Australia’s Modern Slavery Act is about to get new teeth, and risk managers must respond swiftly, says Iona Cheng, director at Control Risks
The first review of Australia’s Modern Slavery Act 2018 (ended on 31 March 2023. The outcome is not yet announced, but expected changes include:
- The appointment of an independent Federal Anti-Slavery Commissioner
- Civil penalties for non-compliance
- More explicit, possibly mandatory, due diligence requirements
- Possible, but less likely, import bans on goods made using forced labour
The current Act has no teeth
Since the Act came into force on 1 January 2019, modern slavery has increasingly been recognised as a key enterprise risk to be managed and reported on. It now features prominently at board meeting discussions, with modern slavery statements signed by a member of the board.
However, analysis by the Modern Slavery Business Engagement Unit (MSBEU), which administers the Act, showed that 28% of the 3,429 statements filed in the second reporting period were likely non-compliant.
”Modern slavery has increasingly been recognised as a key enterprise risk to be managed and reported on”
A report analysing 92 companies from high-risk sectors (e.g., gloves from Malaysia and seafood from Thailand) stated that two in three companies did not meet basic reporting requirements; more than half of the commitments in the first year of reporting remained unfulfilled in the second year; and only a third of companies take effective action to address modern slavery risks.
Company statements remain largely paper promises.
This is unsurprising. The current Act emphasises a duty to report but does not penalise non-compliance. Companies are not mandated to undertake risk assessment, due diligence and mitigation, but are simply required to describe their efforts. In short, the Act has no teeth.
This is about to change
Action is expected following the outcome of the review.
There will likely be civil penalties introduced for non-compliance and an Anti-Slavery Commissioner appointed to oversee the implementation/enforcement of the Act.
The Commissioner will facilitate compliance monitoring, check whether modern slavery reports meet the Act’s requirements and publish a list of non-compliant entities, recommending penalties. This should uplift enforcement.
Other jurisdictions require mandatory due diligence – for example, Germany’s Supply Chain Due Diligence Act, Norway’s Transparency Act, the EU’s draft Corporate Sustainability Due Diligence Directive and New Zealand’s draft modern slavery act.
These laws place an obligation on companies to identify, prevent and mitigate/address human rights issues in their operations and supply chains, in line with the United Nations’ Guiding Principles on Business and Human Rights (UNGPs).
”The Commissioner will facilitate compliance monitoring, check whether modern slavery reports meet the Act’s requirements and publish a list of non-compliant entities, recommending penalties.”
Moving away from the current disclosure-based regime will line Australia up with these jurisdictions. However, enforcement requires penalties for failing to act/prevent, not just failing to report.
Given political sensitivities, the government is less likely to introduce import bans on goods that use forced labour.
The Australian Senate in August 2021 passed a bill banning imported products made using forced labour, but this was not taken up by the House of Representatives.
While a renewed interest in import bans is possible, the government is likely to tread carefully in order not to adversely affect bilateral relations and will be cognisant that trade measures against goods such as coal could be reimposed.
Similarly, although the Australian government in December 2021 established a Magnitsky-style sanctions regime to target human rights abuse, its application has been extremely limited.
Australian companies should prepare for a strengthened Act
Ensure compliance with the Act
The 28% of companies that were not compliant in the second reporting period must immediately make changes or face potential financial penalties, debarment from government procurement and reputational damage.
Other companies should uplift reporting, particularly on modern slavery due diligence.
Regardless of the outcome of the Act’s review, there are growing expectations from institutional investors, customers and employees that companies do more to address modern slavery risks in their operations and supply chains.
Move beyond a paper-based modern slavery programme
Human rights policies, supplier codes of conduct and regular training are good first steps. However, to prepare for mandatory due diligence, companies must examine their supply chains.
”Without understanding risks and impacts, companies cannot devise appropriate mitigation strategies and remedies.”
The MSBEU suggests that 11% of the non-compliance was due to failures to describe modern slavery risks and nearly half of the analysed companies in high-risk sectors failed to identify obvious modern slavery risks in their supply chains.
Without understanding risks and impacts, companies cannot devise appropriate mitigation strategies and remedies.
The lack of visibility and transparency in supply chains is a major hurdle. Modern slavery issues are often buried deep, at suppliers of suppliers or linked to the origin of raw materials, such as palm oil plantations in Indonesia or cobalt mines in the Democratic Republic of Congo.
Companies should consider:
- Looking beyond first-tier suppliers. Many companies have mapped out their first-tier suppliers, but this must be extended, particularly for high-risk supply chain segments. Without considering lower-tier suppliers – where modern slavery is more likely to occur – companies cannot acknowledge and address risks.
- Risk-based prioritisation. Companies should identify high-risk supplier segments based on risk indicators such as the sector and jurisdiction, and/or type of labour (e.g., casual and migrant labour). A risk-based approach enables companies to prioritise resources and efforts and address the most salient modern slavery issues.
- Closely examining high-risk areas. The root causes of issues must be investigated. For complex supply chains (e.g., EV batteries) with multiple raw materials and tiers of suppliers across several jurisdictions, risk assessments should consider macro issues such as the geopolitical, legal and regulatory environment and micro issues related to specific stakeholders in the supply chain.
- More effective supplier due diligence. Supplier due diligence is mostly conducted through self-disclosure and audits. Companies should consider deeper research, such as discreet industry enquiries and site visits, unannounced audits and in-depth interviews with vulnerable workers. Companies should implement supplier screening programmes to verify backgrounds, reputations, litigation history and regulatory compliance, both during onboarding and on an ongoing basis.