The Australian Government has announced plans to release draft legislation proposing the introduction of a “modern slavery in supply chains” reporting requirement.  The proposal is expected to be released in April 2018 and could require all companies operating in Australia and meeting a threshold of $100 million in total annual global revenue to report annually on their efforts to address modern slavery in their operations and “supply chains”¹ (the “Proposed Act”).  If enacted, the Proposed Act will add to the increasing number of national laws that place direct obligations on certain companies to report upon efforts to identify and mitigate human rights risks such as human trafficking, child labor, and other forms of forced labor from their global operations.   

Why is the Australian Government Proposing this Law?

In a Public Consultation Paper and Regulation Impact Statement issued in August 2017 (the “Consultation Paper”),² the Government acknowledged that human trafficking, forced labor, debt bondage and other severe human rights violations – collectively defined as “modern slavery” in the proposed statutory definition³ – occur in Australia.  Authorities have identified victims in a range of industries, including domestic service, hospitality, construction, and sex work.  Since 2004, the Government has identified 350 suspected victims of modern slavery and prosecuted 55 individuals under criminal laws. 

In the Consultation Paper, the Government asserts that the risk of modern slavery exists even within large companies in high-risk industries “with complex and changeable multi-national supply chains.”  Drawing on its support for the United Nations Guiding Principles of Business and Human Rights,⁴ the Government has emphasized that companies should respond to human rights issues that are directly linked to their operations, products or services.⁵ The Consultation Paper also recognized that while other countries – including the United Kingdom, the United States, France, and the Netherlands, as well as the European Union – have strengthened national laws on modern slavery, the current Australian regulatory framework does not directly encourage companies to take action to combat modern slavery. 

Accordingly, the Government’s stated purpose for the Proposed Act is to:  “equip and enable the business community to respond effectively to modern slavery and develop and maintain responsible and transparent supply chains.”  Importantly, the Government intends that the reporting requirement in the Proposed Act will improve information available to consumers and investors about company efforts in combatting modern slavery.  Thus, as with laws like the UK Modern Slavery Act and the California Transparency in Supply Chains Act,⁶ the Proposed Act intends to place market pressure on companies to prevent, identify, and eliminate modern slavery practices in companies’ operations and amongst business partners.     

What Companies are Covered Under the Proposed Act?

The Government’s current proposal is to cover a broad range of entities, including corporate bodies, unincorporated associations or bodies of persons, superannuation funds and approved deposit funds – regardless of industry or sector or the level of risk for “modern slavery.”  Any of these entities that are either headquartered in Australia or have “any part of their operations in Australia” and meet the revenue threshold of $100 million in total annual global revenue, are subject to the Proposed Act.  Thus, as an illustration, a U.S.-based multinational meeting the revenue threshold with even minimal operations in Australia may be a covered entity. 

Moreover, the Government intends to broaden the scope of the Proposed Act beyond these large companies.  Indeed, it plans on issuing guidance to encourage smaller entities to “opt in” to the Proposed Act.⁷  

What do Covered Entities Need to do?

The Proposed Act, if enacted, will require covered entities to publish a “Modern Slavery Statement.”  This obligation, along with the general content and format of the Proposed Act, borrows largely from the UK Modern Slavery Act, which requires certain large companies operating in the UK to produce a “slavery and human trafficking statement” each financial year, disclosing their efforts (or lack thereof) to ensure that their own operations and business partners are free from slavery and human trafficking.⁸ The Government also likens this obligation to Australia’s Commonwealth Workplace Gender Equality Act 2012, which requires private sector entities with 100 or more employees to submit annual reports to the Government regarding a range of gender equality indicators. 

In limiting the obligation to publishing a Modern Slavery Statement, the Consultation Paper makes explicit that the Government intends to diverge from the model presented by recent French legislation, which requires certain companies to actually undertake (as opposed to simply report) due diligence measures to identify and respond to human rights abuses.⁹ The Government sees the French model as creating a “regulatory impost” that does not fit the Australian context. 

What Must be Included in the Modern Slavery Statement?

The Modern Slavery Statement must, at a minimum, include information about:

• The covered entity’s structure, its operations and supply chains;
• The modern slavery risks present in the covered entity’s operations and supply chains;
• The covered entity’s policies and process to address modern slavery in its operations and supply chains (including codes of conduct, supplier contract terms, and trainings for staff) and their effectiveness; and,
• The covered entity’s due diligence processes relating to modern slavery in its operations and supply chains and their effectiveness.

What is a “Supply Chain”?

The Government has not yet defined the term “supply chains,” and intends to publish detailed guidance on this soon.  For now, the Consultation Paper simply proposes that the definition of supply chains extend beyond first-tier suppliers.

Though we await further developments, we note that the term “supply chain” is both fraught and outdated, and the ultimate scope and meaning of this term raises a host of practical challenges and concerns.

When and Where Must the Modern Slavery Statement be Published?

The Proposed Act intends that each covered entity must publish its Modern Slavery Statement annually, within five months after the end of the Australian financial year.¹⁰  The Statement must be posted on the entity’s webpage and the Statements will be available on a free, publicly accessible central repository. 

What are the Consequences for Non-Compliance?

Currently, the Government has not proposed any penalties for non-compliance with the proposed obligations.  The Government has, however, stated in the Consultation Paper that it will monitor compliance and “entities that do not comply with the reporting requirement may be subject to public criticism.” 

What Should Companies do in Preparation? 

Companies should prepare for the introduction of the Proposed Act by first taking stock of their own operations and those of their suppliers and other business partners, and identifying areas in those operations where there is a high risk of forced labor and other “modern slavery” practices.  Where such risks are identified, companies should take appropriate action to address those risks and also implement procedures to ensure that new and existing relationships remain free of such activities.  This due diligence process can be complex so we recommend engaging the services of experienced counsel.