With the second year of reporting under the Commonwealth Modern Slavery Act 2018 due to close on 31 December 2021, NSW removing duplicative requirements and a statutory review of the Commonwealth regime on the horizon – we take a look at what directors need to know.
- NSW removes duplicative modern slavery reporting requirements – Commonwealth regime continues to apply to entities with turnover above $100m;
- Australian Border Force highlights common problems in modern slavery statements including failure to meet mandatory criteria;
- Statutory review of Commonwealth modern slavery regime set to take place in 2022 with penalties and reporting thresholds likely in focus.
In 2019, the Commonwealth Modern Slavery Act 2018 (Cth) (Commonwealth Act) came into force introducing a statutory modern slavery reporting requirement for larger companies operating in Australia.
Under the Commonwealth Act, entities are required to lodge a modern slavery statement if they are an Australian entity, or carry on business in Australia, with a minimum annual consolidated revenue of $100 million. Other entities may volunteer to comply with the Act by notifying the Minister for Home Affairs.
Statements must be approved by the board (or relevant governing body) of the reporting entity and signed by a director. Directors must also ensure that their entity’s statement is lodged on the Government’s online register.
The Commonwealth Act requires reporting entities to lodge statements that include a description of:
There are currently no penalties for reporting entities that fail to submit a compliant statement under the Commonwealth Act. However, the Minister for Home Affairs can send an entity a ‘please explain’ request if they fail to report. Further, if the Minister considers an entity has failed to comply with the requirements, they may publicly name that entity.
NSW removes duplicative reporting requirements
On 19 November 2021, the NSW Parliament passed amendments to the Modern Slavery Act 2018 (NSW) (NSW Act). The NSW Act was originally passed by NSW Parliament in June 2018 but did not commence due to concerns with inconsistencies with the Commonwealth Act. Essentially the latest amendments remove duplicative reporting requirements and reinforces the Commonwealth regime as the standalone reporting framework for entities operating in NSW.
The NSW Act previously set a reporting threshold of $50 million in annual turnover, as distinct from the $100 million threshold under the Commonwealth Act. This threshold has now been repealed meaning that entities operating in NSW will only be required to prepare a modern slavery statement Act where they meet the $100 million per annum threshold. However, the NSW Government is encouraging NSW entities with an annual turnover between $50 million and $100 million to voluntarily report under the Commonwealth Act.
The NSW Act is set to commence on 1 January 2022. The AICD had previously supported a single Commonwealth-based reporting regime.
Reporting trends and areas for improvement
Two years on from the Commonwealth Act’s commencement, over 2,500 modern slavery statements have been lodged on the Government’s modern slavery register, covering more than 6,000 reporting entities.
In a review of compliance trends from modern slavery statements lodged over the first year of the reporting requirement, the Australian Border Force (ABF) reported in November 2020 that entities have taken a range of actions to combat modern slavery risks, including:
- implementing modern slavery clauses into supply contracts;
- updating internal policies such as supplier codes of conduct, whistleblower and procurement policies;
- implementing employee training on modern slavery risks;
- establishing due diligence processes to address risks identified in supply chain mapping; and
- reporting to investors on the number and type of grievances raised through internal channels.
The ABF’s 2020 report identified key areas for improvements in the statements submitted to date. These include instances where reporting entities had:
- submitted statements used in other jurisdictions (typically the UK) which have not been amended to address the Commonwealth Act’s mandatory criteria for content);
- failed to clearly identify the reporting entity for the statement (for example, some statements submitted by overseas corporate groups do not identify the Australian reporting entity/entities);
- not appropriately described their consultation process with their owned or controlled entities in the preparation of the statement;
- not adequately described the areas of modern slavery risk, such as the nature, context or extent of these risks;
- reported on risks in overseas supply chains, but failed to identify and report on risks in overseas operations (i.e. the activities of the business which can include financing, investing, leasing and charitable activities);
- not provided evidence that the statement’s “sign off” has received endorsement by the board; and
- not reported on the effectiveness of actions taken by the reporting entity to manage or address identified modern slavery risks.
The ABF is due to release its annual report with additional compliance trends for the second year of reporting in 2022.
Statutory review in 2022 to consider penalties for non-compliance
The Commonwealth Act is due to be reviewed in 2022. The Federal Government has not yet indicated how this review will take place and/or particular areas of focus. However, the Commonwealth Act requires the three year review to consider whether additional measures to improve compliance are necessary, including the imposition of civil penalties for failure to comply with the reporting requirement.
Separately, a recent Parliamentary Committee report from the Foreign Affairs, Defence and Trade Legislation Committee has made formal recommendations for this review to occur as soon as possible and consider provisions for:
- lowering the reporting threshold below $100 million to capture more entities by the reporting requirement, noting that small and medium-sized enterprises account for over 90% of businesses operating in Australia;
- introducing penalties for non-compliance on the basis that there is currently no clear avenue for exploited or trafficked workers to seek remedy from organisations, and while companies are encouraged to report and take steps to address forced labour risks – there are few consequences for those that fail to do so; and
- establishing an independent body to oversee and enforce its implementation.
In the UK, similar consideration is in train with a private members’ bill proposing criminal penalties (both an imprisonment term for individual officers and monetary penalty for bodies corporate) where a responsible person knowingly or recklessly supplies a false or materially incomplete statement. The only defence available would be the responsible person demonstrating that they took all reasonable steps to ensure that the statement was corrected, and informed the Independent Anti-slavery Commissioner as soon as practicable after becoming aware that it contained information that was false or materially incomplete.
Although the members’ bill is unlikely to progress in UK Parliament due to a lack of support from the UK government, it is suggestive of where the debate is heading with likely increased scrutiny of reporting on supply chains globally.
The ABF’s review of compliance trends to date and identified areas for improvement are an important reminder for directors of their oversight obligations with respect to modern slavery risks in the supply chain.
Some questions for boards to consider include:
- Has the modern slavery statement clearly identified all of our reporting entities in the modern slavery statement?
- Has the modern slavery statement described our consultation process with each of our reporting entities?
- Does the modern slavery statement adequately capture a description of the reporting entity’s supply chain and operations?
- What process has been undertaken and/or external assurance sought to check the integrity of the modern slavery statement?
- Does the modern slavery statement explain how modern slavery risks are managed?
- Does the modern slavery statement report on the effectiveness of the measures in place to manage modern slavery risks?
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