On 29 June 2018, the Australian Government introduced to the Federal Parliament its much anticipated Modern Slavery Bill. This Bill requires certain business entities to disclose on an annual basis their actions to address modern slavery (exploitation such as slavery, forced labour and human trafficking) in their operations and supply chains.
This alert explains the Bill and the actions that will be required when the Bill becomes law.
Modern slavery reporting requirement
Entities required to report
The reporting requirement will apply to:
- Australian entities;
- Foreign entities carrying on business in Australia;
- Australian Government (on behalf of all non-corporate Commonwealth entities);
- Corporate Commonwealth entities; and
- Commonwealth companies.
Australian entities are widely defined and are included irrespective of whether such entities are Australian residents for tax purposes.
Foreign entities will be considered to be carrying on business in Australia if: they have a place of business in Australia; establish or use a share transfer or registration office in Australia; or administer, manage or deal with property situated in Australia as an agent, legal personal representative or trustee. This will capture a foreign entity that carries on business in Australia through an Australian subsidiary.
Australian or foreign entities that are not required to report can ‘opt in’ to the reporting requirement. Such entities must comply with the reporting requirement in the same way as reporting entities.
Entities with a total annual revenue below $100 million will not be required to report. “Revenue” includes the consolidated revenue of the reporting entity and any entities it controls. The revenue threshold is calculated based on the reporting entity’s own financial year or reporting period. Consolidated revenue is to be determined in accordance with the Australian Accounting Standards, even if those standards do not otherwise apply to the entity.
Modern slavery statements
Reporting entities (or ‘opt in’ entities) depending on their corporate structure, may prepare either single or joint modern slavery statements. Modern slavery statements must identify the reporting entity and address mandatory criteria:
- the reporting entity’s structure, operations and supply chains;
- modern slavery risks in the reporting entity’s operations and supply chains (including subsidiary entity operations and supply chains);
- actions taken (including actions by subsidiary entities) to assess and address those modern slavery risks, including due diligence and remediation processes;
- how the reporting entity assesses effectiveness of the actions taken;
- the process of consultation with subsidiary entities in preparing the modern slavery statement; and
- any other information the reporting entity considers relevant.
All joint statements must address the mandatory criteria for each and every reporting entity covered by the statement.
The Australian Government is to provide formal administrative guidance on the terms ‘risks’, ‘operations’, ‘supply chains’, ‘due diligence’ and ‘remediation processes’. It is anticipated that these definitions will align with the UN Guiding Principles on Business and Human Rights. It is not intended that entities report on all modern slavery risks or on identified incidences of modern slavery. The initial expectation is to report on the most severe modern slavery risks which is not restricted to tier 1 or direct suppliers.
Formal guidance will also be provided on each form of exploitation that comprises the term ‘modern slavery’: slavery; servitude; forced labour; forced marriage; debt bondage; deceptive recruiting for labour or services; trafficking in persons; harbouring a victim; and the worst forms of child labour. Relevant definitions in the Commonwealth Criminal Code and international human rights law will be drawn upon for this purpose.
Further, a template modern slavery statement will be provided to assist businesses in reporting. The Bill also enables a business to submit a revised (single or joint) modern slavery statement.
This allows reporting entities to correct any false or misleading statements, errors, or to revise market sensitive information.
Approval of modern slavery statements
Single reporting entities must ensure their modern slavery statement is approved by the principal governing body of the entity (e.g. board of directors) and signed by a responsible member (e.g. director, trustee).
Joint reporting entities have three options for approval and signature:
- principal governing body and responsible member of each reporting entity covered by the statement approve and sign; or
- principal governing body and responsible member of the entity which is in the position to influence or control each reporting entity covered by the statement approve and sign; or
- if the first and second options are not practicable, the principal governing body and responsible member of at least one reporting entity covered by the statement approve and sign, accompanied by an explanation as to why the other approval options were not practicable.
Statements (single or joint) may be signed electronically.
The Bill authorises the Minister to make rules to clarify the terms ‘principal governing body’ and ‘responsible member’ for specific entity types.
Timeframe for reporting
The timeframe for submission of modern slavery statements depends on an entity’s financial year or other annual accounting period (reporting period).
Single reporting entities will be required to submit their modern slavery statement within 6 months from the end of the entity’s reporting period.
Joint reporting entities will be required to submit their modern slavery statement within 6 months from the end of the reporting period that applies to all reporting entities covered by the statement or within a period to be determined by the Minister.
Modern slavery statements register
The Bill establishes a Modern Slavery Statements Register in the form of a public website that will be freely accessible and also requires the Minister to register modern slavery statements. Entities can also make their statements available on their business webpages if they wish to do so.
The Minister may decline to register a modern slavery statement that does not comply with the mandatory reporting criteria or relevant approval, signature and timeframe for reporting requirements. This discretion is not subject to merits review. It is anticipated that the exercise of the discretion to decline registration would only apply in cases of egregious non-compliance and after reasonable attempts to work with such entities in rectifying issues.
The Bill will commence on a fixed date by Proclamation or six months from Royal Assent. This is to enable the reporting requirement to commence at the beginning of either the Australian calendar year or the Australian financial year.
Entities subject to the Modern Slavery Act (NSW)
On 21 June 2018, the NSW Parliament passed its Modern Slavery Act. This Act also establishes a modern slavery reporting requirement for certain business entities.
The NSW Act will not apply to entities required to prepare a modern slavery statement under the Australian Government’s reporting requirement (when in force) if such reporting requirement is prescribed as a corresponding law under the NSW Act.
Actions businesses need to take
The modern slavery reporting requirement means businesses with more than $100 million in annual revenue will need to gain visibility into their global supply chains and take action to manage identified risks. This will involve a range of operational measures and updating of supplier contracts.
Operational measures include:
- establishing a policy for responsible supply chains that articulates a commitment to responsible business conduct in its own operations and sets out expectations of suppliers;
- undertaking due diligence, such as the pre-screening of suppliers and supplier assessments or audits;
- designing and implementing a strategy to respond to identified risks, which may involve a range of responses such as corrective action plans, training and assistance to suppliers;
- verifying that the actions taken have been effective, which involves the development of performance indicators and data monitoring;
- training key personnel in the entity’s own business as well as training suppliers on how to identify and mitigate modern slavery; and
- establishing a clear chain of responsibility and assigning senior level approval for policy oversight and in relation to the modern slavery statement.
Supplier contracts should be updated to include:
- assessment/audit rights, including the right to undertake announced and unannounced assessments/audits, assessments/audits by third parties, and the requirement for full cooperation;
- immediate notification of actual or potential non-conformance with policy;
- a commitment to follow corrective action plans in instances of non-compliance with policy;
- the right to suspend or terminate the contract for failure to meet policy standards, failure to cooperate with an assessment or audit process or failure to follow a corrective action plan; and
- the right to inform relevant authorities of the above.