Is your business ready for Modern Slavery legislation?

That is, an abuse of human rights. The Global Slavery Index 2018, indicates a high risk of Modern Slavery in many countries which are key Australian trading partners, with whom Australian business have supply chains and/or subsidiary operations.

While risks of Modern Slavery and general human rights abuses are more prevalent in some of our trading partner countries, risks do exist within Australia – including with regards to exploitation of vulnerable workers. According to the Australian Human Rights Commission, sectors where modern slavery is most widespread include agriculture, construction, electronics, fashion, hospitality and mining.

Current and proposed legal operations

On 21 June 2018, the New South Wales Government passed the Modern Slavery Act 2018 (NSW) (“the NSW Act”). Just a week later, on 28 June 2018, the Senate referred the Modern Slavery Bill 2018 (Commonwealth) (“the Bill”) to the Legal and Constitutional Affairs Legislation Committee for inquiry and report by 24 August 2018. The objectives of the Bill and the NSW Act are to combat Modern Slavery.

Modern Slavery in supply chains and operations

Modern Slavery affects both developed and developing countries around the world, with the United Nations estimating that 40.3 million people are in Modern Slavery worldwide. In the context of both the NSW Act and the Bill, this includes human trafficking, child labour, forced marriage, the act of making someone work against their will by way of threats or penalty, the repayment of debt, which has led to the worker having little to no control over their working conditions, and deceitful recruitment into employment.

An example of an Australian business caught in Modern Slavery:

An Australian retailer imports clothing products from an overseas supplier which, unbeknown to them, are manufactured in ‘sweat shop’ factories employing child labour and debt bondage labour schemes.  

Notwithstanding any undertakings by supplier companies as to compliance with Human Rights, an Australian business can be easily deceived if they don’t take appropriate action. There is ample evidence of significant reputational damage for well-known Australian businesses caught up in child labour scandals in their foreign supply chains.

Modern Slavery Bill 2018 (Commonwealth)

The proposed Commonwealth Bill will affect businesses (including foreign entities carrying on business in Australia) with consolidated annual revenues of $100 million or more (“Reporting Entities”) and will require these businesses to publish annual Modern Slavery Statements.  These detail the risks of Modern Slavery within their supply chains or operations and the steps being taken to address and mitigate the risks. Other businesses can report voluntarily. These statements will become publicly available online via a Modern Slavery Statements Register. If the statement complies with the reporting criteria, it will then be registered by the Minister.

Reporting Entities will be required to publish a Board-approved Modern Slavery Statement within six months from the end of their financial year. Currently, as detailed in the proposed Bill, there are no penalties for non-compliance.

While we note the absence of penalties in the Bill in its current form, this is still a significant step in raising awareness of Modern Slavery and Reporting Entities, who will be held publicly accountable through the operation of the Modern Slavery Statements Register.

Currently, approximately 2,700 Australian organisations are required to produce Modern Slavery Statements under UK law (due to having a UK parent company).  However, the Bill is expected to affect approximately 3,000 additional Australian businesses, so it is critical to ensure your reporting requirements are satisfied.

Modern Slavery Act 2018 (NSW)

Similar to the Commonwealth Bill, companies carrying on business in NSW for profit (other than sole traders) will be required to publish a Modern Slavery Statement. However, the NSW Act annual turnover threshold is $50 million. Furthermore, penalties of up to $1.1 million apply for non-compliance.

Grant Thornton Forensic Insight

Modern Slavery is a serious integrity issue for any organisation and rarely do such integrity issues exist in isolation. That is, businesses which have risks of servitude, forced labour, debt bondage and deceptive recruiting in their supply chains and/or their own operations, will typically also have risks of fraud (particularly wage fraud), bribery, corruption and organised crime. That is, in order to perpetrate these forms of Modern Slavery, organised criminals often source vulnerable workers, as well as ‘pay off’ various public officials to ‘turn a blind eye’.

However, we also note that Modern Slavery legislation tends to consolidate community expectations arising from existing labour laws, ethical behaviour and corporate social responsibility.

Industries with higher risk of Modern Slavery include retail, manufacturing, food and beverages. In particular, mid-sized business that don’t have comprehensive risk-based compliance programs in place will be at higher risk of non-compliance with Modern Slavery laws.

What do businesses need to do?

1. Review operations and supply chains to identify and assess risks of Modern Slavery, including gaps in existing frameworks e.g. ethical sourcing;
2. Assess effectiveness of internal controls to prevent Modern Slavery and new controls for additional risks identified (for example wage audits, employment screening, ethical sourcing reviews, human rights and OH&S audits);
3. Due diligence and surprise audits of supply chain, including site visits of factories;
4. Training and communications to ensure staff and suppliers are aware of the new legislation, including how to identify ‘red flags’ of potential Modern Slavery and report such; and
5. Prepare a Modern Slavery Statement.

Grant Thornton can assist businesses assess their risks and internal control environments and support clients in preparing Modern Slavery Statements.