Australia’s Modern Slavery Act Review – Reforms on the Horizon

The eagerly anticipated report on the statutory review of Australia’s Modern Slavery Act 2018 (Cth) (Act) has been released (Report). ^[1]

The Report makes thirty recommendations to reform Australia’s modern slavery reporting regime. If adopted by the Federal Government, the proposed reforms could require:

smaller organisations to submit modern slavery statements;
companies to implement a modern slavery due diligence system;
reporting on modern slavery incidents; and
penalties for non-compliance.

Companies doing business in Australia should assess how they are currently addressing modern slavery risks in their organisation, and whether they are prepared for a more onerous regime.

What are the key recommendations?

The Report recommends some fundamental changes to Australia’s modern slavery reporting regime, including:

introducing penalties for certain non-compliance; ^[2]
expanding application of the regime to entities with a lower annual consolidated revenue of A$50 million - A$100 million; ^[3]
introducing a due diligence obligation; ^[4]
requiring organisations to report on their modern slavery incidents or risks, grievance and complaint mechanisms, and external as well as internal consultation on modern slavery risk management; ^[5] and
functions for an Anti-Slavery Commissioner, which the Government has committed to establishing. ^[6]

Other recommendations concentrate on facilitating the modern slavery reporting process by:

permitting reporting entities to submit a full modern slavery statement every three years and only submitting updates in the intervening two years; ^[7]
establishing powers for the Government or Anti-Slavery Commissioner to declare a region, location, industry, product, supplier or supply chain as carrying high modern slavery risk, and how reporting entities should consider and report on that risk in modern slavery statements; ^[8] and
issuing tailored guidance on reporting for small and medium-sized entities. ^[9]

Why was the Act reviewed?

The Act provides for a three-year review of its operation and compliance by reporting entities. ^[10] Other jurisdictions have similarly reviewed the effectiveness of their modern slavery legislation after several reporting cycles, most notably the United Kingdom. ^[11]

As mentioned in our previous KWM Insight, the statutory review commenced in March 2022 and incorporated public consultation, including via an Issues Paper released in August 2022. ^[12] The Report sets out concluding recommendations from that review.

Report recommendations in detail

While the Act is in practice a law about increasing transparency through reporting, its “ultimate purpose” is “to make a difference in combating modern slavery”. ^[13] The Report recommendations are largely driven by improving the effectiveness of Australia’s modern slavery reporting regime.

Introducing penalties for non-compliance?

Currently, there are no financial penalties for failing to comply with the Act. The Government does however possess ‘name and shame’ powers should an entity fail to comply with a request to explain or remedy its non-compliance, ^[14] although such powers have yet to be used. ^[15]
The Report recommends the introduction of penalties for:
- failure to submit a modern slavery statement;
- submission of a materially false statement;
- failure to comply with a statutory direction to take specified remedial action; and
- failure to have a due diligence system in place. ^[16]
Penalties are not currently proposed in respect of inadequate reporting since there is an element of subjectivity in assessing adequate reporting. ^[17]
The introduction of a penalties regime would mark a shift from a system of entity-led compliance towards a system of regulatory enforcement and oversight.

Lowering the reporting threshold?

Currently, the Act requires Australian entities (or entities carrying on business in Australia) with an annual consolidated revenue of at least A$100 million to submit a modern slavery statement. ^[18]
The Report recommends more entities be required to prepare an annual modern slavery statement, by lowering the annual consolidated revenue threshold to A$50 million. ^[19] The Report forecasts that an additional 2,393 businesses would become reporting entities under this lower threshold. ^[20]
Reasons for proposing a lower reporting threshold included Australia maintaining pace with other countries enacting broader transparency and due diligence laws. ^[21]
As a matter of practice, smaller businesses may struggle to comply with the additional regulatory requirements of the Act. The Report does however recommend a transition period for such businesses, including by proposing that penalties and due diligence duties would not apply to smaller entities until two years after they are subject to the Act. ^[22]

Introducing a due diligence requirement?

Currently, the Act requires reporting entities to “describe” their modern slavery due diligence. ^[23]
The Report recommends that the Act goes further and imposes a duty for reporting entities to implement and operate a due diligence system, alongside reporting on the activity of that system. ^[24]
The essential or minimum requirements of a due diligence system would be set out in rules that are made under s 25 of the Act. ^[25]
Reforms directed at a mandatory modern slavery due diligence requirement are in keeping with a global shift towards mandatory corporate due diligence around modern slavery risks and human rights risks more broadly. ^[26]

What should businesses be doing now?

The Report’s recommendations are a strong indication of the direction of reforms to Australia’s modern slavery reporting regime. While the Government has not stated which of the recommendations it will adopt, it has indicated that many are in line with its key election commitments. ^[27]

Companies doing business in Australia with an annual consolidated revenue of A$50 million – A$100 million should consider the practical ramifications of becoming a reporting entity under the Act, including considering undertaking modern slavery risk mapping and training for staff on modern slavery risks.

Existing reporting entities should consider whether their existing modern slavery risk management and reporting frameworks are adequate to respond to potential future changes in the legislation, including the prospect of penalties. Such entities should also consider the adequacy of any existing modern slavery due diligence systems, staff training programs, and whether the proposed reforms would impact any contractual arrangements.

What else is happening?

The recommended reforms to Australia’s modern slavery reporting regime come in the context of:

existing reporting entities with a financial year of 1 January – 31 December finalising their modern slavery statements, which are due by 30 June 2023;
three reporting cycles under the Act and significant engagement by reporting entities; Australia’s Online Register for Modern Slavery Statements has received 6,333 mandatory statements and 830 voluntary statements by 7,939 entities spanning 53 countries; ^[28]
a recent update of the Attorney-General’s Department’s Guidance for Reporting Entities, which now provides more clarification on voluntary reporting and consultation requirements; ^[29]
the recent launch of Walk Free’s Global Slavery Index 2023, which provides updated modern slavery prevalence estimates for 160 countries; ^[30] and
Canada recently enacting legislation to combat modern slavery in supply chains, which comes into force on 1 January 2024 ^[31] and aligns to a global trend of more mandatory reporting on modern slavery risks in corporate supply chains.