Editor’s note: Shamistha Selvaratnam is a LLM
Candidate of the Advanced Masters of European and International Human Rights
Law at Leiden University in the Netherlands and a contributor to the Doing Business Right project of the Asser Institute. Prior to commencing the LLM, she
worked as a business and human rights solicitor in Australia where she
specialised in promoting business respect for human rights through engagement
with policy, law and practice.
Soon after the
introduction of the UK Modern Slavery Act
(UK Act) in 2015, discussions about establishing similar legislation in
Australia commenced. In February 2017, the Attorney-General asked the Joint
Standing Committee on Foreign Affairs, Defence and Trade (Committee) to
commence an inquiry into establishing a Modern Slavery Act in Australia. The terms of reference of the inquiry included, inter alia, considering the
‘prevalence of modern slavery in the domestic and global supply chains of
companies, businesses and organisations operating in Australia’ and whether a
Modern Slavery Act comparable to the UK Act should be introduced in Australia. The
Committee released an interim report in August 2017 and then a final report in December 2017 – both reports supported the idea
of developing a Modern Slavery Act in Australia and set out the Committee’s
recommendations with respect to the parameters of a corporate reporting
requirement. In the meantime, the Australian Government also published a consultation paper and regulation impact statement outlining its proposed reporting
requirement for an Australian Modern Slavery Act.
In June this
year, the first draft of the Modern
Slavery Bill 2018 (Cth) (the Federal Bill) was introduced into the
Australian Parliament. It set out a reporting requirement for large Australian entities
to submit a statement on risks of modern slavery in their operations and supply
chains. The Explanatory Memorandum to the Federal Bill stated that it
supports ‘large businesses to identify and address modern slavery risks and to
develop and maintain responsible and transparent supply chains. It will drive a
‘race to the top’ as reporting entities compete for market funding and investor
and consumer support.’ On 29 November 2018 the Federal Bill passed both houses of the Australian Parliament incorporating
amendments made by the Upper House of Parliament. The amendments resulted in the inclusion
of a provision giving the Minister power to request explanations from entities
that fail to comply with the reporting requirement (discussed in further detail
below) and gives the Minister the power to cause an annual report to be
prepared providing an overview of compliance by entities and identifying best
practice modern slavery reporting.
This second blog
of a series of articles dedicated to the global modern slavery developments
provides an overview of the main elements of the Federal Bill and how it
compares to the UK Act. It also discusses the Modern
Slavery Act 2018 (NSW) (NSW Act), which was introduced by New
South Wales (NSW), a State in Australia. The introduction of NSW Act was relatively
unexpected given the movement at the Federal level to introduce national
legislation addressing modern slavery in the corporate context. Therefore, this
blog will discuss the NSW Act’s interplay with the Federal Bill. It will be
followed by a final piece on the modern slavery developments in other
jurisdictions in the corporate context.
Key Aspects of the Federal Bill
The Federal Bill
requires reporting entities with at least $100 million global consolidated
revenue to submit an annual modern slavery statement on the risks of modern
slavery in their operations and supply chains.
What is
‘modern slavery’?
As stated in the first blog post in this series, while there is no globally agreed definition
of ‘modern slavery’ under international law, it does appear that modern slavery
is an umbrella term that covers a range of exploitative practices. As summarised by Anti-Slavery
International, human exploitation characterised by only one of the
following features is classed as ‘modern slavery’: (i) coercion to work through
either mental or physical threat; (ii) being owned or controlled by an employer,
usually through mental or physical abuse or the threat of abuse; (iii) being dehumanised
or treated as a commodity; or (iv) being physically constrained or with limited
freedom of movement.
The Federal Bill
defines ‘modern slavery’ by reference to certain offences in the Australian
Criminal Code, including slavery, servitude, forced labour, trafficking in
persons, forced marriage, child trafficking, debt bondage and other
slavery-like practices, and certain forms of child labour. Accordingly, the
acts caught by the term ‘modern slavery’ under the Federal Bill are broader
than the acts caught under the UK Act, which states that the offences of
‘modern slavery’ are slavery, servitude, forced or compulsory labour and human
trafficking.
Who is
required to report?
The term
‘reporting entity’ is defined as any of the following:
- An Australian entity or an
entity carrying on a business in Australia with a consolidated revenue of at
least $100 million for the reporting period.
- The Commonwealth.
- A corporate Commonwealth entity
or Commonwealth company which has a consolidated revenue of at least $100
million for the reporting period.
- An entity that volunteers to
comply with the Federal Bill.
Accordingly,
similarly to the UK Act, the Federal Bill applies to an entity regardless of
its geographic location, so long as it carries on at least a part of its
business in Australia. A body corporate carries on a business in Australia if
it, inter alia, has a place of business (i.e. a business address) in Australia.[1]
Entities that do not meet the definition of a ‘reporting entity’ can
voluntarily produce a Modern Slavery Statement. However, the monetary threshold
in the Federal Bill is higher than that in the UK Act and, accordingly, a
smaller group of entities will be captured under the Federal Bill. It is
anticipated that approximately 3,000 entities will be captured.
What are reporting
entities required to report on?
Unlike the UK Act
which sets out optional
criteria which Modern Slavery Statements may include information about, the Federal
Bill sets out mandatory
criteria which such Statements must cover, namely:
a) the identity of the reporting entity;
b) a description of the structure, operations and supply chains of the
reporting entity;
c) a description of 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;
d) a description of 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;
e) a description of how the reporting entity assesses the effectiveness
of such actions;
f) a description of the process of consultation with any entities that
the reporting entity owns or controls; and
g) any other information considered relevant.
Accordingly, the Federal
Bill is prescriptive about the content of Modern Slavery Statements and goes
beyond the optional criteria in the UK Act by requiring reporting entities to
not only report on modern slavery risks in their operations and supply chains,
but also on how they assess the effectiveness of the actions they take to
address those risks.
Further, the Federal Bill allows for joint statements to be published by a
reporting entity on behalf of the reporting entities that it owns or controls.
The parent entity must consult with the boards of the relevant subsidiaries
when preparing the statement on their behalf.
Who is
responsible for reporting?
Similarly to the
UK Act, the Board of directors will bear the ultimate responsibility for Modern
Slavery Statements with the Federal Bill requiring the Board to approve the
statement and a director to sign the statement.
How can
published Modern Slavery Statements be accessed?
Unlike the UK Act,
the Federal Bill provides for a Modern Slavery Statements Register to be
established and maintained by the Minister, with Statements being available for
public inspection online.
What happens
if reporting entities do not report?
In the event that
a reporting entity that is required to report under the Federal Bill does not
report, similarly to the UK Act, no financial penalties will be imposed on that
entity. However, the Minister does have the power to request an explanation
from an entity about its failure to comply with a requirement in relation to Modern
Slavery Statements, and may also request that the entity undertake remedial
action in relation to that requirement. If the entity fails to comply with the
request, the Minister may publish information (including the identity of the entity)
about the failure to comply on the Modern Slavery Statements Register or
elsewhere. The publication of such information is likely to result in public,
shareholder and investor criticism, which can be costly to the reputation of reporting
entities.
The critiques of the Federal Bill
While the Federal
Bill is very young, it has received some critiques.
Human Rights Watch has argued that the Federal Bill ‘falls short of an
effective response to the widespread and growing role of modern Slavery in
Australia’s supply chains.’ Among other things, it stated that the monetary
threshold is too high thereby limiting the scope of application of the Federal Bill.
Further, it contends that because the Federal Bill does not require entities to
carry out due diligence, they may simply engage in a ‘”checking the box”
exercise’. It recommends that minimum guidelines for due diligence that are
‘proportional to the size of a company’s supply chain and modern slavery risk’
be introduced in the Federal Bill. It has also strongly recommended the
inclusion of financial penalties for failure to report under the Federal Bill
in order to provide an ‘additional incentive toward compliance’ by businesses.
Oxfam International notes that the Federal Bill is ‘not
strong enough’ as it is ‘missing critical elements to ensure companies will be
compelled to take the urgent action needed to protect’ victims of modern
slavery in their operations and supply chains. It argues that the Federal Bill
should include penalties for entities that fail to report and an independent
oversight body should be established to monitor the implementation of the Bill.
Similarly to
Oxfam International, Justine Nolan and Fiona McGaughey have also stated that a shortcoming of
the Federal Bill is the lack of penalties for non-compliance with the reporting
requirement. They argue that enforcement is effectively left to NGOs,
shareholders and investors to ‘put pressure on the companies to comply with
their reporting obligations’. They also state that the lack of independent
oversight raises questions regarding the ‘efficacy’ of the reporting
requirement.
Modern Slavery Act in New
South Wales
In June 2018,
prior to the passing of the Federal Bill, the NSW Act was passed (for more on the NSW MSA, see here and here). The NSW Act requires ‘commercial organisations’ to
prepare an annual Modern Slavery Statement. ‘Commercial organisations’ are
organisations with more than one employee in NSW that supply goods and services
for profit or gain with a total global turnover of not less than $50 million
per financial year. The criteria that must be satisfied by the Statement will
be set out in regulations that have not yet been introduced in the NSW
Parliament. However, the criteria may include information about the following:
a) the organisation’s structure, its business and its supply chains,
b) its due diligence processes in relation to modern slavery in its
business and supply chains,
c) the parts of its business and supply chains where there is a risk of
modern slavery taking place, and the steps it has taken to assess and manage
that risk,
d) the training about modern slavery available to its employees.
Unlike both the UK Act and the Federal Bill, the NSW Act has teeth as
failure to report may result in financial penalties of up to $1.1 million being
imposed on the relevant organisation. Further, failure to make a Modern Slavery
Statement public or to provide false or misleading information in a Statement
carry financial penalties of up to $110,000.
The position as to whether entities will be required to
report under both the Federal
Bill
and the NSW Act is still unclear. However, the NSW Act does state that it will
not apply to a commercial organisation where it is subject to obligations under
a Commonwealth law that is ‘prescribed as a corresponding law’. The Federal Bill is yet to
be prescribed as a ‘corresponding law’. If it is so prescribed, then entities
that would otherwise be required to report under the Federal Bill and the NSW Act will only be
required to report under the Federal
Bill.
Accordingly, the NSW Act will capture entities with a total global turnover of
between $50 million and $100 million.
Conclusion
The Federal Bill and
the NSW Act are part of the wider movement towards greater corporate regulation
and transparency with respect to human rights. It marks another steps towards
the implementation of the UN Guiding Principles on Business and Human Rights
globally and aims at fostering corporate respect for human rights.
It is clear that
the Federal Bill and NSW Act have been heavily influenced by the UK Act but
have addressed some of the shortcomings of the UK MSA discussed in the first blog post. In particular, the Federal Bill has mandatory
criteria that reporting entities are required to report on and it is likely
that the NSW Act will also have similar mandatory criteria. The UK Act on the
other hand has optional criteria meaning that business are only required to
publish a Modern Slavery Statement that is signed by a director and approved by
the Board – the content of the Statement is irrelevant. The use of mandatory
criteria is more likely to inspire change within businesses in Australia with
respect to their practices relating to addressing and preventing modern
slavery.
Similarly to the
UK Act, the Federal Bill does not impose financial penalties on businesses that
fail to comply with the reporting requirement. It does however give the
Minister power to request an explanation from an entity about its failure to
comply with a requirement in relation to Modern Slavery Statements, and to
publish information in the event of non-compliance with such a request. The
effectiveness of this provision will depend on whether the Minister invokes it.
The NSW Act goes beyond both the UK Act and Federal Bill by imposing financial
penalties on businesses that fail to comply with its reporting requirement.
This is a big step forward in the fight against modern slavery as it is likely
to incentivise businesses to take active steps to combat modern slavery in
their operations and supply chains.
The Federal Bill will
come into force on 1 January 2019. It is likely that the NSW Act will come into
force around the same time. Accordingly, the first Modern Slavery Statements
will be due by 1 January 2021. The date on which the first Modern Slavery
Statements will be due under the NSW Act will be known once the regulations
have been introduced. It is likely that the reporting dates of the Federal Bill
and the NSW Act will be aligned in order to decrease the administrative burden
on entities.