorney-General’s Department examine the practicability of making additional information available regarding reporting entities’ compliance with the reporting requirements of the MSA. Whilst we likely will not see any change in the near-future, given the non-concreteness of the recommendation, it reflects the ‘name and shame’ strategy which has already been adopted informally by civil society (for example, through public facing reports prepared by non-government organisations ranking the adequacy of modern slavery statements by ASX listed companies). The Report also recommended that the Government should examine the practicability of establishing a procedure for the receipt and investigation of complaints from the public regarding reporting under the MSA.

5. New reporting criteria. The Report recommends that additional mandatory requirements are added to the MSA, including the requirement to report on modern slavery incidents, the grievance and complaint mechanisms that are made available to staff members, and internal and external consultation undertaken by a reporting entity on modern slavery risk management. It also looks to replace the phrase ‘operations and supply chains’ with ‘operations and supply networks’.

6. Reporting frequency. The Report recommends that the MSA be amended to allow entities to submit a full modern slavery statement every three years, while providing interim Reports in the intervening two years to update the information with respect to operations and supply chains, and critical incidents and other risk management developments.

7. Anti-Slavery Commissioner. Unsurprisingly, the Report recommends for the establishment of the office of Anti-Slavery Commissioner - the Federal Government recently allocated AUD8 million over 4 years to just that. Whilst the exact role of the Anti-Slavery Commissioner is yet to be designed, the role is expected to be wide ranging, beyond generic functions. What is certain, is that the implementation of an Anti-Slavery Commissioner will drive enforcement and global alignment of modern slavery regulation.

 

Where to next?

The government will now carefully consider Professor McMillan's review, engaging in consultations across various governmental bodies and stakeholders to develop a response to the recommendations. Notably, many of the recommendations from the review align with significant commitments made by the Albanese Government's Tackling Modern Slavery package during the election.

 

What should businesses do to prepare now?

Businesses with an annual consolidated revenue between AUD50 and AUD100 million should consider preparing for the reporting threshold to be lowered. Further recommendations in the Report will assist those reporting entities who will find themselves required to prepare and lodge a modern slavery statement for the first time, as a result of the lowered financial threshold (if implemented). These include the Attorney-General’s Department:

• reviewing the Guidance for reporting Entities and engaging in consultation with the Anti-Slavery Commissioner to develop customised guidance for small and medium-sized entities, assisting them in meeting the reporting requirements of the MSA; and
• developing a template for optional use by reporting entities to prepare and submit an annual modern slavery statement in compliance with the MSA.

For those entities already preparing and lodging modern slavery statements, we recommend a ‘health check’ be performed, to consider whether they would continue to comply with the proposed new mandatory reporting criteria. The most burdensome requirement which reporting entities might soon face is the imposition of mandatory due diligence processes. Corporates should consider getting ahead of the legislative change by looking to the mandatory human rights due diligences that already exist internationally, to guide the development of their own frameworks. 

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¹For example, international frameworks which impose mandatory due diligence systems include the European Commission’s Corporate Sustainability Due Diligence Directive (EU), the Act on Corporate Due Diligence Obligations in Supply Chains (Germany), the Ordinance on Due Diligence and Transparency in relation to Minerals and Metals from Conflict-Affected Areas and Child Labour (Switzerland) and the Uyghur Forces Labor Prevention Act (USA).