Lessons learned from
Modern Slavery Statements
This article contains content similar to my presentation at a webinar hosted by Safetrac Pty Ltd, an award-winning provider of online compliance solutions. I have partnered with Safetrac to co-develop a modern slavery toolkit, which includes compliance training modules and self‑assessment and supplier questionnaires that assemble into an automated due diligence tool.^
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Topics covered in this article:
Now that the first year of modern slavery reporting under Australia’s Modern Slavery Act 2018 is drawing to a close, let’s take a second look at this law that has generated so much discussion in Australia, what its impact has been so far, and where we are heading next.
California and UK legislation: precursors
The first modern slavery disclosure law was the California Transparency in Supply Chains Act 2010 (CTSCA). It came into effect in January 2012.
Under the CTSCA, companies are required to report disclosures on their websites regarding efforts to eradicate human rights abuses in their supply chain if they meet three criteria:
the company must be a retail seller and manufacturer;
doing business in California; and
having annual worldwide gross receipts that exceed US$100M.
Thus, the first thing to note is that the Californian legislation applies to retailers and manufacturers only, different from the UK and Australian legislation which apply across sectors so long as the relevant revenue threshold is met. These retailers and manufacturers must be doing business in California - for comparison, the Australian law applies to an Australian entity or one carrying on business in Australia – and the revenue threshold is not far from ours (which is A$100M).
The CTSCA outlines 5 topics that companies must report on their websites regarding their supply chain due diligence:
internal accountability; and
The CTSCA was intended to ensure that the content and format of disclosures would be useful for consumers. The State Attorney-General issued model disclosure practices. This may have driven a tick-box approach as companies followed the model guidelines closely and produced similar disclosures.
What the CTSCA did do was create a cascading effect of new laws in other places – like the UK and Australia – and generally greater awareness of the problem of modern slavery in global supply chains amongst consumers.
One other thing: the only remedy for failure to comply with the law is an action brought by the Californian Attorney-General for injunctive relief.
Three years later, the UK introduced a more flexible approach, which was not mandatory in its content. The UK Modern Slavery Act came into force in 2015. The UK’s disclosure requirement is broadly applicable to all companies that supply goods or services to any part of the UK and have turnover of at least £36M. Thus, it is not limited to UK entities or entities with their primary place of business in the United Kingdom.
Companies subject to the UK law must issue a slavery and human trafficking statement which may include a list of matters similar to the Australian mandatory criteria but which specifically calls out due diligence, policies and training.
The UK reporting laws therefore contain an element of optionality in what to disclose, whereas the Australian law does not.
The UK Modern Slavery Act does not contain penalties but leaves open the possibility that the Secretary of State of the Home Department can bring civil proceedings in the High Court for an injunction or, in Scotland, for specific performance of a statutory duty to ensure compliance.
Below is a comparison diagram illustrating the difference between the three laws:
Australia’s Modern Slavery Act: a summary
Australia’s Modern Slavery Act 2018 – a Federal law - came into force on 1 January 2019.
Australian entities or entities carrying on business in Australia with consolidated revenue of A$100M or more must report on an annual basis about 7 things:
identify the reporting entity;
describe the structure, operations and supply chains of the reporting entity;
describe 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;
describe the actions taken by the reporting entity and any entity that the reporting entity owns or controls, to assess and address those risks, including due diligence and remediation processes;
describe how the reporting entity assesses the effectiveness of such actions;
describe the process of consultation with:
any entities that the reporting entity owns or controls; and
in the case of a reporting entity covered by a joint statement—the entity giving the statement; and
any other information that the reporting entity, or the entity giving the statement, considers relevant.
The Act contains no penalties but the Minister of Home Affairs can request an explanation and demand remedial action for non-compliance and publish the name of an entity who fails to respond.
The Act is subject to a review after 3 years of operation.
The first modern slavery statements under the Act were to be published for reporting years starting after 1 January 2019. With statements due within 6 months after the end of the reporting year (with a 3-month extension for COVID-19), the first Australian modern slavery statements were due to be published in 2020, right up to 30 June 2021.
NSW Modern Slavery Act: where things are at
The Commonwealth law was not the first modern slavery legislation to be passed in Australia. The New South Wales Modern Slavery Act 2018 was passed several months before. However, it has not yet come into effect.
To clarify its operability and whether the Federal law rendered it unnecessary or requiring amendment, the NSW legislation was referred to a parliamentary committee in 2020 - the NSW Legislative Council's Standing Committee on Social Issues.
The Committee released its Report with 17 recommendations, supporting the NSW law and calling for it to be enacted by 1 January 2021 but for efforts to be made to harmonise it with the Federal law. One key difference is the threshold on reporting, as the NSW Act has a A$50M threshold which is lower than the Federal one of A$100M. The Committee’s Report preferred the lower threshold.
The NSW government released its response to the Committee’s Report on 24 September 2020. Essentially, the NSW government has said it in principle supports most of the recommendations in the Report with the remainder subject to harmonisation discussions with the federal government.
In the Response, the NSW government confirmed it is still committed to implementing the NSW Act with a principal objective of achieving greater harmonisation with the Federal Modern Slavery Act.
However, as of April 2021, the NSW Act has not yet taken effect.
Tasmanian Modern Slavery Bill
The Supply Chain (Modern Slavery) Bill 2020 (Tas) was introduced by Madeleine Ogilvie, Liberal Member for Clark in April 2020. At the time of writing, it had not been debated in the Tasmanian parliament yet.
Under the Bill, commercial organisations are to provide a modern slavery statement for their financial year - a “commercial organisation” meaning an organisation that has employees in Tasmania that supplies goods and services for profit or gain and has a total annual turnover of not less than A$30M.
There will be an exemption for entities reporting under the Federal law and the NSW Act.
Similar to the NSW Act, the Tasmanian Bill proposes to appoint an independent Supply Chain (Anti-slavery) Commissioner. The Federal law does not provide for such a role.
The Tasmanian Bill creates a ‘duty to cooperate’ between the Commissioner and any government or non-government agency in or out of Tasmania that provides or deals with services or issues affecting victims of modern slavery, and these agencies must work in co-operation in the exercise of their respective functions.
The Bill also creates a Modern Slavery Committee, tasked with:
Inquiring into and reporting on matters relating to modern slavery.
Reporting to Parliament on matters relating to modern slavery.
The Bill has been introduced into the Tasmanian lower house but gone no further.
Feedback from government on modern slavery statements
The Federal government’s Modern Slavery Unit has reviewed the first tranche of Australian modern slavery statements published and identified the following ‘good practice trends’ in the statements:
Clearly aligning the statement’s structure with the 7 mandatory criteria.
Addressing COVID-19 impacts.
Assessing effectiveness of actions undertaken by the reporting entity, such as including plans to evaluate and track progress.
Setting out the reporting entity’s collaboration with other entities such as industry, workers and government.
Inclusion of case studies and practical examples
Setting out a plan for future action [this is in line with the ‘continuous improvement’ approach which the Federal government’s Guidance recommends].
In its review of modern slavery statements, the Modern Slavery Unit highlighted these areas for improvement:
Submitting a statement used in an overseas jurisdiction.
Not identifying the reporting entity or entities – especially when using a statement sourced from overseas.
Not adequately describing the consultation with entities owned or controlled or other reporting entities in the case of a joint statement.
Not adequately describing the nature, context or extent of risks of modern slavery.
My experience advising reporting entities
In advising reporting entities, I saw that the more comprehensive and successful experiences were those undertaken in an orderly, project-oriented format, involving cross-disciplinary resources, with identifiable timelines, and the appointment of a responsible team leader and accountable senior executive. This resulted in fully compliant statements that were authentic and informative and could be leveraged to demonstrate the entity’s strong commitment to compliance. It was about implementing good governance and accountability, ultimately. Plus, involving stakeholders who have the knowledge and ability to influence other parts of the business allowed for integration of modern slavery compliance into the entity’s other processes like procurement onboarding, supplier audit, and the risk management framework.
I would compare such experiences with the more focussed work undertaken for some entities with say, very localised supply chains in a sector perceived as low‑risk (no entity I worked with had zero risk of modern slavery practices in their supply chains). A possible approach for such an entity would be to perform a desk-top diligence then zoom in on riskier areas, say IT vendors. The modern slavery team could then collaborate with the IT team to perform the necessary diligence on IT vendors and contractors via questionnaires.
With subsidiaries of companies, I found there was difficulty in establishing a clear compliance narrative for the reporting entity that was distinct from the group compliance function, for example, clarifying how much diligence work was performed in the supply chain specific to the reporting entity instead of the overall group’s supply chain. These entities will benefit from internally ensuring there is appropriate emphasis on the unique features of the Australian legislation and the need for stand-alone focus on the Australian reporting entity’s operations and supply chains within the group compliance structure.
The most pressing issue for reporting entities was how to approach due diligence and integrate it into the processes and procedures of the entity e.g. ongoing onboarding and ongoing risk assessment. An automated toolkit such as the one I co-developed with Safetrac simplifies the design task, and indeed this was one of the reasons for developing it. It combines my direct legal experience advising scores of reporting entities and Safetrac’s 20+ years of technical and design expertise in online training and compliance.
A related issue was the multiplication of effort. Introducing another new stream of compliance into processes was not always well-received by other parts of the business. Ideally, a modern slavery questionnaire would be seamlessly integrated into a supplier onboarding process and regular, scheduled check-ups with suppliers.
An additional issue was that a lot of effort went into setting up the questionnaires, methodology and so on. Reporting entities have limited compliance resources but in the current climate must focus on carefully managing modern slavery issues. The Safetrac tool allows the important groundwork to be done freeing up resources to focus on integration and incident management.
As an example, the presence of Uyghur labour in supply chains has become a major topic, partly because of geopolitical dynamics and the US administration highlighting the issue. It was a known risk even before it was emphasised in the media and I highlighted the issue to many entities in modern slavery training. The prominence of the issue means it now creates a separate reputational risk for entities failing to assign resources to it. Using an automated tool makes it easier for a reporting entity to identify the suppliers who fall into the sector and what their responses were, and move from there to address potential remediation work.
What is in the pipeline overseas
Overseas, these are the laws that have been brought in that go beyond mandatory reporting into mandatory due diligence and/or liability for abuses in supply chains:
in France, the 2017 Corporate Duty of Vigilance Law has established a legally binding obligation for companies which, at the end of two consecutive financial years, employ at least 5000 employees in France or 10,000 within the company and its subsidiaries, to prepare, publish and implement a ‘vigilance plan’.
in Netherlands, the Child Labour Due Diligence Law was introduced in 2017 which obliges companies to investigate whether their goods or services have been produced utilising child labour and to devise a plan to prevent child labour in their supply chains if they find it.
Germany has just introduced a law with significant fines if contractors of multinational companies are found to have abused human rights.
Developments elsewhere include:
The EU parliament has just voted in favour of a due diligence law for companies in the EU market – and that law will be prepared in draft form this year.
Canada is moving ahead with a new modern slavery Bill after an initial Bill went nowhere. This will be a reporting law similar to the UK.
In Hong Kong, legislative moves have stalled especially with the difficulties in the Legislative Council with mass resignations of members that were seen as supportive of modern slavery legislation.
Norway is looking at something similar to the UK, therefore creating another reporting law.
Switzerland was looking at a due diligence law, but rejected it late last year.
Where to from here for Australia?
Parliaments in countries that have a Commonwealth legal system tend not to legislate for mandatory action to address modern slavery directly, instead encouraging useful disclosure to incentivise appropriate responses. For example, the Canadian Bill resembles the UK and Australian legislation instead of the French law.
For this reason, I think it is unlikely for our government to adopt a European ‘duty of due diligence’ approach.
The Australian government has introduced initiatives with the help of an active Modern Slavery Expert Advisory Group including its own toolkit (with a questionnaire and model contract clauses). It is now working on a number of initiatives such as:
The impact of the Modern Slavery Act 2018 on small to medium size businesses.
Australian businesses’ responses to modern slavery risks in overseas supply chains.
The modern slavery journey continues to unfold in Australia. For a compliance law in a new area with no penalties attached, it has generated intense discussion and focus. That has been mainly because Australian business, consumers, investors, governments and the non-government sector all took the topic seriously from the start, even before the law took effect. That commitment has led to a lot of action, from a reporting perspective. I know it is a common hope that this action will translate into addressing root causes of slavery across the world.
^ I benefit from sales of this product under a profit-sharing agreement with Safetrac Pty Ltd.
30 April 2021
For more information on this article, please contact Geraldine Johns-Putra
Principal Lawyer, Geraldine Grace
Tel: 61 (0) 411 183 968