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Modern slavery reporting requirements in Australia and the impact of COVID-19: What you need to know

For further information, please visit the White & Case Coronavirus Resource Center.

The Modern Slavery Act 2018 (Cth) (Act) requires large Australian entities and foreign entities carrying on business in Australia to report annually on the risks of modern slavery in their operations and supply chains and the actions taken to address those risks.

In recognition of the significant impact of COVID-19 on company operations and supply chains, the Australian Border Force has recently provided further guidance to reporting entities1 and the Commonwealth Government has extended the deadlines for submission of modern slavery statements.

Companies should take steps now to ensure that they are well placed to comply with their reporting obligations under the Act.

 

What is ‘modern slavery’ and the purpose of the Act?

Modern slavery is broadly defined under the Act to include trafficking in persons, slavery, slavery-like practices (including forced labour, forced marriage and debt bondage) and the worst forms of child labour.

Modern slavery can occur in any country, sector or industry. The Australian Government considers that there is a high risk of Australian businesses being exposed to modern slavery risks on the basis that, traditionally, Australia has had a strong presence in ‘high risk’ sectors and industries (for example, agriculture, construction, electronics, extractives, fashion and hospitality), and many Australian businesses have supply chains that extend throughout the Asia-Pacific which is often identified by international labour organisations as being a ‘high risk’ region.

The primary objective of the Act, as set out in the Explanatory Memorandum, is to support the business community in Australia to take proactive and effective action to address modern slavery.

 

Who must make an annual statement under the Act?

The Act is intended to have broad application. It applies to all Australian entities (including companies, partnerships and trusts), Commonwealth companies and foreign-based entities ‘carrying on business in Australia’ with an annual consolidated revenue of at least AUD$100m.2

Foreign entities will be considered to be ‘carrying on business in Australia’ if, among other things, they have a place of business in Australia, use a share transfer or registration office in Australia, or deal with property in Australia. Commonwealth Government departments are also required to comply with the Act.

The Act permits joint reporting by multiple entities in the same corporate group and allows entities that do not strictly fall within the ambit of the Act to voluntarily ‘opt in’ to the reporting requirement.

 

When does the statement need to be made?

Each reporting entity is required to submit an annual statement for the entity’s reporting period (either the financial year or another 12-month accounting period) within six months after the end of the relevant reporting period.

Where an entity complies with the Australian financial year, this means that the first reporting period will be 1 July 2019 to 30 June 2020 and therefore the first statement would ordinarily be due on or before 31 December 2020.

However, the upcoming deadlines for submission of modern slavery statements have recently been extended by the Commonwealth Government to account for the effects of COVID-19. Accordingly, statements for the reporting period of 1 July 2019 to 30 June 2020 do not need to be submitted until 31 March 2021.3

 

What must the statement contain?

While the Act does not contain a prescribed form, all statements must address the ‘mandatory criteria’ set out in the Act. In particular, each statement must identify the reporting entity and describe:

  • the structure, operations and supply chains4 of the reporting entity (including those of any entity that they ‘control’ as defined under the Corporations Act 2001 (Cth));
  • the modern slavery risks in the operations and supply chains of the reporting entity and any entity it owns or controls;
  • the actions the reporting entity and any entity it owns or controls have taken to assess and address those risks, including due diligence and remediation processes;
  • how the reporting entity assesses the effectiveness of those actions including, for example, establishing regular reviews of processes, internal audits and compliance monitoring, and requiring suppliers to report back on their compliance and initiatives; and
  • the process of consultation with any entity that the reporting entity owns or controls and provide any other relevant information.

The reporting entity must ensure that the statement is approved by the ‘principal governing body’ of the reporting entity (in the case of a company, this would be the board of directors) and is signed by a ‘responsible member’ of the reporting entity.6 Once the statement is approved, it must be provided to the Australian Border Force (ABF), which will publish compliant statements on a central public online register.

 

Recent guidance provided by the ABF on the impact of COVID-19

The ABF recently issued an information sheet to assist entities to reduce the risk of modern slavery and to address the impact of COVID-19 in their modern slavery statements.

At the outset, it is important to recognise that the ABF expects entities to ‘continue to take steps to assess and address modern slavery risks during the COVID-19 pandemic’ and to comply with their reporting obligations notwithstanding the impact of COVID-19. The ABF recommends that modern slavery risks be identified and considered as part of broader updates to the board or executive on the effect of COVID-19 on the business. It also recommends that companies collaborate with their suppliers and human rights groups to seek and obtain information on modern slavery risks and identify opportunities for action.

However, the ABF acknowledges that some entities may be unable to provide detailed responses to some mandatory criteria in their statements due to the impact of COVID-19 for a variety of reasons.7 Accordingly, in recognition of the impact of COVID-19 on the operations and supply chains of companies and the ability of companies to implement measures aimed at combating modern slavery, the ABF encourages reporting entities affected by COVID‑19 to:

  • clearly explain in their modern slavery statements how COVID-19 has impacted their capacity to assess and address modern slavery risks during their reporting period; and
  • include information about relevant activities implemented or resumed between the end of their reporting period and the deadline for submitting their statement where appropriate.

The ABF has also published a hypothetical case study explaining how a reporting entity impacted by COVID-19 may choose to explain these impacts in its modern slavery statement. While each company will need to consider the impact of COVID-19 on its own operations and supply chain, based on the case study published by the ABF, reporting entities may wish to consider and report on the following issues:

  • the parts of their operations that have been reduced or shut down due to COVID-19, and any supply chains that have been restructured or newly established due to COVID-19 (including, for example, sourcing personal protective equipment for workers, such as masks and rubber gloves);
  • how COVID-19 may be increasing modern slavery risks in their operations and supply chains;
  • actions undertaken (i) prior to COVID-19 to address modern slavery risks and how COVID-19 has affected their ability to undertake these steps, (ii) in response to COVID-19 to address new or heightened risks, such as reviewing new resources, consulting with business peers/other key stakeholders, updating risk assessments and requiring suppliers to provide similar information in relation to the impact of COVID-19 on modern slavery risks for their business, and (iii) after the reporting period due to delays caused by COVID-19; and
  • how COVID-19 is affecting their ability to assess the effectiveness of their actions and consult with their subsidiaries (if applicable).

It is therefore important that companies continue to identify, assess and respond to modern slavery risks and maintain a clear record of actions taken or delayed due to the impact of COVID-19.

 

Can I use a statement prepared under the laws of another jurisdiction?

While similar laws exist in other countries such as the United Kingdom (see, for example, White & Case’s note on the operation of the Modern Slavery Act in the United Kingdom8), each reporting entity will need to ensure that it complies with the requirements of the Act. Accordingly, to the extent that a reporting entity wishes to rely on a statement prepared for another jurisdiction, it will be important to carefully review the requirements of the Act, identify any differences between the relevant legislation in each jurisdiction, and ensure that the statement is updated appropriately as required.

 

What are the consequences of non-compliance with the Act?

While the Act does not include any financial penalties for non-compliance, the responsible Minister has the power under the Act to request non-compliant entities to provide an explanation for their failure to comply within 28 days and to undertake remedial action. If an entity fails to comply with that request, the Minister may publish the identity of the entity and further details relating to the non-compliance. It is therefore anticipated that entities may suffer reputational damage if they fail to comply with the Act.

 

Concluding remarks and next steps

It is important that entities falling within the ambit of the Act continue to take steps to marshal the necessary information required to fulfil their reporting obligations under the Act, and that they allow sufficient time to develop and implement actions to assess and address modern slavery practices notwithstanding the impact of COVID-19. While the ABF acknowledges that the task of preparing a modern slavery statement may be more challenging due to the impact of COVID-19, it is clear that the Commonwealth Government continues to expect companies to comply with their reporting obligations and to proactively identify and implement strategies for managing and mitigating modern slavery risks where possible.

Commercial parties falling within the ambit of the Act should also review and, if necessary, amend their commercial contracts to ensure that the provisions facilitate compliance with the Act by, for example, expressly addressing the exchange of information required to complete a statement under the Act (including any reporting and audit requirements and provisions requiring suppliers and sub-suppliers to address the impact of COVID-19 on modern slavery risks).

 

Find out more about business response to the Coronavirus outbreak:
Coronavirus: Managing business impact and legal risks

 

1 See Australian Border Force, ‘Modern Slavery Act Information Sheet: Coronavirus’, www.homeaffairs.gov.au/criminal-justice/files/modern-slavery-covid-19.pdf.
2 In assessing whether the revenue threshold is satisfied, it will be necessary to take into account not only the consolidated revenue of the reporting entity for the relevant financial year or reporting period, but also any revenue received from entities that the reporting entity controls, calculated in accordance with Australian Accounting Standards.
3 For completeness, the deadline for submission of statements for reporting entities with a reporting period of 1 April 2019 to 31 March 2020 has also been extended from 30 September 2020 to 31 December 2020.
4 While the terms ‘operations’ and ‘supply chains’ are not defined under the Act, the Explanatory Memorandum confirms that the term ‘supply chains’ is not restricted to ‘tier one’ or direct suppliers.
5 According to the Explanatory Memorandum, reporting entities are encouraged to prioritise and respond to the most severe risks. The Act confirms that such actions may include developing policies and procedures and providing training to staff, whereas the guidance note issued by the Commonwealth Government with the legislation confirms that this may include, for example, screening new suppliers, undertaking compliance audits and implementing an incident reporting and grievance mechanism. See ‘Commonwealth Modern Slavery Act 2018: Guidance for Reporting Entities’ (2018): www.homeaffairs.gov.au/criminal-justice/files/modern-slavery-reporting-entities.pdf.
6 According to the guidance note issued by the Australian Government, ‘best practice’ is that this should be the chair of the board or the Chief Executive.
7 For example, the ABF observes that some entities may be delayed in undertaking planned activities such as training and supplier engagement activities, have limited capacity to prepare statements perhaps due to staffing changes, or have experienced significant changes to their supply chains at short notice.
8 See Clare Connellan, Jacquelyn MacLennan, Tallat Hussain, Pavini Emiko Singh and Emily Holland, ‘White & Case Client Alert | Business & Human Rights: Modern Slavery Act — Update Note’ (November 2018) www.whitecase.com/sites/whitecase/files/files/download/publications/modern-slavery-act-update-note.pdf

 

Michael McArdle (White & Case, Graduate, Asia EIPAF and Disputes - Project Finance, Melbourne) contributed to the development of this publication.

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