Summary – what you need to know

The Modern Slavery Act 2018 (Cth) (MSA) has been in force since 1 January 2019. Under the MSA, companies that carry on business in Australia and have a minimum annual consolidated revenue of A$100 million are required to report annually on how they are addressing modern slavery risk in their domestic and global operations and supply chains.

On 31 March 2022, the Australian Government formally commenced a statutory review of the operation and compliance of the MSA over the past 3 years since commencement. As part of its review, on 22 August 2022, the Government released an Issues Paper[1] that is targeted at both the terms of the MSA and its administrative implementation.

The Government has requested business, civil society, government, and other interested stakeholders to provide their views on the operation of the MSA in order to determine whether additional measures are necessary to improve the Act’s operation in Australia. Australian business is encouraged to participate in the public consultation to make sure their voices will be heard.

Following the statutory review, the Government may consider implementing additional measures to the MSA, including lowering the reporting threshold, imposing more onerous reporting obligations on businesses, as well as penalties for non‑compliance.

MSA and the statutory review

On 1 January 2019, Australia took a global lead in combating modern slavery by enacting the MSA.

Since the enactment of the MSA, 4,535 mandatory statements and 621 voluntary statements have been lodged or submitted to the Australian public Modern Slavery Statements Register by 6,841 entities spanning over 43 countries and jurisdictions.[2]

In accordance with section 24 of the MSA,[3] on 31 March 2022, the Australian Government announced a three-year review of the MSA (Review).

As part of the Review, an Issues Paper for public consultation was released on 22 August 2022. The Issues Paper provides a framework for business and civil society to comment on the operation of the MSA and seeks public submissions on the following issues:

  • the impact of the MSA since its commencement;
  • the appropriateness of the current reporting requirements;
  • the necessity of additional measures to improve compliance with the MSA;
  • the adequacy of the reporting requirements for the public sector;
  • the adequacy of the online Modern Slavery Statements Register;
  • the administration of the MSA, and the role of an Anti-slavery Commissioner; and
  • the necessity of a further statutory review of the MSA.

Some of the matters that fall within the ambit of the Review were subject to extensive discussion during the public consultation of the Modern Slavery Bill (Cth) (MS Bill). However, the MSA in its current form represents a narrower approach with the intention that there may be a gradual enhancement of the MSA at a later stage. Whether the time is now ripe for strengthening the Act is likely to be a key battlefield for the Review.[4]

What key changes should business expect from the Review?

The Review is an opportunity for the current Australian Government to execute its pre‑election promises to strengthen the MSA. While the Issues Paper has raised a broad range of issues for public consultation, we have focused on the following key issues.

Extended reporting obligations?

Under section 16 of the MSA, businesses required to report under the MSA must address seven mandatory criteria, including the risks of modern slavery practices in their operations and supply chains. The Issues Paper identifies the reporting obligations as achieving better awareness and understanding of the link between modern slavery practices and global supply chains.[5]

Consistent with current Government’s pre-election promises, the Issues Paper focuses on the impact of the MSA and the transparency framework under the MSA.[6] The Issues Paper questions whether any amendments should be made to the MSA that would require businesses to more explicitly identify the due diligence steps they have taken to identify and address their modern slavery risks.[7]

While the current reporting criteria requires businesses to report on the due diligence and remediation processes it has taken to assess and address modern slavery risks,[8] the MSA does not define the term or the scope of that “due diligence”. Drawing on the United Nations Guiding Principles on Business and Human Rights (UNGPs), the Issues Paper provides a starting point for a discussion of what a due diligence modern slavery should look like.

Lower threshold for reporting?

The Issues Paper invites public views on the appropriateness of the current reporting requirements, including the reporting timeline, the definition of modern slavery, what constitutes business operations and supply chains exposed to modern slavery risks and whether certain types of modern slavery, e.g., forced marriage, should be carved out for the purposes of the reporting obligations because it is less likely to be relevant in business operations and supply chains.[9]

However, the key focus of the Issues Paper is whether a lower threshold for reporting ought to be adopted.[10]

The current MSA requires businesses to report if they have global consolidated revenue of at least AU$100 million in their last financial year.[11] This was intended to ensure that the scheme “focuses on entities that have the capacity to meaningfully comply and the market influence to clean up global supply chains”.[12]

There have been calls by civil society to lower the reporting threshold. Lowering the MSA reporting threshold was raised again last year when the Modern Slavery Act 2018 (NSW) (NSW MSA) was amended to repeal its duplicative reporting obligations. The NSW MSA, originally passed months before the Federal Act, had imposed reporting obligations on businesses with turnover of more than AU$50 million but the NSW Act never entered into force.

The Issues Paper has identified arguments both against and in support of a lower reporting threshold.[13] On the one hand, lowering the reporting threshold would certainly capture a larger number of entities reporting their modern slavery risks.[14] On the other hand, increased compliance costs and regulatory burdens on smaller businesses are also noted.[15] In practice, responding to the mandatory criteria will often involve establishing an internal working group, conducting supply chain and risk mapping, engaging consultants, drafting and implementing new policies and procedures, and conducting internal training. Businesses at the lower end of the AU$100 million turnover threshold, including non-profit organisations, have struggled to adequately resource their reporting requirements.

Introduction of penalties?

Currently, the MSA does not impose penalties on reporting entities that fail to submit a statement or submit a statement that does not comply with the mandatory reporting criteria. Instead, the Minister administering the MSA can issue requests for explanation or remedial action to non-compliant reporting entities, and to “name and shame” entities which do not comply with these requests. This means that in practice, compliance with reporting requirements has mainly been achieved through buy-in from business, in addition to the reputational risk and pressure from investors, financiers and consumers.

The Issues Paper recognises that there has been a noticeable improvement in compliance with the Act between the first and second reporting cycle.[16] However, in light of the dissatisfaction with the quality of reporting and the inadequate explanation of how businesses have implemented measures to identify and respond to modern slavery risks,[17] the Issues Paper has raised other options to improve compliance standards, including through administrative action[18] and additional enforcement measures.[19]

Amongst those options, a key issue of debate in the Review is likely to be the introduction of penalties for non-compliance behaviour.

During the 2018 public consultation on the MS Bill, stakeholders (including the ALP) expressed disappointment about the absence of penalties for non-compliance.[20] The ALP has continued to argue for the adoption of penalties in the MSA, claiming that the reporting obligations are being treated by Australian businesses simply as “a box-ticking exercise”.[21]

Alternatively, many private sector stakeholders have argued that stricter penalties to incentivise compliance should be balanced against the cost (particularly to smaller businesses) of compliance with the Act.[22]

We expect to see diverging opinions on the conduct or omission that should be penalised, the kind of penalty to be applied, the entity applying the penalty and the procedure to be followed in applying a penalty.[23]

The establishment of an Anti-Slavery Commissioner?

The need for an independent watchdog to oversee the implementation of the MSA, and to assist and guide businesses in complying with it, has been highlighted by stakeholders since public consultation on the MS Bill.[24] A 2021 Senate inquiry into a proposed amendment to the Customs Act also recommended the establishment of an anti-slavery commissioner.[25]

The Issues Paper recognises that the administration of the MSA will be critical to the satisfaction of the objectives of the MSA,[26] and seeks public submissions on the role of an Anti-Slavery Commissioner and the functions and powers should the Commissioner have for that role.[27]

Notably, the Issues Paper only considers the role of the Commission for the purposes of overseeing and/or enforcing the reporting requirement under the MSA, the scope of which is substantively narrower than that proposed the ALP before the Federal Election.[28]

Strengthening sanctions and customs measures on forced labour

While the Issues Paper is confined to the review of the MSA, the Issues Paper refers to importing bans “on goods sourced from regions or industries that are declared to carry a modern slavery risk as “a prominent example” to complement the MSA.[29] For this reason, Australia businesses should be aware of proposals to strengthen Australia’s customs and sanctions laws to prohibit the importation of goods made with forced labour.

Forced labour import ban?

In August 2021, the Senate passed the Customs Amendment (Banning Goods Produced By Forced Labour) Bill 2021 (Forced Labour Bill).[30] This bill proposed to add a new provision to the Customs Act stating that:

The importation into Australia of goods produced or manufactured, in whole or in part, through the use of forced labour (within the 12 meaning of the Criminal Code) is prohibited absolutely.

While the Forced Labour Bill lapsed ahead of the 2022 Federal Election, it appears to be in alignment with the ALP’s pre-election promises. These promises included the imposition of a rebuttable presumption that goods identified on the Anti-slavery Commissioner’s annual list are made with modern slavery, and requiring importers to prove that this is not the case.[31] This system would be similar to the United States’ Tariffs Act framework currently in place.

Sanctions?

Australia has not yet imposed any sanctions directly targeted at nations, persons or entities that engage in modern slavery. However, the recent passage of the Autonomous Sanctions Amendment (Magnitsky-style and Other Thematic Sanctions) Act 2021, could provide a basis for these kinds of sanctions in the future. This Act allows the imposition of targeted sanctions for matters including serious violations or serious abuses of human rights; activities undermining good governance or the rule of law, including serious corruption; and serious violations of international humanitarian law.

So far, Magnitsky-style sanctions have only been used to target Russian individuals in the context of the conflict in Ukraine.[32] However, the current Australian Government has indicated that it plans to introduce targeted sanctions on foreign companies, officials and other entities known to be directly benefiting from breach of human rights including forced labour.[33] Companies considering exposure to Magnitsky-style sanctions from an anti-bribery or anti-money laundering perspective should also be aware of their application to entities involved in modern slavery.

How should business respond?

The Review raises the proposition that Australia’s modern slavery reporting regime will be substantially strengthened. Businesses should ensure that their modern slavery risk management and reporting frameworks are adequate to respond to any changes and consider participating in the public consultation process open until 22 November 2022 to ensure their voices are heard. Businesses who do not want their submissions published may opt for non-publication.

Businesses are also encouraged to seek legal advice to understand their reporting obligations under the MSA and any exposure to modern slavery risks in their operations and supply chains.