06 February 2019

Modern Slavery – is your supply chain ready?

Michael Cossetto

What’s it about?

The Modern Slavery Act 2018 (Cth) (Commonwealth Modern Slavery Act) is a new piece of legislation designed to require medium to large companies (and government entities) doing business in Australia to take active steps to ensure that their operations and supply chains do not employ the use of slave labour.

When does it come into effect?

The Commonwealth Modern Slavery Act fully came into effect on 1 January 2019.

Who does it apply to?

The new legislation applies to the following entities:

entities which have a consolidated revenue (eg. where companies are part of a group of companies, a combined revenue) of at least $100 million per financial year and the entity either:
- is an Australian entity (eg. incorporated in Australia or an Australian resident for tax purposes); or
- carries on business in Australia;
Commonwealth government entities (eg. federal government departments and corporate entities); and
any other entities that volunteer to comply.

What do I need to do?

Under the Commonwealth Modern Slavery Act, entities will need to report annually in the form of a mandatory statement detailing the risks of modern slavery in their operations and supply chains and the steps the entity took to address those risks.

These mandatory statements are required to include the following information:

the identity of the reporting entity;
a description of:
- the structure, operations and supply chains of the reporting entity;
- the risks of modern slavery practices in the operations and supply chains of the reporting entity, and any entities that the reporting entity owns or controls (eg. group companies);
- the actions taken by the reporting entity and any entity that the reporting entity owns or controls, to assess and address those risks, including due diligence and remediation processes;
- how the reporting entity assesses the effectiveness of such actions;
- the process of consultation with any entities that the reporting entity owns or controls; and
any other information that the reporting entity considers relevant.

The mandatory statements provided by entities are to be stored on a Modern Slavery Statements Register which will be accessible to the public via the internet.

What happens if I don’t comply?

At this stage there are no criminal or civil penalties that apply to contraventions of the Commonwealth Modern Slavery Act.

However, the Minister (regulator) is entitled to serve notices on any entity that it reasonably believes has failed to comply with the legislation, requesting that the entity provide an explanation for the failure to comply and that the entity undertake remedial steps aimed at ensuring compliance.

Ultimately, if an entity fails to comply with the requirements set out in a notice from the regulator, the regulator can put the details of that entity and the relevant non-compliance on the public Modern Slavery Statements Register (or in any other public statement).

The risk for companies is that non-compliance with the Commonwealth Modern Slavery Act could result in significant reputational damage.

Interaction with State legislation

A challenge that some companies may also face under the new regulatory regime, relates to the fact that State governments are also introducing legislation to prohibit modern slavery in their respective jurisdictions.

For example, New South Wales is imminently introducing its own Modern Slavery Act 2018 No 30 (NSW) (NSW Modern Slavery Act) which will also impose a requirement on certain entities to provide annual statements detailing the steps taken by the entity to ensure that its goods and services are not a product of supply chains in which modern slavery takes place.

Exactly how the State legislation will interact with the Commonwealth legislation on the mandatory statement requirement is still unclear at this point.

Section 24(9) of the NSW Modern Slavery Act provides that entities regulated under Commonwealth legislation prescribed as a ‘corresponding law’ under the regulations will be exempt from having to provide mandatory statements under the NSW Modern Slavery Act.

Whilst it is highly likely that the Commonwealth Modern Slavery Act will be prescribed as a ‘corresponding law’ under the NSW regulations – we won’t know for sure until the regulations are released. It should also be noted that this exemption does not apply to various other requirements and regulator powers under the NSW Modern Slavery Act.

It also remains to be seen how other States and Territories will treat the Commonwealth legislation if they decide to introduce legislation on a similar basis to NSW.

Differences between the requirements to provide mandatory statements under the State and Commonwealth Acts

Two of the most significant differences between the mandatory reporting requirements under the NSW Modern Slavery Act and those under the Commonwealth Modern Slavery Act are that:

the mandatory statement requirement under the NSW Modern Slavery Act will apply to entities that employ people in NSW and:
- have a turnover of at least $50 million per financial year (or other amount prescribed by the regulations); and
- supply goods and services for profit or gain; and
harsher penalties will apply to entities that fail to lodge mandatory statements with the regulator under the NSW Modern Slavery Act (eg. fines of up to 10,000 ‘penalty units’ or currently $1,100,000).

The reporting requirements for mandatory statements under the NSW Modern Slavery Act also have the potential to be different to those specified under the Commonwealth legislation (these are also going to be set out in regulations that have not been released yet).

What about NSW companies that have a turnover of $50 million but an annual consolidated revenue of under $100 million?

As it stands, the disparity between the two pieces of legislation has the potential effect that these entities will be regulated under the NSW Modern Slavery Act instead of the Commonwealth Modern Slavery Act – which would mean that harsher penalties will apply to these companies in cases of non-compliance (eg. the fines). How the NSW regulations will deal with this issue remains to be seen.

If the regulations do not address this issue, it may still be possible for NSW companies to be able to voluntarily agree to comply under the Commonwealth legislation (eg. invoking the exemption under section 24(9) of the NSW Modern Slavery Act) – however this remains unclear until the NSW regulations confirm how the Commonwealth legislation will be treated.

What steps should I consider taking to protect my reputation (or to avoid being fined)?

Other than requiring entities to lodge mandatory statements, the legislation doesn’t currently prescribe any specific steps that companies need to take to actually address the risks of modern slavery in their procurement and supply chains, but the following are some practical steps that companies should consider taking to help to ensure compliance:

including clauses in contracts with suppliers obliging them to be familiar with and to comply with the requirements of the new legislation;
having procurement policies that require suppliers to complete periodical questionnaires relating to the sources of their products, materials and business practices and compliance with the requirements of the new legislation (the obligation to promptly and truthfully complete questionnaires should also be a mandatory contractual requirement for the company’s supply chain and other procurement contractors);
having policies in place that require the company’s relevant operational and procurement functions to periodically audit suppliers to ensure compliance and properly report on the findings to senior management so that they have the capacity to report under the new legislation – these policies should also address remediation steps to be taken where non-compliance is found to exist; and
providing regular compliance training to employees (especially those involved with the procurement and operational aspects of your business).

Author: Matthew Wilson

Further contact: Michael Cossetto