Boards must be aware of their organisation's supply chains with the introduction of modern slavery legislation as of 1 July, writes Professor Pamela Hanrahan, Deputy head, School of Taxation and Business Law, UNSW Business School.
LAST YEAR, both the Commonwealth and New South Wales passed legislation to address the risk of modern slavery in Australian businesses and their supply chains. The Modern Slavery Act 2018 (Cth) commenced on 1 January 2019, and the Modern Slavery Act 2018 (NSW) is expected to commence on 1 July 2019.
Modern slavery is a significant and growing problem. While more likely to occur in least-developed and failed states, it also exists in developed countries. The NSW government estimates up to 1900 people in Australia may be affected. This includes people brought in from overseas with the promise of work who end up in conditions where, because of coercion, threats or deception against themselves or another, a reasonable person in their position would not consider themselves free to cease providing labour or services, or to leave. Conducting a business in Australia that involves the forced labour or servitude of another person is a serious criminal offence under Commonwealth law that can result in imprisonment for up to 20 years.
Globally, the Walk Free Foundation (which produces the annual Global Slavery Index) estimates more than 40 million people are in modern slavery with at least 70 per cent of them women or girls. Conflict, failure of the rule of law, mass displacement and endemic discrimination are known risk factors. The first three make dealing with the problem at its source almost impossible. As a result, global attention is turning to the measures businesses and governments in the developed world can take to help combat the scourge. In 2017, the G20 leaders’ declaration in Hamburg included a commitment to fostering human rights due diligence in corporate operations and supply chains, building on the 2011 UN Guiding Principles on Business and Human Rights.
Australia is the seventh G20 country to adopt legislation requiring business and government to report on actions they take to eliminate modern slavery from their operations and supply chains. Commonwealth legislation requires entities based or operating in Australia to report publicly on the risks of modern slavery and on the steps taken to address them. The reporting obligation applies to large entities with annual consolidated revenue above $100m.
The legislation defines modern slavery to include conduct that constitutes an offence under relevant sections of the Commonwealth Criminal Code, or would constitute an offence if it occurred in Australia, including human trafficking, slavery and the slavery-like offences of servitude, forced labour, deceptive recruiting for labour or services, forced marriage and debt bondage. The definition also covers conduct described in the United Nations Protocol to Prevent, Suppress and Punish Trafficking in Persons (2000), and in the 1999 ILO Convention concerning the Prohibition and Immediate Action for the Elimination of the Worst Forms of Child Labour. Commonwealth legislation is enforced on a ‘name and shame’ basis. No penalties are imposed on entities that fail to meet reporting obligations.
The first annual reporting period for many large entities began on 1 July, and the first statements will be lodged with the responsible minister in the second half of 2020. A reporting entity’s statement must describe its structure, operations and supply chains, the risks of modern slavery practices in its operations and supply chains, the actions taken to assess and address those risks, including due diligence and remediation processes, and how it assesses the effectiveness of such actions.
The statement made under the legislation is approved by the reporting entity’s board and signed by a director authorised for that purpose. Statements will be made publicly available through the Modern Slavery Statements Register. While there is no statutory duty on a reporting entity to undertake due diligence in preparing their statement, conscientious reporting entities may look to their suppliers and outsource service providers (including labour hire firms) to give them the information they need to prepare the statement. This means all businesses that work with reporting entities need to consider how to respond on these matters if the request comes.
Commonwealth legislation is enforced on a “name and shame” basis. No penalties are imposed on entities or boards that fail to meet the reporting obligations. Instead, the minister may make a written request to the entity to provide an explanation for the failure to comply, or undertake specified remedial action, or both. If the entity does not meet that request, the minister may publicise the fact on the register or in any other way considered appropriate.
The NSW legislation applies to commercial organisations with annual turnover above $50m, which employ people in the state. It is unclear at this stage to what extent this will apply to charities and NFPs. Those covered by Commonwealth legislation will most likely be carved out of the NSW reporting regime. Further details on the application of the NSW legislation will be confirmed in the regulations and guidance (yet to be released).
The government can prescribe the contents of the statement, which may include information about: the business’ due diligence in relation to modern slavery in its business and supply chains; the parts of its business and supply chains where there is a risk of modern slavery taking place; steps it has taken to assess and manage that risk; and the training about modern slavery available to its employees. Unlike the Commonwealth law, the NSW Act provides for significant pecuniary penalties for failure to report or for providing information the business knows, or ought reasonably to know, is false or misleading.
Measures such as the mandatory reporting frameworks established under both Acts are predicated on the assumption transparency will drive behavioural change — sunlight is the best disinfectant. A similar approach underpins the gender pay and opportunity reporting required under the Workplace Gender Equality Act 2012 (Cth). The argument is that when large businesses can no longer turn a blind eye to inequities or injustices that feed their success, then boards will act, either because it is the right thing to do or because vigilant investors, consumers or civil society organisations demand it.
That may be a heroic assumption. In the UK, where modern slavery reporting was introduced in 2015, results have been mixed. In its 2018 report on the impact of the regime on FTSE 100 companies, the Business and Human Rights Resource Centre found that more than half “published generic statements providing little to no meaningful information on any of the reporting areas”. With no statutory duty to undertake due diligence and no enforcement mechanism to ensure reporting entities meet the spirit of the law by providing meaningful disclosure, the impact was muted. The report concluded: “mandatory transparency legislation will not achieve the game-changing behaviour which will help to eliminate modern slavery from supply chains”.
Perhaps the new measures will take some time to produce real change. Regardless, if using supply chain transparency to help eradicate modern slavery is to succeed, it clearly depends on business accepting its responsibility to meet the spirit, not just the letter, of the reporting obligation.