Under the Modern Slavery Act 2018 (Cth) (the Act) a statutory review of the Act is to be conducted 3 years after its commencement. This statutory review has been conducted, and the report on this statutory review has been published (the Review Report).
The Review Report reveals a broad spectrum of opinions on the effectiveness and utility of the overall regime, with 64% of respondents viewing it positively, while 21% felt its impact was poor. Over 130 written submissions were made in response to the Review’s Terms of Reference and associated Issues Paper. Our previous article 'Modern Slavery legislative reform: issues paper released for public consultation' discusses the Act and the Issues paper in more depth.
We have summarised below a number of the key recommendations made by the Review Report and their potential implications for businesses.
Key Recommendations from the Review Report
Recommendation 4 of the Review Report proposes lowering the threshold for when companies must report under the Act, from $100m in consolidated revenue to $50m. This proposal drew mixed reactions, with 29% of submissions supporting the reduction, 24% against it, and 14% neutral.
Modelling indicated that an additional 2,393 entities would fall under the new threshold. Despite arguments against lowering the threshold, and alternative options, such as a staged reduction approach (to $75m at first, then $50m) or differential reporting for entities of different sizes, the review recommended the reduction to $50m for the sake of simplicity. To support small to medium sized enterprises the Review also recommended that the Guidance for Reporting Entities be amended to provide more tailored guidance to facilitate compliance.
In defending the recommendation, the Review Report noted that not only was a $50m threshold originally mooted from the outset by the Joint Standing Committee that preceded the original Act, but that entities newly captured by the new threshold would have until “late 2024/early 2025 at the earliest” to report “under a well-known law that will by then have been operating for over five years”. We note that a $50m threshold has originally been the reporting threshold under the NSW’s Modern Slavery Act (although this was later superseded by the Commonwealth Act) and is aligned more closely with the thresholds applying or proposed in the UK, New Zealand and Canada.
Changes to Reporting and a New Anti-Slavery Commissioner
Recommendation 8 of the Review Report proposes amending the mandatory reporting criteria under the Act, including the introduction of additional minimum criteria. Revisions to existing criteria include:
- replacing the phrase ‘operations and supply chains’ with ‘operations and supply networks’;
- reverse the order of reporting under criteria 3 and 4 of the Guidance for Reporting Entities, as follows: (1) describe how the entity identifies and assesses risks, (2) report on the risks identified, and their assessed level (high/medium/low), and (3) describe how it is addressing those risks;
- separating out the process of reporting on assessment of risks, how they were addressed, the due diligence processes and the remediation processes more clearly – which is also addressed through the proposed imposition of obligations on entities to establish a due diligence system; and
- adapting the existing guidance for specific sectors; and
- describing the governance processes adopted by the reporting entity (to better explain any group-wide diligence framework and internal consultation / engagement).
The newly suggested criteria include:
- reporting on modern slavery incidents or risks identified during the reporting year;
- grievance and complaints mechanisms made available to staff members; and
- internal and external consultation undertaken by the entity during the reporting year relating to modern slavery risk management.
The Review Report also recommended that the mandatory reporting criteria be prescribed in a rule or regulation made pursuant to the Act, rather than being hard-coded in the Act itself. This will provide the government with additional flexibility to amend the mandatory reporting criteria from time to time.
The Review Report also discussed the future of regulatory guidance aimed at assisting compliance with the reporting criteria, noting that the existing iteration of the Guidance for Reporting Entities was acknowledged as being highly-regarded and heavily relied upon by reporting entities. First and foremost, the Review Report recommends creating a legislative anchor for regulatory guidance in the Act, formalising its status and also expressly encouraging reporting entities to have regard to them when preparing statements.
The review also suggests that the Anti-Slavery Commissioner (a new office committed to by the Australian Government in the October 2022 Budget) should be consulted routinely and methodically about the adequacy of official guidance.
The Anti-Slavery Commissioner would also be to make written declarations that a region, location, industry, product, supplier or supply chain has a high risk of modern slavery. Reporting entities would be required to have regard to these written declarations when preparing their modern slavery statements.
Ensuring Modern Slavery Risks are Confronted: Due Diligence Implementation
The Review Report states that an "elementary weakness” in the Act is that it only imposes an obligation on entities to describe their due diligence activities, but not a duty to implement and act upon the results of such due diligence. Under the current law, a reporting entity that had poor or ineffective modern slavery due diligence practices would nevertheless be meeting its obligations under the Act so long as it described these practices in its modern slavery statement.
Recommendation 11 of the Review Report recommends that a positive obligation be imposed on reporting entities to have a due diligence system and explain the activity associated with that system in its annual modern slavery statement. If this recommendation were adopted, it would represent a significant shift in the way that the Act seeks to ensure that modern slavery risks are appropriately addressed by the private sector. The threat of an adverse public reaction will no longer be the primary risk for companies that have poor modern slavery practices. Rather, the failure to have a proper due diligence system in place will, in and of itself, comprise an offence under the Act. Companies will need to turn their minds as to whether their modern slavery due diligence practices are sufficient and effective and, if necessary, uplift these practices.
Penalties for Non-Compliance with the Modern Slavery Act
Currently, the Act provides little in way of penalties or enforcement mechanisms to address non-compliance. Under section 16A, the Minister is able to publish the identity of a reporting entity who failed to comply with the Act, and failed to comply with remedial notices in relation to that non-compliance. However, this power has never been exercised.
The Review Report argues that it is “incongruous that the Modern Slavery Act 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”, further commenting that compliance and enforcement records to date show that “Australia has not borne out the promise that good faith and the fear of adverse publicity are enough to ensure that statements will be submitted by all entities that are required to do so”.
To remedy this, the Review Report proposes that penalties be introduced for clear reporting failures that breach objective standards. Recommendation 20 suggests the Act be amended to include the following offences:
- Failure to submit a statement, without a reasonable excuse.
- Submission of a statement with materially false information.
- Failure to comply with a statutory direction to take specified remedial action to ensure compliance with the reporting requirements of the Act.
- Failure to have a due diligence system in place (see discuss above).
However, it is proposed that these penalty provisions would not apply to entities within the $50-$100M reporting band until two years after they become subject to the reporting requirements in the Act.
The Review Report also considered the practicality of having a name-and-shame list instead of, or alongside, penalties. It was decided that this was impracticable because it would require accessing taxation records on corporate revenue, then checking if an entity was covered by a joint statement or had been through corporate restructure, or had fallen below the reporting threshold.
Other enforcement proposals that were considered but not included in recommendations were: Corporations Act disqualifications; exclusion from the ASX; and introducing an enforceable undertaking procedure to comply with reporting requirements.
Next Steps: Raising the Standards for Modern Slavery Risk Management
While we do not know which recommendations will be adopted by the Australian Government (noting that many of these recommendations require legislative change), it appears likely that more entities will be covered by the Act, the obligations imposed by the Act will increase, and that there will be greater enforcement of the Act, with penalties for non-compliance.