Legislation has passed requiring more than 3,000 large businesses and other entities to report on “modern slavery” risks in their supply chains and how they are mitigating such risks through actions and initiatives.

Domestic and foreign entities carrying out business within Australia, and with annual revenues of at least $100 million, will have to submit a Modern Slavery Statement every 12 months as part of the Modern Slavery Act 2018 requirements.

The legislation passed the House of Representatives last week after accepting amendments from the Senate which empower the minister to name and shame his or herself, publicly calling out continued instances of non-compliance and reporting to parliament annually on compliance trends.

The amendments are in response to two omissions for penalties and independent oversight, with the government unwilling to impose a penalty for failing to lodge a statement or for lodging an incomplete statement.

Australia is now also the first nation to recognise orphanage trafficking as a form of modern slavery.

An online public register will be established by the Australian Government for all statements, promoting transparency and ensuring the community can easily access and compare statements. Entities covered by the reporting requirement will begin reporting from 2019, with the first statements due in 2020.

Implications for employers

Entities based or operating in Australia with annual consolidated revenue of at least $100m are now required to lodge with the Minister for Home Affairs an annual report (modern slavery statement – MSS) on the risks of modern slavery in their operations and supply chains and the actions the entity has taken to address those risks.

An entity can be an individual, political body, partnership, trust, corporation or unincorporated association.  An unincorporated joint venture is not an entity.

The MSS covers the reporting entity’s financial year and must be lodged with the Minister within 6 months of the end of its financial year.  The first MSS must cover the reporting year which starts after 1 January 2019.  For most this means reporting on the 2019-2020 financial year ending 30 June 2020 and lodging no later than 31 December 2020.

Small businesses part of a large enterprise’s supply chain – even if several supply steps removed – will be affected.  Customers will seek assurance about their suppliers’ operations, and administrative, and in many cases direct financial audit costs, will be passed down the chain.

A “Business Engagement Unit” is being established in the Department of Home Affairs to assist employers to implement the reporting obligation.

The Act will come into effect on 1 January 2019, with a broad scope broad and not confined to commercial organisations.  It is important to note, supply chains are not just the entity’s direct suppliers – the entity’s entire supply chain falls within the Act’s scope.

The Act is modelled on the Modern Slavery Act 2015 (UK), however the Australian Act differs in three important respects

• A MSS must address specified reporting criteria.  The UK Act suggests what a reporting commercial organisation’s slavery and human trafficking statement may include.  In the UK a reporting organisation may report that it took no steps to ensure the absence of modern slavery in its operations and suppliers.  This option is not available in Australia.
• A MSS must be lodged with the Minister who will publish them on a central website.  In the UK slavery and human trafficking statements are published on the company’s website, although companies can elect to also publish on a public website, the Modern Slavery Registry, operated by the Business and Human Rights Resource Centre.
• The Minister can require a reporting entity which is non-compliant to explain its non-compliance to or direct it to undertake specified actions.  The Minister must report annually to parliament about the Act’s implementation including compliance levels.  The UK Home Secretary can seek an order to require a non-reporting company to report.  This power seems never to have been used.

The Australian Act is more tightly defined than the UK Act.  It draws on accounting standards and statutorily defined concepts in legislation such as the Corporations Act 2001, the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997.

Modern slavery includes trafficking persons, slavery and slavery-like practices and the worst forms of child labour, with an entity’s conduct outside Australia, but within its supply chain, also covered.

There are five mandatory reporting criteria and all of them are required for a complying MSS, including the first one.

• The entity’s structure, operations and supply chains
• The risks of modern slavery practices in the entity’s operations, suppliers or subsidiaries
• Actions taken by the entity or subsidiary to assess and address the identified risks (such as developing policies or processes to address risks, staff training) which includes their due diligence and remediation processes
• How the entity assess the effectiveness of the actions which it has taken
• The consultation process with subsidiaries in preparing the MSS.

The Minster can publish a non-complying MSS or identify a reporting entity which has not complied on the website.

To build an MSS and assess risks, it is recommended reporting entities understand and engage with their suppliers and their suppliers down the chain to ensure they are not supporting criminal trafficking or labour practices amongst their suppliers.

For information on employer requirements on modern slavery reporting or any other issue, please contact [email protected]