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Focus on Regulation

The Australian Modern Slavery Bill: the next frontier in corporate accountability for adverse human rights impacts

Last week, the Australian Parliament approved the Modern Slavery Bill and it is set to come into force early in 2019.  This post looks at the requirements of the Act, how it compares to the UK Modern Slavery Act and what it tells us about the changing legal landscape for business and human rights.

The Australian Modern Slavery Bill

Big business often necessitates complex supply chains. The link between company and end-consumer is rarely simple, and the proliferation of actors in business operations can often carry significant risk.  In keeping with corporates around the world, Australian entities do not operate in isolation. Protracted supply chains and a global presence are features that characterise many of Australia’s biggest businesses. Modern slavery plagues supply chains across the world, requiring global coordination and commitment to eradicate. In recognition of this, the Australian Modern Slavery Bill 2018 (soon to be the “Modern Slavery Act“) has been approved by both the House of Representatives and the Senate.

Expected to be effective early in the new year, the Modern Slavery Act will require Australian entities, as well as entities that carry on business in Australia, to submit a “Modern Slavery Statement”, where they have a consolidated annual revenue of AUD$100 million or more. This requirement must be fulfilled within 6 months of the end of the relevant reporting period.

In parallel with the introduction of this reporting requirement, a “Modern Slavery Statements Register” will be established and maintained, which will be publicly accessible on the internet.

What is Modern Slavery?

“Modern Slavery” can encompass a diverse array of conduct, including human trafficking, forced labour and other practices involving the exploitation of human beings. In recognition of this, the Modern Slavery Act defines “modern slavery” broadly, so as to include a number of different offences, including trafficking in persons and the worst forms of child labour.

What is in a “Modern Slavery Statement”?

The Modern Slavery Act requires that the statement set out an entity’s:

  • identity;
  • structure, operations and supply chains; and
  • exposure to risks of modern slavery practices in its operations and supply chains, as well as in the operations and supply chains of any entity that it either owns or controls.

The statement must also disclose actions that the entity, and any entity it owns or controls, has taken to assess and address modern slavery risks, as well as how it determines the effectiveness of those actions.

Any process of consultation an entity engaged in with the entities that it owns or controls, as well as the details of relevant approvals required by the principal governing body of that entity must be set out in the Modern Slavery Statement. Approval from senior management, such as the board of directors, and sign off by a “responsible member” (for example, a director) is required.

It is anticipated that further formal guidance will be issued by the Australian government in respect of these requirements.

Are there penalties for non-compliance?

While there are no financial penalties for non-compliance, the Minister will be empowered to send a written request to a non-compliant entity, requesting an explanation for the non-compliance, or that the entity undertake specified remedial action, or both.

Where the Minister is satisfied that the reporting entity has failed to comply with its request, it will be empowered to publish details of this failure on the Modern Slavery Statements Register, or in any other way considered appropriate.

How does the Australian Act compare to the UK Modern Slavery Act

The Australian Act was influenced by the 2015 UK Modern Slavery Act.  S. 54 of the UK Act requires commercial organisations doing business in the UK with a revenue of over £36 million to publish a statement on the measures taken to address the risks of slavery and trafficking.  The UK government has issued guidance on the areas which should be covered in a statement but these remain optional.  This has led to criticism.  In its 2018 report on companies in the FTSE 100 “From Disclosure to Action“, the BHR Resource Centre concluded that “Three years on [from the introduction of the UK Act], most companies still publish generic statements committing to fight modern slavery, without explaining how. Sadly, only a handful of leading companies have demonstrated a genuine effort in their reporting to identify and mitigate risks.”  Only 17% of the 2017 / 2018 statements produced by FTSE 100 companies contained an assessment of the effectiveness of a business’s procedures.

By virtue of the AUD$100 million (approximately GBP£58 million) threshold, the Australian Act will apply to fewer companies than its British forebear.  However, it imposes far more onerous reporting requirements.  In particular, the mandatory requirement to report on structure, operations and supply chain, exposure to risk and the effectiveness of measures taken to address the risk will require businesses to say more in their statements and should go some way to preventing businesses from publishing generic statements.  The introduction of a state run Modern Slavery Register under the Australian Act is also significant, enabling consumers, investors and regulatory authorities to determine whether a business complies.  In the UK, there is no equivalent (save for a register maintained by the NGO, Business and Human Rights Resource Centre).

A UK government inquiry is due to report in 2019 on the effectiveness of s.54 of the UK Act and it is widely anticipated that it will recommend stricter reporting requirements.  The Australian Act may well influence British legislators in determining the requirements of an amended act and businesses with dual reporting requirements may want to get ahead of the curve and adopt internal policies and procedures which allow them to meaningfully fulfil the stricter requirements set out in the Australian Act.

Part of a wider move towards mandatory human rights reporting       

The introduction of the Australian Modern Slavery Act is the latest in a series of legislative developments around the globe which “harden” certain requirements under the UN Guiding Principles, traditionally seen as “soft” law.  And, as we have written before, more such developments are on the horizon.

Large multinationals with overseas operations and complex international supply chains may increasingly find themselves subject to multiple reporting requirements in multiple states.  Fortunately, these new developments are all based on Pillar 2 of the UN Guiding Principles: the business responsibility to respect human rights.  Businesses which voluntarily take steps to respect human rights under the UNGPs now, including by implementing effective and meaningful human rights due diligence which addresses all human rights impacts in their value chain will be prepared to meet these overlapping reporting requirements.  What’s more, businesses which do so will be better placed to reduce the risk of “hard” legal liability which can flow from an adverse human rights impact and to build trust amongst their stakeholders.

Madeleine Parker is an associate in Hogan Lovells’ Sydney office, Julianne Hughes-Jennett is a partner and Peter Hood is a consultant in the Business and Human Rights team based in London