Modern Slavery Act Review: major changes brewing

The Attorney General’s Department has released the recommendations of the independent review of the Modern Slavery Act – signalling major changes to strengthen the reporting regime may be on the horizon. We take a look at what directors need to know.

The independent review of the Modern Slavery Act 2018 (Cth) (Act), led by Professor John McMillan AO, was tabled in Parliament on 25 May 2023. The Act, aimed at increasing transparency in business operations and supply chains, has been in operation for three years and was subject to a statutory review in 2022 to assess its effectiveness over this initial period.

Over 280 organisations from business, civil society and academia contributed to the Review’s public consultation process – including a submission by the AICD, informed by extensive member and stakeholder engagement

The Review’s Final Report makes 30 recommendations for Government to consider, many of which are in line with key pre-election commitments from the Albanese Government’s Tackling Modern Slavery package and overseas regulatory trends.
 

Mixed findings

The Final Report details the complex and difficult challenge government and organisations face in combatting modern slavery. The latest 2021 Global Estimates report indicates that on any given day, 49.6 million people are living in situations of modern slavery, with the Asia and Pacific region host to more than half of the global total.

The Review found that there is no hard evidence that the Act in its early years has yet resulted in meaningful change for people living in conditions of modern slavery, and identifies three main weaknesses in the existing regime:

1. The standard of modern slavery reporting is variable;
2. The reporting obligation is not properly enforceable;
3. The process is at risk of being drowned by a sea of large and incompatible statements.

The Review heard competing views from stakeholders on whether business is taking the Act and its reporting requirements seriously enough. For example, recent independent and government assessments have found a high level of non-compliance, yet numerous changes and innovations point to significant effort being undertaken by organisations – including, executive level training, appointment of specialist teams, auditing and supply chain mapping, interrogation of suppliers, creation of professional networks, revision of contract arrangements, and greater multi-stakeholder collaboration.

While there has been improvement in the quality of statements from one reporting period to the next – a finding consistent with a number of other studies (including most recently research by ACSI and Pillar Two) - the Review concludes this change is not significant enough and reporting “resembles a tick-box exercise by a number of entities”.
 

Key recommendations

The Review makes 30 recommendations to strengthen the reporting regime including:

1.  Lowering the reporting threshold to $50 million

The Review proposes lowering the current reporting threshold for entities under the Act from $100M to $50M annual consolidated revenue. If Government accepts this recommendation, the Review estimates that a further 2,393 entities will be required to report. The Final Report notes that small and medium-sized entities (SMEs) are a significant part of the Australian economy, and that a lower reporting threshold would convey a clearer message that modern slavery must be the concern of all business. It would also bring Australia into line with overseas modern slavery reporting regimes.

Importantly, in recognition that many SMEs will be captured by the reporting regime as a result of a lowered reporting threshold, the Review recommends the development of specific guidance for SMEs and that reporting obligations be modified so that statements can be tailored depending on the size and activity of an entity (e.g. allowing reporting online or through a template). The Review also recommends Government carefully consider the need for further clarification around how the threshold applies to revenue fluctuations year to year and in corporate groups.

2.  Expanding the mandatory reporting criteria

The Act currently requires reporting entities to describe the risks of modern slavery practices in their operations and supply chains and the actions taken to address those risks. The Review recommends amending the mandatory reporting criteria in the Act so that entities are required to more explicitly describe:

• modern slavery incidents or risks identified by the entity during the reporting year;
• grievance and complaint mechanisms made available by the entity; and
• internal and external consultation undertaken by the entity on modern slavery risk management.

3.  Introducing a due diligence system obligation

One of the most significant recommendations made by the Review is for the Act to be amended to require entities to implement a due diligence system, which would go beyond existing requirements to describe due diligence processes. The Final Report notes that “reporting should not be an end in itself” and that what is currently lacking in the Act is an affirmative obligation on entities to implement and utilise a due diligence process that meets the following elements:

• identify and assess the risks of modern slavery practices in its operations and supply chains;
• take action to mitigate those risks;
• track the entity’s performance in mitigating the risks, and
• explaining publicly how those processes are operating.

The Review recommends that entities captured by the proposed lower reporting threshold (between $50m - $100m) should not have to comply with the requirement to have a due diligence system in place or until two years from becoming a reporting entity.

4.  Introducing penalties for non-compliance

The Review calls for a strengthened enforcement framework to ensure compliance, noting “it is incongruous that the Modern Slavery Act imposes a reporting duty as regards a matter of fundamental global human rights importance but contains no robust procedure to ensure that duty is performed”.

It recommends that penalties be introduced for failing to report without reasonable excuse, submitting a report that knowingly includes materially false information, and failing to put a due diligence system in place. It does not however recommend penalties for failing to submit an adequate modern slavery statement or failing to conduct effective due diligence – in recognition of the importance of a subjective judgement and the need to preserve an open and collaborative conversation between government, business and civil society.

The Final Report proposes that new penalty provisions should not apply to entities captured by the proposed lower reporting threshold (between $50m - $100m) until two years after the entity has become subject to the Act.

5.  Establishing a Commonwealth Anti-Slavery Commissioner

The Review recommends the establishment of a new Commonwealth Anti-Slavery Commissioner to monitor compliance with the Act and publishing regulatory standards and guidelines to assist entities in meeting their reporting obligations. This is a recommendation likely to be swiftly adopted by Government given specific funding in the recent Federal Budget.

The Review further proposes that the Anti-Slavery Commissioner be empowered to declare high risk regions, locations, industries, products, suppliers or supply chains that entities must take into account and report on in their modern slavery statements.

6.  Other key administrative changes

To streamline the reporting process, the Review proposes that entities:

• be provided with the option to submit a full modern slavery statement every three years, as opposed to annually, and update reports in the intervening two years; and
• use a standardised coversheet for statements that highlight key features of the report, including modern slavery incidents identified during the year and actions taken on commitments or plans foreshadowed in the previous year’s statement.
   

AICD view

The AICD is carefully considering the Review’s recommendations, in particular the proposed reduced reporting threshold. Our position remains that the focus of any reforms should be on lifting the quality of reporting by Australia’s largest entities, not increasing the compliance burden on SMEs and NFPs who may lack resources to undertake the due diligence required.

The Government has yet to announce its response to the Review recommendations, which we would expect to be informed by further public consultation.

The AICD welcomes views from directors on the Review’s proposals and how they will impact Australian organisations. Please email comments to policy@aicd.com.au or lbacon@aicd.com.au. All feedback will be kept confidential.
 

Key questions for directors

While the Review’s recommendations remain subject to consideration by Government, they do indicate that major changes to due diligence processes and reporting obligations are likely.

Now is a good time for boards to consider whether their organisations are prepared for these changes. Some questions for directors to consider include:

• Will your organisation be subject to the modern slavery reporting regime if a lowered reporting threshold ($50M to $100M) is adopted?
• Does your organisation have a due diligence system in place to identify and mitigate the risks of modern slavery practices in its operations and supply chains?
• How extensive is your organisation’s internal and external consultation on modern slavery risk management?
• Does your organisation make grievance and complaint mechanisms available to support modern slavery risk identification?
• How is your organisation assessing the effectiveness of its modern slavery risk management?