What directors need to know about their reporting requirements under the Modern Slavery Act.

    Key takeaways

    • Recent analysis of modern slavery reporting trends indicate many organisations are still not complying adequately with the Modern Slavery Act 2018 (Cth);
    • Statutory review of Australia’s modern slavery regime currently underway with reporting threshold and penalties a key focus.
    • AICD’s response to the review follows extensive consultation with members and stakeholders on in practice challenges and way forward for the regime.

    Australia’s Modern Slavery Act 2018 (Cth) (Act), which is aimed at increasing transparency in business operations and supply chains, requires organisations to undertake due diligence, report on their modern slavery risks and address issues identified.

    Three years on since the Act’s commencement, however, compliance with the reporting requirements continue to be reported as inadequate. The Australian Human Rights Legal Centre’s (AHRLC) recent report, Broken Promises, found that in the second year of reporting under the Act, 66 per cent of companies did not address all the mandatory reporting requirements prescribed by the Act (down from 77 per cent in the first year of reporting), and 43 per cent of companies did not identify ‘obvious’ modern slavery risks in their supply chains despite extensive public reporting on the issues.[1]

    The statutory review of the Act (Review), led by Professor John McMillan AO, presents an important and timely opportunity to assess the effectiveness of the reporting regime over its first three years. Amongst other issues, the Review is considering whether the existing $100 million annual turnover reporting threshold remains appropriate (or should be lowered) and whether penalties for non-compliance should be introduced.

    The Government has made clear commitments, via both its pre-election platform and recent media releases, that it will introduce civil penalties for non-compliance and appoint an Anti-Slavery Commissioner to work with business, civil society, NGOs and State and Territory governments to identify and address modern slavery risks in business operations and global supply chains.

    Current reporting requirements

    Under the Act, Australian entities (or entities operating in Australia) with a turnover of more than $100 million are currently required to lodge a modern slavery statement with the government each year. The Act applies to Not-For-Profit (NFP) organisations and charities that meet the $100 million turnover threshold, while other entities may lodge a statement voluntarily.  

    Modern slavery statements must be approved by the board (or relevant governing body) and signed by a director. They require a description of the risks of modern slavery practices in the reporting entity's operations and supply chains; actions taken to assess and address those risk; and how the effectiveness of actions have been measured.

    There are currently no penalties for reporting entities that fail to submit a compliant statement under the Act. However, the Minister for Home Affairs can send an entity a ‘please explain’ request if they fail to report in time, and/or publicly name that entity if the Minister considers it has failed to comply with the mandatory requirements.

    Statutory Review

    The key issues being considered by the Review include:

    • Impact of the Act: whether the Act has had a positive impact, and in particular its transparency model approach, in combatting the drivers of modern slavery;
    • Reporting threshold: whether the Act’s reporting requirements are appropriate, including whether the current reporting threshold should be lowered (for example, from $100 million to $50 million) to require a greater number of entities to report under the Act. The reporting threshold is generally set lower in other countries – for example, the UK threshold of £36M is roughly AU$63 million;
    • Civil penalties: whether additional measures are required to improve compliance with the Act’s reporting obligations, including the introduction of civil penalties; and
    • Anti-Slavery Commissioner: whether a new independent Anti-Slavery Commissioner should be established and if so, what role it should play in administering and/or and enforcing compliance with the Act.

    The Review is due to deliver its final report detailing its findings and recommendations in March 2023.

    AICD reflections

    The AICD has long supported the operation of a modern slavery reporting regime in Australia. Since its introduction, Australian directors have become increasingly focused on modern slavery governance and the Act has had a positive normative impact in raising awareness and elevating a conversation around modern slavery risks in supply chains across organisations, government and civil society.

    The AICD acknowledges, however, that modern slavery due diligence and reporting practices are not yet at the standard they should be and must continue to be lifted to drive meaningful change in both suppliers’ behaviours and business practices. A 2021 Global Estimates report indicates there are 49.6 million people living in situations of modern slavery on any given day, with the Asia and Pacific region host to more than half of the global total.

    In November, the AICD made a submission to the Review, informed by extensive member and stakeholder engagement, strongly encouraging:

    • Reporting threshold: the retention of the existing AU$100 million annual turnover reporting threshold. With reporting practices not yet at the desired level, although improving, we have strongly encouraged the focus following the Review to be on lifting compliance and the quality of reporting by Australia’s largest entities, rather than increasing the number of entities required to report.  Entities with revenue below AU$100 million will often be indirectly caught by the regime as they are part of the supply chains of larger organisations.
    • Civil penalties: in recognition of concerns with the quality of reporting over the last two reporting cycles the AICD supports, in principle, consideration of a range of additional enforcement measures. If the Review concludes that the introduction of civil penalties for non-compliance is a necessary next step to address inadequate reporting, we strongly urge that:
      • Any penalties are confined to the entity level and for conduct such as a failure to submit a statement, submission of a materially false or misleading statement or clear failure to satisfactorily address all mandatory reporting criteria;
      • A ‘reasonable steps’ style defence attach to ensure that organisations that take appropriate measures to fulfil their due diligence obligations under the Act are not subject to liability;
      • A graduated approach to enforcement be taken, ranging from ‘soft corrective’ measures initially to more ‘punitive sanctions’ that could be reserved for recalcitrant conduct; and
      • The imposition of penalties be subject to judicial exclusivity (not applied by an Anti-Slavery Commissioner or Ministerial direction).
    • Anti-Slavery Commissioner: the establishment of an independent Anti-Slavery Commissioner to oversee the administration of the Act has a clearly defined focus on education, awareness raising, monitoring and compliance activities. If established, the Anti-Slavery Commissioner could play a pivotal supporting role in providing practical guidance and sector insights for reporting entities as well as coordinating work across industry, Government and civil society to eliminate modern slavery in Australia and global supply chains; and
    • Enhanced guidance and support from Government: The development of further resources and guidance for reporting entities, with a particular focus on NFPs, Aboriginal and Torres Strait Islander organisations and small and medium enterprises (SMEs) who have limited time and resources.

    Resources of directors

    The AICD has issued guidance to support directors and their organisations in meeting the requirements of the Act:

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