How ethical is your business’s supply chain? In theory, slavery has been abolished, but in reality it remains a major global issue. Modern slavery is a term which generally refers to exploitation of individuals for labour under threat of violence, coercion or deception. Over 40 million people worldwide are subject to some form of modern slavery, including 24.9 million people in the Asia-Pacific region.
In Australia, approximately 15,000 people are victims of exploitative practices that fall within the definition of ‘modern slavery’, including human trafficking, servitude, forced labour, forced marriage and child labour. But modern slavery also feeds into the supply chains of Australian businesses from developing countries, where it is often far more prevalent. Billions of dollars each year are spent on importing products and services from countries where there is a high risk of modern slavery in various industries.
In response to the growing pressure to respond to this modern slavery crisis, and following the lead of the United Kingdom on this issue, both the Australian Parliament and NSW Parliament have passed laws addressing these issues, however the NSW legislation is not yet in force.
Both the Commonwealth and NSW legislation require the preparation and publication of annual statements from businesses operating in Australia, addressing modern slavery risks in their operations and supply chains. The purpose of the statements is to foster transparency and awareness of those risks, enabling consumers and contractors to make informed and ethical decisions when engaging with businesses, or when purchasing goods or services from them.
The Commonwealth Act
The Modern Slavery Act 2018(Cth) (the “Commonwealth Act”) came into effect on 1 January 2019 and requires companies carrying on business in Australia with annual consolidated revenue of $100 million or more to prepare a modern slavery statement (“Statement”) each financial year.
The Statement must contain information about the company’s:
structure, operations and supply chains;
potential modern slavery risks;
actions taken to evaluate and address those modern slavery risks (including due diligence and remediation processes); and
how the company assesses the effectiveness of those actions.
For Australian companies with annual turnover of over $100 million, the first compulsory reporting period will be the financial year ending 30 June 2020, with the first Statements due by 31 December 2020. The Minister for Home Affairs (“Minister”) will publish all Statements on a publicly accessible online Register.
The Commonwealth Act covers Australian parent companies whose foreign subsidiaries push them over the consolidated revenue threshold, however, the Commonwealth Act does not cover subsidiaries of foreign parent companies who only meet the revenue threshold when you include the revenue of the foreign parent/group members.
Companies that do not meet the $100 million threshold are able to voluntarily comply with the reporting requirements.
The NSW Act
In 2018 NSW parliament passed the The Modern Slavery Act 2018(NSW) (“NSW Act”), which is not yet in force. The NSW Act has a lower reporting threshold of $50 million for businesses operating in NSW. The NSW Act also appoints a NSW Modern Slavery Commissioner, and a Modern Slavery Committee.
Businesses which are already required to report under the Commonwealth Act (i.e. Australian businesses with a minimum annual turnover of AU$100 million) are not expected to be required to do so under the NSW law.
What are the penalties?
The Commonwealth Act does not contain penalties for failure to comply with reporting requirements. However, the Minister can ‘name and shame’ companies that fail to comply, request an explanation for their failure to comply, or request the company take remedial action (eg file a Statement). Of course, the public register means the naming and shaming can also be done by non-government organisations and members of the public.
The NSW Act does impose penalties of up to $1.1 million for those that fail to prepare a Statement, or provide false or misleading information in a Statement.
Because companies covered by the scope of the Commonwealth Act are not expected to be required to comply with the NSW Act, it creates a strange situation where businesses operating in NSW with an annual turnover of between $50 million and $100 million will be subject to financial penalties, while those with an annual turnover of $100 million or more will not be subject to financial penalties. Further amendments to either the Commonwealth Act or NSW Act are expected to remedy this situation.
All large Australian businesses are encouraged to start mapping their supply chains and conducting risk assessments now, in anticipation of the first mandatory reporting period. It will be important to conduct due diligence, develop compliance training programs and review the drafting of your supplier contracts.
If you have any questions or require legal advice regarding the impact of the Act on your business, please contact John Nash.