This article was written by Monique Carroll and Frances Leitch.
The Parliamentary inquiry into whether Australia should adopt legislation to combat modern slavery that we covered in our previous edition of On Board has resulted in the federal government proposing to introduce legislation mirroring the UK's Modern Slavery Act. The legislation will require Australian companies and other legal entities to publish a report on steps taken to eradicate modern slavery from their supply chain (a Modern Slavery Act or MSA).
Existing laws already impose severe penalties for individuals and corporations for failing to eradicate modern slavery from their supply chain or their business operations. A due diligence program designed to address and eradicate modern slavery from your business is an effective defence in respect of many of these offences. The new reporting obligation, once introduced, will require companies and other legal entities to identify and publish the nature and extent of its due diligence framework.
Requirements for boards
Company boards (or the equivalent governing body) will be required to approve and sign annual modern slavery statements. Consultation has indicated that both business and civil society participants are generally supportive of Board level approval, as a means of providing accountability measures and drivers of corporate awareness of the risks modern slavery poses.
The scope of entities proposed to be subject to the reporting requirement is deliberately broad, with the Consultation Paper stating it will include "bodies corporate, unincorporated associations or bodies of persons, superannuation funds and approved deposit funds." However, there is expected to be a threshold imposed of "no less than $100 million total annual revenue", below which entities will not be required to report. That being said, it is yet to be determined how the threshold and entity scope will be assessed in international group structures (including for those with limited presence and revenue in Australia).
What is required?
Under the current proposal, the modern slavery statement will be required, at a minimum, to cover four prescriptive categories:
- The entity's structure, its operations and its supply chains.
- The modern slavery risks present in the entity's operations and supply chains.
- The entity's policies and process to address modern slavery in its operations and supply chains and their effectiveness (such as codes of conduct, supplier contract terms and training for staff), and
- The entity's due diligence processes relating to modern slavery in its operations and supply chains and their effectiveness.
This is a departure from the UK regime, which sets out a set of optional criteria that entities may report on (which is broadly the same as the above). However, the proposal states that there will be some discretion as to what, "if any", information should be included for each of the Australia criteria, and any other information the reporting entity would like to include. This approach is designed to ensure "certainty and consistency" by providing "clear standards that apply to all entities."
Consistent with the UK regime, the proposal is for reports to be made after the financial year (but within 5 months) and to be approved at the equivalent of Board level.
For reporting purposes, modern slavery is expected to be defined according to slavery and slavery-like practices currently criminalised under Australian law. This means that modern slavery will encompass slavery, servitude, forced labour, debt bondage, and deceptive recruiting for labour or services, but is not expected to cover practices such as forced marriage at this stage.
For more information on the proposed reporting requirements, see our article What you need to know about Australia's incoming reporting requirements.
What are the risks?
In Australia, it is a crime, punishable by 25 years' imprisonment, for an individual or corporation to engage in human trafficking, slave trading or to enter into a commercial transaction involving a slave. These laws apply universally to conduct within and outside Australia.
Australia's laws also capture financing of such crimes. An organisation or individual will be criminally liable for intentionally or recklessly providing finance to "any commercial transaction" involving slavery. Additionally, if a business involves servitude or forced labour, criminal liability arises automatically upon an organisation providing finance to it. The provisions are broadly drafted so once a business has provided finance to another business, criminal liability can arise if that business or commercial transaction 'involves' slavery, servitude or forced labour.
It may be possible to defend liability under the Criminal Code if the corporation has undertaken due diligence to prevent slavery like conditions in its supply chain, or has developed a corporate culture which does not permit the use of slavery like conditions.
Financial institutions that are reporting entities under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act), should also carefully consider whether their risk assessments, KYC and reporting red flags adequately address slavery.
AUSTRAC expects financial institutions to undertake an appropriate risk assessment that comprehensively identifies and evaluates the money laundering risks posed to your business and to adapt your AML/CTF program to those risks as a precondition to doing business. The term "money laundering" is broadly defined and includes dealing in money or property that is either proceeds, or an instrument, of another Australian crime. As slavery, slavery-like conditions, and human trafficking are all crimes on which the money laundering offences may be based, reporting entities must consider the risks that their customers pose in carrying out their assessment.
Financial institutions also have an obligation to report to AUSTRAC information which they reasonably suspect may be relevant to the investigation or prosecution of a person for the crimes of slavery, slavery-like conditions, or human trafficking (known as "suspicious matter reports" or a "SMR").
To the extent the Modern Slavery Statements are required to be approved at Board level, the reporting obligation within the ambit of corporate governance and ordinary considerations of director's duties will need to be considered. The new modern slavery regime will interact with existing Corporations Act obligations on directors to act in the best interest of the company and to balance the foreseeable risk of harm against the potential benefits that could reasonably have been expected to accrue to the company from the conduct in question.
In addition, although the Australian government is unlikely to introduce punitive penalties for non-compliance with the reporting obligation, it will rely on public pressure and a post-implementation review to assess the effectiveness of the regime. Given the very public nature of the modern slavery statements, the growing international and domestic attention being given to modern slavery, and with the expected dissemination of educative and awareness raising materials, businesses may face severe reputational risks for any statements that do not disclose an adequate due diligence framework.
The work done by a company in preparing a slavery and human trafficking statement under the MSA will form a basis for the due diligence or corporate culture imperative under Australian law. Conversely, less robust statements may indicate the failure to take adequate steps to avoid the use of slavery like conditions in the supply chain and so act as evidence against the corporation. Companies should also expect regulators attention to be drawn to potential breaches identifiable from the modern slavery statements in respect of the Criminal Code and AML/CTF legislation. It is therefore advisable to have the MSA statements reviewed for liability issues prior to publication.
What can you do?
These developments are consistent with supply chain monitoring and reporting requirements increasingly becoming regulators' preferred method of top-down anti-slavery regulation (see our article, Modern slavery risks in Australian agribusiness). Although not yet in place, we are expecting to see legislation on this proposal (in some form) in the next year.
If you haven't already, you should consider better understanding the risks posed by modern slavery in your supply chain, how to address them, what policies and procedures you should have in place, and what you will need to report. To the extent you are a financial institution or otherwise subject to the AML/CTF Act or at risk of financing modern slavery, you may also wish to consider how you can otherwise reduce your regulatory exposure.
How can KWM help?
We can help you to:
- develop internal anti-slavery policies and advise on a framework for monitoring the implementation of these policies;
- audit your supply chains;
- consider and amend your procurement agreements;
- develop culture and corporate governance guidelines;
- conduct awareness seminars for boards and executives; and
- prepare a crisis management or response plan if modern slavery is identified in your supply chain.
Contact us for an in confidence and privileged discussion, or about how we can help you undertake an independent review and develop the right policies, procedures and culture to be in the best position once the reporting requirements are finalised.
