Update on the Modern Slavery Act Review

Recommendations from the recent review of the Modern Slavery Act 2018 are designed to ensure the law becomes more effective in combatting modern slavery. 

Most new legislation with untested regulatory impact is subject to a three-year review. In March last year, Professor John McMillan AO was appointed to lead such a review of the Modern Slavery Act 2018 (the Act) with the support of the Modern Slavery and Human Trafficking Branch. An Emeritus Professor at the Australian National University, McMillan has extensive experience in conducting major investigations and providing legal and policy advice. He has also reviewed the medicinal cannabis regulatory framework, the My Health Records Act 2020 and the handling of Australian Broadcasting Corporation complaints.

Drawing on submissions from business, government, civil society, academia, unions, charities, peak bodies and professional associations, McMillan identified three questions at the heart of the review. Can a law such as the Modern Slavery Act be effective in combatting modern slavery? Could the Act be more effective if changes were made to how it is framed and administered? And is the law being taken seriously?

Can a law be effective?

On any given day in 2021, an estimated 49.6 million people were living in modern slavery — nearly one of every 150 people in the world. So far, there is no hard evidence that the Act has brought about meaningful change for any of them. However, given the immense scale of the problem, and drivers that include economic greed, poverty and weak regulatory standards in other countries, it’s not altogether surprising that a new reporting mechanism failed to produce measurable results in just three years.

“The takeaway message for me is that it will take a very broad strategy to address modern slavery, but there’s still substantial belief that a reporting mechanism can play a vital role,” says McMillan. “An important aspect of that role is sending a clear message to businesses that they must stand back and reflect on whether their business model incorporates or is built upon slavery practices.”

Could the Act be more effective?

The proposed reforms involve fine-tuning the existing mandatory criteria rather than rethinking the Act’s structure.

Recommendations for change include the mandatory reporting of incidents and risks, the use made of grievance and complaint mechanisms, and consultations undertaken on managing modern slavery risks. However, McMillan believes if his recommendations are accepted, those relating to mandatory due diligence will have the greatest effect.

“It’s very clear from the UN Guiding Principles on Business and Human Rights and the Act itself that due diligence should be a focus, but it’s not,” he says. “I recommend that it should be a legal obligation to have a due diligence framework in place and to report on that. In a sense, this simply expresses what is already implicit in the Act. But I’ve no doubt that the change would prompt businesses and advisory bodies to put significant effort into spelling out what due diligence means and what it requires. Investor organisations are already showing interest in due diligence, so I think they’d zero in on this and their expectations of the standard required would rapidly increase.

For these reasons, I know it’s a recommendation which, if accepted, will have a big impact.”

Lowering the threshold

One of the more divisive recommendations is that the current reporting threshold should be reduced from $100m in annual consolidated revenue to $50m.

“When the Act was introduced, there was a fairly clear divide between the business sector, which wanted the threshold to be set at $100m, and other groups such as civil society and researchers, who thought it should be lower,” says McMillan.

“That clear divide doesn’t exist any more. Many businesses now believe we need everyone to be involved in tackling the problem, while other groups are concerned that effectively doubling the number of reports would make it very difficult to monitor them. Meanwhile, the standard threshold around the world is moving to around $50m and it’s important for Australia to keep pace with international developments. Overall, I believe the reduction is inevitable and will be welcomed.”

He stresses that businesses captured by the new threshold would have plenty of advance warning and tailored support. There’s also no expectation for organisations of any size to create large, expensively produced reports. “I made a number of recommendations that would make reporting easier and more streamlined — including online reporting, a reporting template with a standardised cover sheet and the option to submit a full statement every three years with updates in between,” says McMillan.

Appointing a commissioner

Most submissions expressed strong support for the Australian government’s commitment to appointing an independent Anti-Slavery Commissioner.

“This will be a small office with a budget allocation of just $2m,” says McMillan. “In order to be effective, it needs to focus on where it can make a real difference and add value to the current regulatory landscape. One area would be teasing out some of the more complex issues, such as the impact of the Act on small businesses, and identifying areas of particularly high risk in terms of locations, industries, products, suppliers and supply chains. Encouraging collaboration and discussion among industry, civil society, academia and professional associations is another potential win. Dr James Cockayne in New South Wales, Australia’s only Anti-slavery Commissioner so far, has been remarkably effective in encouraging discussion and collaboration between a wide range of groups.”

Is the law being taken seriously?

There are indications that modern slavery reporting is not being taken seriously enough. Independent studies and government evaluation found a high level of apparent non-compliance, while the underlying premise of a transparent reporting mechanism has been criticised as “shaky”. Many of the legislative and administrative changes recommended in the review are intended to address these challenges.

The review also recommends introducing penalties for failing to report without reasonable excuse, submitting a report that knowingly includes materially false information, or failing to put a due diligence system in place.

“This doesn’t go as far as some people were hoping,” says McMillan. “Some said that penalties should apply not only to failure to report, but also to poor-quality reporting. That would be a step too far. In my opinion, penalties sit in the background, reminding people that the Act means what it says. They also require companies to get legal advice on whether they’re meeting their obligations. But it would be wrong to think introducing penalties will transform the way that slavery reporting is approached.”

Next steps

The government now has three linked areas for statutory review. One is the creation of the commissioner’s office. The second is the consideration of recommendations made in the report. The third is the in-process targeted review of offences for trafficking in persons, slavery and slavery-like practices in Divisions 270 and 271 of the Criminal Code.

“We should currently have a watching brief on whether government will respond on all of those three issues together and what that response will be,” says McMillan.

There was strong support for his recommendation that the Act be reviewed again after another three years. “Changes of this magnitude don’t have an impact overnight,” he says. “I’d hope to see reporting getting better and better, but the annual report must never be an end in itself. The ultimate concern is whether it’s having an impact on the ground.”

AICD position

In our submission, the AICD recognised that the introduction of Australia’s modern slavery reporting regime has had a positive impact across organisations, government and civil society. This has been felt acutely at the board level, with Australian directors citing the significant time and resources spent on modern slavery due diligence and reporting. That said, members have cited particular challenges with gaining access to — and visibility of — their suppliers in certain countries and the complexities involved with attempting to identify risks in extended supply chains. Our view is that any refinements to the Act should focus on lifting the quality of reporting by Australia’s largest entities, not increasing the compliance burden on smaller organisations and NFPs.

For the Act to be effective in strengthening due diligence and reporting practices, it must be in partnership with government, civil society and industry. We strongly encourage the development of further resources and guidance for reporting entities, with a particular focus on NFPs, First Nations organisations and SMEs with limited time and resources, as well as organisations operating in industries with a high risk of modern slavery in their operations and/or supply chains.

This article first appeared under the headline 'Breaking The Shackles’ in the September 2023 issue of Company Director magazine.