In Short

The Situation: In 2018, the Australian federal government obligated Australian corporates to engage with modern slavery risks in their supply chain by enacting the Modern Slavery Act 2018 (Cth) ("the Act"). Modelled on the UK Modern Slavery Act 2015, the Act imposes an obligation on Australian entities and foreign entities carrying on business in Australia with an annual consolidated revenue of AUD 100 million or more ("Reporting Entities") to prepare and publish an annual "Modern Slavery Statement" ("Statement") outlining the risks of modern slavery in the entities' operations and supply chains.

The Development: The Act required the federal government to review the Act's operation three years after it was commenced, and after a period of public consultation, the first Report for the Review of the Modern Slavery Act ("the Report") was recently tabled in Federal Parliament. The Report contains 30 recommendations to enhance the effectiveness of the Act to combat modern slavery, which will be considered by the government. The recommendations include extending the reporting obligations to Australian entities with an annual consolidated revenue of AUD 50 million or more, imposing obligations on corporates to implement due diligence systems that go beyond mere reporting, and the introduction of new financial penalty offences to enforce noncompliance with the Act.

Looking Ahead: While the federal government may not implement all recommendations in the Report, Australian corporates should expect, and prepare for, more stringent reporting requirements and be aware of financial penalties that may be imposed if those requirements are not met. As the federal government considers the Report's recommendations, Australian corporates should consider taking measures beyond the preparation and publication of a Statement, such as implementing modern slavery due diligence processes in preparation for the likely amendments to the Act.

The Background

A parliamentary inquiry into modern slavery in 2017 recognised the increasing risks of human trafficking, slavery and exploitation, and identified public support for establishing legislative measures against modern slavery in Australia. This mobilised the Australian federal government to pass the Act, effective on 1 January 2019. Importantly, the Act introduced a national modern slavery reporting requirement for Reporting Entities in Australia, which was modelled on section 54 of the UK Modern Slavery Act 2015.

Under the Act, Reporting Entities must prepare and publish an annual Statement on an online, publicly available central register. The Statement must describe risks of modern slavery in the entity's operations and supply chains and also the actions the entity has taken in relation to those risks. The Australian government has published guidance on how Reporting Entities can ensure compliance with the Act. As of early 2023, more than 7,000 statements have been published on the register from almost 8,000 entities headquartered in more than 50 countries.

Review of the Modern Slavery Act

In 2022, the Australian federal government, led by Professor John McMillan AO, sought public consultation on its three-year review of the Act, and in late May 2023, the Report was tabled in Federal Parliament.

The Report contains 30 recommendations for reform of the Act. Significant recommendations that may impact Australian businesses include:

• The current reporting threshold be lowered from AUD 100 million in annual consolidated revenue to AUD 50 million to impose reporting obligations on more than 2,000 additional businesses.
• Financial penalty offences be introduced for Reporting Entities (with a two-year grace period for entities with an annual revenue of between AUD 50-100 million) that: fail to file a Statement within the reporting period; give a Statement that knowingly includes materially false information; fail to comply with a request from the Minister to take a specified remedial action; and fail to have an appropriate due diligence system in place (if the recommendation relating to due diligence systems is adopted).

The Report does not recommend specified penalty amounts. Canada's regime, Bill S-211, which will come into effect in 2024 after it receives royal assent, imposes penalties of up to CAD 250,000 for each offence. The NSW Modern Slavery Act 2018 (which has now been repealed) contained penalties of up to AUD 1.1 million for each offence. However, it is not yet clear what penalties will apply for breaches of the Act (if any).

Additionally, the Report highlights the potential for "bluewashing" actions arising from noncompliant or misleading Statements under other Commonwealth legislation, including actions for misleading or deceptive conduct under s 18 of the Australian Consumer Law.

• Reporting Entities be required to implement (not just describe) a due diligence system (i.e., processes to identify and mitigate modern slavery risks in operations and supply chains), and to explain the activities undertaken by the entity in accordance with that system in its Statement. The Report suggests that the government consider whether the due diligence obligation should apply differently to large and medium-sized enterprises and also recommends that it be a civil penalty offence to fail to include a description of the Reporting Entity's due diligence system in a Statement.
• The Minister or Anti-Slavery Commissioner be granted the power to make written declarations of a "high modern slavery risk" for a specific region, location, industry, product, supplier or supply chain, to which Reporting Entities must have regard in preparing a Statement.
• New mandatory reporting criteria be added requiring Reporting Entities to report on: modern slavery incidents or risks identified by the entity; available grievance and complaint mechanisms; and internal and external consultation the entity undertook on modern slavery risk management.
• Reporting Entities be provided with the option to submit a Statement every three years, and in the intervening two years to submit a report that updates the information in the Statement.

Importantly, the Report recommends the establishment of an independent office of the Commonwealth Anti-Slavery Commissioner ("the Commissioner") to administer and oversee the operation of the Act. In the FY24 Federal Budget, the federal government allocated AUD 8 million over four years to establish the Commissioner, alongside AUD 24.5 million over four years to pilot an independent referral pathway for the victims of human trafficking.

While the recommendations in the Report address the main perceived weakness of the Act—the lack of enforceability—it was considered beyond the scope of the review to recommend victim compensation schemes, import bans (similar to those imposed in the United States and in the Canada Bill S-211), as well as legislative and regulatory protection against worker exploitation.

Three Key Takeaways

1. If the recommendations in the Report are adopted, more entities carrying on business in Australia (including foreign-based entities) will be subject to the reporting requirements in the Act, and entities should expect more stringent mandatory reporting criteria that will need to be addressed in their Statements. Further, large and medium-sized enterprises may be required to implement due diligence schemes to address modern slavery risks in their supply chains.
2. The enforcement mechanisms recommended by the Report would subject Reporting Entities to greater scrutiny and monitoring by the newly established Commissioner. Importantly, Reporting Entities may be subject to financial penalties for failing to comply with the Act, including for failing to implement a due diligence system in accordance with the Act, and should be wary of the potential for "bluewashing" claims arising from misleading Statements.
3. It remains to be seen whether the Australian federal government will implement the key recommendations in the Report. Regardless, the Report did not consider public submissions that recommended amending Commonwealth customs legislation to impose import bans on high-risk products (as will be imposed when the Canadian bill receives royal asset in 2024), and such reforms may not be considered until the next three-year review (if it does take place as recommended).