10 August 2020

Modern Slavery Reporting – The Clock is Ticking

Jason Sprague

In response to the Covid-19 pandemic, on 28 April 2020 the Federal Government pushed back, by three months, the deadline for most entities with a consolidated annual revenue of $100 million or more (Reporting Entity) to file a Modern Slavery Statement (MSS) and comply with the Modern Slavery Act 2018 (Cth) (Commonwealth Act).

New Deadlines

The new deadlines are set out here:

Reporting period	Original deadline for submission of modern slavery statement	New, extended deadline for submission of modern slavery statement
1 April 2019 – 31 March 2020 (Foreign Financial Year)	30 September 2020	31 December 2020
1 July 2019 – 30 June 2020 (Australian Financial Year)	31 December 2020	31 March 2021
Reporting periods ending after 30 June 2020	The six month deadline for reporting periods ending after 30 June 2020 remains unchanged

While the recent focus for Reporting Entities has been navigating the impacts of the Covid-19 pandemic, the obligations to comply with the Modern Slavery laws have not gone away.

With only five (5) months to go for Reporting Entities with a Foreign Financial Year Reporting Period and eight (8) months for Reporting Entities with an Australian Financial Year Reporting Period, Reporting Entities need to re-focus their attention on assessing their operations and supply chains for Modern Slavery issues and prepare an appropriate MSS which complies with the Commonwealth Act.

NSW Legislation

While the Modern Slavery Act 2018 (NSW) (NSW Act) is yet to come into force, the Standing Committee on Social Issues (Committee), in its report from the inquiry into the NSW Act which it presented to the NSW Parliament on 25 March 2020, recommended the NSW Act be implemented on or before 1 January 2021.

The NSW Government has until 25 September 2020 to respond to the Committee’s report and while our view is the Covid-19 pandemic will further delay the implementation of the NSW Act, the push for modern slavery issues to be addressed, at all levels of business, has an inexorable momentum. Given the NSW Government’s stand on modern slavery issues we believe the NSW Act is highly likely to come into force sometime in 2021.

As has been widely reported, the key differences between the NSW Act and the Commonwealth Act are:

the lower reporting threshold of $50million in consolidated revenue under the NSW Act compared to $100million under its Commonwealth counterpart; and
the imposition of financial penalties of up to $1.1million for failing to comply with the NSW Act. While the Commonwealth Act does not have penalties at present, it is believed the planned review of the Commonwealth Act in two years’ time will recommend the introduction of a penalty regime as was recommended in the independent review of the UK Modern Slavery Act 2015 in 2019. when the UK reviewed its modern slavery laws. It is also interesting to note the Committee supported penalties in the NSW Act as essential to improve compliance and pave the way for the introduction of a similar penalty regime at the Commonwealth level.

For an overview of Australia’s modern slavery framework see our earlier article Modern Slavery – is your supply chain ready?

Covid-19 Impacts

Due to COVID-19, many workers across the world have been made especially vulnerable to risks of modern slavery as a result of factory shutdowns, order cancellations, workforce reductions and sudden changes to supply chain structures, among other unexpected changes.

This means an MSS should also factor in how Covid-19 may increase modern slavery risks.

The Australian Border Force has released guidance to help reporting entities to reduce the modern slavery risks that vulnerable workers in their operations and supply chains may be exposed to during the pandemic. The guidance additionally details how entities can explain in their statements how COVID-19 has affected their ability to assess and address modern slavery risks during their reporting period.

Non-Reporting Entities

Even if you are not currently a Reporting Entity but may become one if the NSW Act comes into force or may never be a Reporting Entity under the Commonwealth Act or NSW Act, the reality is modern slavery compliance is now a key requirement for businesses at all levels. Being able to show you adequately identify and deal with modern slavery issues is now an essential requirement to doing business with government and Reporting Entities.

Indicative of the ongoing commitment to combating modern slavery, the Commonwealth Government is currently developing a new five year National Action Plan to Combat Modern Slavery 2020-24.

Our experience shows it is now common place for businesses to receive from parties they deal with, questionnaires about supply chains and their efforts to identify and combat modern slavery and whether they have their own MSS. In addition, provisions regarding modern slavery compliance, including warranties and indemnities, are being seen more and more regularly in contracts.

This has arisen due to the extensive due diligence Reporting Entities need to do to prepare a compliant MSS. Reporting Entities have been demanding information on modern slavery practices from entities they deal with, which in turn leads those entities to seek information from parties they deal with in order to respond to those information requests.

In simple terms every organisation must be across modern slavery issues. While how far an organisation must go in terms of understanding and responding to modern slavery issues will vary, the growth in awareness of modern slavery as an issue and the expectation that this scourge must be addressed at all levels of business means even organisations who are not Reporting Entities cannot ignore the issue.

Going forward every business needs to show an awareness of and include processes which address modern slavery within their operational frameworks.

Key Takeaways

When considering how to approach modern slavery compliance the following key points should be kept in mind.

Commercial benefits: Whether you are a Reporting Entity or not, implementing and embedding processes into your organisation to deal with modern slavery is becoming essential. Those who do so early and are leaders in building in modern slavery practices into their organisation, will have a competitive advantage when competing for work. Already larger organisations and government are making it clear their preferred suppliers are those businesses who have started addressing modern slavery risks in their operations.
Reputation: A major consideration for the Commonwealth Government to not have a financial penalty regime was for compliance to be driven by peer and social pressure. As pressure continues to build on the corporate world to be socially and ethically responsible, and with a heightened awareness of modern slavery issues in society, businesses who show they are taking positive steps to address modern slavery issues are more likely to benefit from customer loyalty and positive press. There have been a number of instances over the last few months where organisations have received negative press coverage for what has been seen as failures in properly addressing modern slavery issues. For example the Four Corners investigation last year naming organisations such as Target, Cotton On, JeansWest, IKEA and H&M as sourcing cotton and cotton products from the Xianjiang region in China where modern slavery practices were allegedly occurring.
Timely process: Preparing a modern slavery statement is a process which require an appropriate investment of time. An MSS is not something which can be done overnight. It is therefore essential for businesses to begin their review process as soon as possible. The following diagram illustrates the numerous processes involved in creating and implementing a structure which adequately deals with modern slavery issues.

Ongoing process: While the initial process may seem overwhelming, the modern slavery legislation makes clear that Reporting Entities are not expected to combat and solve every modern slavery issue that may be identified. The key is to identify and address the highest risks first and over time build in systems and processes to address other risk areas. In short addressing modern slavery risks is part of an ongoing process which must become part of an organisations every day processes.
Board approval: As a compliance matter, there will be a temptation to push this to management. However, modern slavery compliance is the responsibility of an entire organisation with ultimate responsibility for signing off on an MSS sitting with an entity’s board.
COVID-19: Businesses need to be aware of the effect that COVID-19 may have had in relation to modern slavery risks present in their operations and supply chains, and take steps to address it. If businesses are unable to undertake activities addressing these risks, it is important that modern slavery statements explain how their capacity has been limited during the pandemic.

Conclusion

How we do business in the future includes having established modern slavery practices in place. It is essential for businesses to develop and implement those practices now or risk not being prepared for scrutiny into their operations and supply chains.

Please get in contact with us today if you are not sure about modern slavery, need help getting started with your modern slavery statement or require further assistance with your policies and processes.

In addition, Modern slavery laws compliance is an emerging issue that will affect more organisations.

The increased awareness of this form of human rights abuse and positive action taken by governments globally resulted in the implementation of the Modern Slavery Act 2018 (Cth) (Commonwealth Act) in Australia.

In simple terms Modern slavery is a key compliance requirement for businesses at all levels. Even businesses who are not Reporting Entities are being asked by Reporting Entities which they do business with to provide information on their supply chains and highlight any modern slavery risks.

Authors: Jason Sprague and Lucinda Borg