Navigating human rights issues is becoming increasingly complex for Australian businesses.  The UK Modern Slavery Bill is the most recent attempt by legislators to regulate the human rights impacts of business.  The Bill is expected to receive Royal Assent in May 2015.  It consolidates existing slavery and human trafficking offences and will require large businesses to report annually on steps they have taken to eradicate slavery and human trafficking from their supply chains.  The UK Government recently opened a consultation in relation to the “Transparency in Supply Chains Clause”.

This clause could significantly impact on Australian companies that carry on business in the UK or are part of a supply chain for business carried on in the UK.  Much like the UK Bribery Act, this legislation’s extraterritorial jurisdiction will be significant.  It is part of a growing worldwide trend towards greater transparency and accountability by businesses in relation to their human rights impacts.

In this note, we summarise the focus of the UK Government’s consultation paper and what the supply chains clause could mean for Australian businesses.

Consultation on Supply Chains Clause

The supply chains clause requires all large suppliers of goods and services carrying on business in the UK, wherever situated and in whatever sector, to report annually on the steps they have taken during the financial year to eradicate slavery and human trafficking in their business and in their supply chains.  If a business has taken no steps to address these issues, it will need to say so. 

The report will be in the form of a statement made available on the organisation’s website or (if no website) on request.  The statement will likely need to be signed off by one or more directors (or equivalent).  The UK Secretary of State will have the power to bring civil proceedings for an injunction against companies who do not comply with the reporting requirement.

The UK Government intends the reporting requirement to apply only to larger commercial organisations, but the Bill does not specify a size threshold - this will come later, in regulations.  Nor does the Bill specify what businesses will have to report - the Government has said it will not tell companies what they must report, but it will issue guidance to assist them to comply.  The consultation paper seeks views from interested parties on both of these issues.

To find out more about the consultation paper, please see our update here.  The consultation paper can be found here.

Implications for Australian businesses

Australian businesses should start to consider how they might be impacted by the supply chains clause when it comes into force, even if they are not physically present in, or do not consider themselves as having a direct link with, the UK.  Notably: 

  • Large Australian businesses exporting goods or services directly into (or from) the UK will need to consider carefully how the reporting requirement will apply to them and, if it does, how they will seek to comply with it.   
  • In broad terms, this should include considering what due diligence they may need to carry out into slavery and human trafficking issues and what disclosures they may need to make about their business and their supply chains, including matters such as:
    • their organisational structures and business activities;
    • their policies and procedures;
    • their due diligence processes;
    • areas of risk and what has been done to address them;
    •  the effectiveness of those steps;
    • the training of staff; and
    • how their policies, procedures and practices (including how they report on these issues) measure up to best practice. 
  • Most Australian exporters of goods and services will be small or medium size enterprises and so may not be large enough to be subject to the reporting requirement.  However, they will still need to consider carefully how they might be impacted by the supply chain clause, not least where they are (or may be) part of the supply chain of a larger business that will itself be required to report.

Growing trend towards greater transparency and accountability

The UK Government has indicated that it intends the supply chain clause to be a “world leading” provision which will bring about “real transparency”, and it is clear that it intends the legislation to have extra-territorial reach. 

The supply chain clause can be seen as part of a wider worldwide trend for governments, NGOs and human rights campaigners to put pressure on businesses, particularly large multinational companies, to be more transparent and accountable in relation to their human rights impacts and it follows a number of similar legislative measures taken by the EU and at federal and state levels in the US.

The Australian Government amended Australia’s slavery laws as recently as 2013 and those laws include offences which apply to conduct by individuals and corporates in and outside Australia.  It has yet to implement legislation specifically directed at addressing slavery and human trafficking in supply chains.  However, there is growing pressure on the government to do so. 

On 27 October 2014, for example, the Joint Standing Committee on Foreign Affairs, Defence and Trade issued its report: “Trading Lives: Modern Day Human Trafficking”.  Among its recommendations, the Committee recommended that the Australian Government, in consultation with relevant stakeholders, conduct a review with a view to:

  • introducing legislation to improve transparency in supply chains,  
  • developing a labelling and certification strategy for ethically produced goods and services; and  
  • increasing the prominence of fair trade in Australia. 

In its response, the Australian Government said it accepted the recommendation in principle and was working on ways to combat exploitation in supply chains.  It highlighted that it had taken steps to raise awareness of supply chain risks in its own procurement processes and had established a Supply Chains Working Group to examine ways to combat human trafficking and related exploitative practices in supply chains.  It also indicated that it was aware of overseas legislative mechanisms for combatting supply chain risks and would closely monitor their effectiveness.

So, although the Australian Government has yet to implement legislation in this area, it may well do so in the future.