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Managing The Risk of Modern Slavery

Recent estimates reveal there are over 40 million victims of modern slavery around the world, of whom 25 million people are believed to be in conditions of forced labour, including 16 million people in the private sector. Modern slavery also disproportionately impacts women who make up 71% of all modern slavery victims.

According to Fuzz Kitto (Co-Director, Stop the Traffik), the only way we can stop modern slavery is together.

This guide provides an overview of the Australian legislation designed to minimise modern slavery practices and improve transparency through reporting.  We outline the steps your business can take to reduce the risk and help stop modern slavery.

What is modern slavery?

Modern slavery is an umbrella term used to cover slavery, servitude, forced or compulsory labour and human trafficking, which are defined by several international standards.

Modern slavery is serious exploitation of people.  It includes trafficking in persons (including organ removal), slavery, servitude, sexual exploitation, forced marriage, forced labour, debt bondage, deceptive recruiting for labour or services, and the worst forms of child labour. Forced labour is common in industries such as hospitality, construction, forestry, mining or agriculture, as well as in intimate relationships.

Modern slavery in Australia

In Australia, human trafficking and slavery are against the law.

However, Australia is not immune from modern slavery. The Australian Government estimates there were 1,567 modern slavery victims in Australia between 2015 and 2017.

There is also a risk that Australian businesses are buying goods and services from third parties in their supply chain (suppliers, vendors, importers) engaged either directly or indirectly in modern slavery.

Combating modern slavery through legislation

To help combat both local and global modern slavery, the Australian Federal Government introduced The Commonwealth Modern Slavery Act in 2018 (the Act). The Act was passed on 29 November 2018 and commenced operation from 1 January 2019.

The Act creates compulsory reporting obligations for large entities. Why? Strengthening the reporting obligations is one part of Australia’s broader response to modern slavery domestically and overseas.

The description on the Bill to enact the legislation describes the bill as “A Bill for an Act to require some entities to report on the risks of modern slavery in their operations and supply chains and actions to address those risks, and for related purposes.

The Act puts the responsibility on the Australian business community to identify and address their modern slavery risks and maintain responsible and transparent supply chains.  Boards are now responsible for providing public statements about their organisation’s practices to managing the risk of modern slavery within their operations and supply chains.

The Act does not set a minimum requirement for how many tiers of the supply chain entities must consider. Organisations should consider modern slavery risks that can be present anywhere in the entity’s global and local activities and supply chains.

Who must comply with the Act?

The Modern Slavery Act 2018 creates reporting obligations for entities that have:

  • consolidated revenue of at least $100 million for the relevant reporting period (a financial year), and which
  • are Australian entities, or
  • undertake business in Australia in that financial year.

The Act applies to over 3,000 entities including individuals, partnerships, associations and legal entities such as companies, trusts, superannuation funds and other types of investment organisations.  The Act covers  commercial entities and not-for-profit entities, such as charities. It covers an Australian entity or a foreign entity carrying on business in Australia. In some cases, multiple entities in the same corporate group may be reporting entities.

If an entity undertakes business activities overseas, it may also need to comply with foreign laws relating to responsible business conduct, for example the United Kingdom’s (UK) Modern Slavery Act 2015.

Entities that are required to report under the Act are called ‘reporting entities’.

Separate legislation has also been passed in New South Wales and is in line with the Federal regime and applies to companies with revenue above $50 million.  This means that organisations with employees in NSW and an annual turnover of between $50 million and $100 million will report only in NSW.

Voluntary participation

Entities who are not legally bound by the Act can voluntarily participate. Providing a voluntary statement will also help organisations respond to questions from their customers and investors. In some cases, business partners may ask organisations to provide a voluntary statement to provide them with additional assurance.

However, voluntary reporting can be a significant commitment. Carefully consider whether voluntary reporting is the correct course of action.

Entities who want to participate on a voluntary basis should develop a modern slavery statement as outlined in the Act and have the appropriate policies, systems and processes to mitigate modern slavery risks.  Voluntary participation should be made clear.

The voluntary statement is provided to the Australian Border Force. Voluntary statements must comply with all of the requirements for statements in the Commonwealth Modern Slavery Act 2018, including the mandatory criteria for content.

What must businesses do?

Simply, businesses must respect human right and remedy harm caused.  They must leverage their power to influence actions of other entities.

Under the reporting requirement, large entities with over AU$100 million annual consolidated revenue must prepare annual Modern Slavery Statements within 6 months of the end of their financial year to the Minister for Home Affairs. The statements must explain what the  entity is doing to assess and address modern slavery risks in its global operations and supply chains. The Act sets out seven mandatory criteria for the content of statements.

There is no set template for statements.  The ‘Modern Slavery Statement’ should detail the following:

  • the identity of the reporting entity;
  • the structure, operations and supply chains of the reporting entity;
  • the risks of modern slavery practices in the operations and supply chains of the reporting entity, and any entities that the reporting entity owns or controls;
  • the actions taken by the reporting entity and any entity that the reporting entity owns or controls, to asses and address those risks;
  • how the reporting entity assesses the effectiveness of such actions;
  • the process of consultation with any entities the reporting entity owns or controls or is issuing a joint modern slavery statement with; and
  • any other information that the reporting entity, or the entity giving the statement, considers relevant.

Reporting modern slavery

Once the modern slavery statement is approved by the Board or governing body equivalent and a copy is provided to Home Affairs/Australian Border Force who will publish the statement on the online central register.

The Act does not require reporting on specific cases or allegations of modern slavery. However, entities can decide to voluntarily include information about specific modern slavery allegations or cases in your statement. Be sure to respect the privacy of victims.

Risk and compliance implications

Typically, if you’re a large organisation carrying on business in Australia, there is a strong chance you’ll need to report. The more complex your business operations and your supply chain, the more important it is to understand the legislation and be prepared to ensure you comply.

Failure to comply with the Act can significantly damage your entity’s reputation, undermine your ability to do business, and damage investor confidence. The Government has the power to publicly name entities that fail to comply with the reporting requirements.  In addition, the Government can also require noncompliant entities to take remedial action to ensure compliance, including requiring an entity to provide or revise a statement.

Who administers the Act?

The Act is administered by the Department of Home Affairs.  Specifically, the Modern Slavery Business Engagement Unit is responsible for implementing the Act. The Unit’s role includes providing general advice and support to entities about compliance with the reporting requirements.

Once the modern slavery statement is approved by the Board or governing body equivalent, a copy is provided to Home Affairs within six months after the end of the reporting entity’s reporting period.

How to reduce compliance risk?

At minimum, reporting entities should take the following steps:

  • Map the organisation’s structure, businesses and supply chains;
  • Formulate policies and procedures in relation to modern slavery – this will involve collating current policies, identifying gaps, adapting existing policies and formulating new policies, as needed;
  • Carry out a risk assessment – identify and understand those parts of the business operations and supply chains where there is a risk of modern slavery taking place;
  • Assess and manage identified risks – this may include carrying out further due diligence in the entity’s operations and supply chains and reviewing and adapting contract terms and codes of conduct with suppliers;
  • Consider and establish processes and KPIs to monitor the effectiveness of the steps taken to ensure that modern slavery is not taking place in the business or supply chains;
  • Carry out remedial steps where modern slavery is identified; and
  • Develop training for staff on modern slavery risks and impacts.

How we can help

InConsult is committed to helping our clients eliminate modern slavery.  We have extensive experience in risk management, assurance, legal and third party risks.  We also take a phased approach to ensure value-for-money.  Some of the activities we can help our clients include:

  • Conducting a risk assessment of modern slavery risks based on your activities, products and suppliers.
  • Identifying potential gaps.
  • Designing and implementing a modern slavery framework to support compliance with the Act – updated policies or a stand-alone policy, defined roles and responsibilities, updating whistleblowing, grievance and remediation procedures, updating supplier management arrangements.
  • Establishing monitoring and reporting KPIs to meet legislative requirements.
  • Stakeholder engagement to communicate modern slavery expectations – updating existing supplier contracts,  conducting supplier awareness communication and conducting internal staff awareness training.
  • Reviewing and monitoring modern slavery compliance – conducting supplier questionnaires and/or supplier audits, internal audit of internal processes.
  • Independent review of the Modern Slavery Statements to provide additional stakeholder assurance.

Want to know more? Contact us to discuss your needs.