Artboard 1Icons/Ionic/Social/social-pinterest

Finally released: Draft Guidance on the Modern Slavery Act (2018)

02 April 2019

#Procurement, #Construction & Infrastructure

Scott Alden

Published by Scott Alden, Victoria Gordon

Finally released: Draft Guidance on the Modern Slavery Act (2018)

As we reported earlier this week, after much anticipation the Draft Guidance (Guide) on the Modern Slavery Act (2018) (Cth) (Act) has been released.  

The Guide aims to clarify exactly what entities need to do to comply with the Act, providing some much needed guidance on the following key questions:

  • do I need to report and can I report voluntarily?
  • when do I report?
  • how do I prepare a statement and then approve and publish it?
  • can I prepare a joint statement?
  • how do I work with suppliers to assess modern slavery in supply chains? 
  • how do I respond to a case of modern slavery?

Guide overview 

The Guide sets out the key issues and concepts for entities to ensure compliance with the reporting requirements under the Act. The reporting requirements under the Act require certain large businesses and other entities (with an annual turnover of $100 million or more) to prepare annual Modern Slavery Statements (which will be publically available via an online register) that identifies modern slavery risks in their supply chains and the actions taken to address those risks. 

The Act is a product of extensive consultation from the Australian business community, and other relevant stakeholders, and the Guide is being similarly developed, with submissions on the Guide closing on 19 May 2019. Following the consultation process, the final Guide will be released, however this date is yet to be announced. 

The Guide does not cover Commonwealth entities - a separate Guide will be provided for these entities.

Do I need to report and can I report voluntarily? 

An entity is a reporting entity and will be required to report under the Act if it: 

  • has a consolidated revenue of at least AUD$100 million over its twelve month reporting period

And

  • is an Australian entity at any time in that reporting period

Or

  • is a foreign entity carrying on business in Australia at any time in that reporting period.

An entity’s consolidated revenue is: 

  • the total revenue of that entity and any entity it controls
  • to be determined using the Australian Accounting Standards.

It does not include revenue of entities that own or control it, or revenue from intercompany transactions between entities of the same consolidated group. 

A reporting period is classified either as the financial year (1 July to 30 June) or may be another annual accounting period used by that entity. 

An Australian entity is:  

  • a company, trust or corporate limited partnership that is resident in Australia for income tax purposes
  • an entity formed or incorporated in Australia or one where the central management or control of the entity is in Australia. 

A foreign entity carrying out business in Australia is one which meets the requirements under section 21 of the Corporations Act 2001 (Cth) and has obtained ASIC registration. 

In circumstances where multiple entities in the same corporate group are required to report, a joint statement that covers each reporting entity may be submitted (refer below for more information on joint statements). Alternatively, each reporting entity may report separately.

Certain entities may also be required to report under separate modern slavery legislation (UK or NSW). In that case, the same statement can be used under different jurisdictions, provided it meets all the requirements under the Act. 

If an entity does not meet the reporting requirements, and it is an Australian entity, or carries on business in Australia, it may report voluntarily. 

To report voluntarily, an entity must first notify the Department of Home Affairs of its intention to do so, and then prepare and submit a statement that complies with the requirements for statements set out in the Act.

‘Opting in’ to the modern slavery regimes offers benefits in terms of demonstrating good corporate governance and leadership. However, the Guide does not provide specific guidance on whether an entity that opts in will be subject to consequences for non-compliance. 

When do I report?

The Act requires annual statements for the entity’s reporting period (either the financial year or another 12 month accounting period) to be submitted to the Department of Home Affairs six months after the end of the reporting period. 

Most entities will operate to the Australian financial year, meaning: 

  • the first reporting period will be 1 July 2019 to 30 June 2020
  • the first statement is due on 31 December 2020. 

How do I prepare a statement? 

Detailed guidance on the mandatory criteria for a statement is provided in Chapter 5 of the Guide, including information on the following key terms under the Act:

  • operations
  • supply chains
  • remediation
  • due diligence. 

The seven mandatory criteria for a statement are set out below. 

1. Identify the reporting entity

This criteria requires the identity of the reporting entity covered by the statement to be clearly identified, for example by name, ACN and registered office. 

2. Describe the reporting entity’s structure, operations and supply chains

The reporting entity’s structure, operations and supply chains must then be described with reference to the following term descriptors in the Guide: 

  • structure: the legal and organisational form of the entity, including its legal classification (company, trust, partnership), number of employees, whether it is part of a larger corporate group of entities, and whether it owns or controls other entities
  • operations: any activity or business relationship (in Australia or overseas) undertaken by the entity to pursue its business objectives and strategy, including research and development, construction, production, arrangements with suppliers, distribution, purchasing, marketing, sales, provision and delivery of products or services, and financial lending and investments
  • supply chains: the products and services (including labour) that contribute to the entity’s own products and services. This includes products and services sourced in Australia or overseas and extends beyond direct suppliers.

To assist in describing supply chains, the Guide states that the entity should:

  • identify the countries or regions where the entity’s suppliers are located
  • explain the main types of goods and services the entity procures
  • to the extent possible, identify the source countries for these goods and services and any external public supplier lists. 

3. Describe the risks of modern slavery practices in the operations and supply chains of the reporting entity and any entities it owns or controls

Reporting entities need to identify risks of modern slavery practices that may be present in their operations and supply chains, including any entities owned and controlled by the reporting entity.  

The ‘risks of modern slavery practices’ means the potential of an entity, through its supply chains, to: 

  • cause modern slavery (e.g. own and run a factory that uses exploited labour)
  • contribute to modern slavery (e.g. turn a blind eye to a supplier who uses exploited labour or set unrealistic cost targets that can only be met with exploited labour)
  • be directly linked to modern slavery (e.g. via operations, products and services that are connected to modern slavery through another entity e.g. electronic goods).

This criteria does not require a certification that all operations or supply chains are slavery free, or an exhaustive list of all specific risks, but must include sufficient detail to clearly show the types of products and services in the entity’s operations and supply chains that may involve risks of modern slavery. 

For example, the statement may explain that the reporting entity has identified risks relating to its sourcing of a product from particular countries which may be produced using modern slavery, but does not need to specify the particular factories these risks relate to. 

Entities may provide examples of specific individual risks or actual cases of modern slavery, provided that they do not put victims at risk of further harm. 

4. Describe the actions taken by the reporting entity and any entities it owns or controls to assess and address these risks, including due diligence and remediation processes

This criteria requires the statement to include: 

  • actions taken to address risks during the 12 month reporting period for the reporting entity
  • information about the processes the reporting entity and any entities it owns and controls have in place to remedy situations. 

Much needed guidance on the terms ‘remediation’ and ‘due diligence processes’ has been provided, both with reference to the UN Guiding Principles. 

Due diligence means ongoing management processes to identify, prevent, mitigate and account for how an entity addresses actual and potential adverse human rights impacts in their operations and supply chains, including modern slavery. 

There are four key parts to due diligence: 

  • identifying and assessing actual and potential human rights impacts (for example, screening new suppliers for modern slavery risks)
  • integrating findings across the entity and taking appropriate action to address impacts (for example, introducing internal training on modern slavery and processes for incident reporting)
  • tracking an entity’s performance to check whether impacts are being addressed (for example, internal audits of supplier screening)
  • publicly communicating what the entity is doing (for example, by publishing a Modern Slavery Statement or publicly responding to allegations against a supplier).

Remediation may take many forms including steps to ensure the harm cannot recur (e.g. changing suppliers), formal apologies, compensation, stopping certain activities or introducing a grievance mechanism providing suppliers, employees or the community an easy avenue to raise modern slavery concerns.

The Guide does not explicitly state how far down a supply chain an entity needs to investigate. However, the Guide does state that entities that do not have direct visibility of long or complex supply chains can still assess high risk parts of supply chains by: 

  • requesting information from direct suppliers about sub-suppliers, including country of origin
  • engaging with investees to understand how they are addressing their modern slavery risks 
  • working with other entities to carry out a joint assessment of high risk parts of a supply chain 
  • using existing traceability processes to improve information about the source of products 
  • identifying existing credible assessments of entities in supply chains, such as audit reports or NGO reviews 
  • developing trusted relationships with civil society stakeholders who can provide information about situations ‘on the ground’ 
  • working directly with high risk entities irrespective of a direct contractual relationship to help them assess and address their risks. 

Appendix Two of the Guide provides further guidance on how entities can engage with suppliers. 

5. Describe how the reporting entity assesses the effectiveness of these actions

The Act only requires entities to explain the method of assessing the effectiveness of an entity’s actions, not how effective those actions are. 

The assessment of the effectiveness of an entity’s actions should be by both qualitative and quantitative methods, for example, by developing Key Performance Indicators on training and awareness-raising programs, the proportion or number of complaints resolved by a grievance mechanism, or the number of contracts that include modern slavery clauses. 

6. Describe the process of consultation with any entities the reporting entity owns or controls (a joint statement must also describe consultation with the entity giving the statement)

This criteria only needs to be addressed if the reporting entity owns or controls any other entities.

The level of consultation undertaken by the reporting entity should: 

  • reflect the relationship with the other entity and the risk profile of that entity
  • be sufficient to ensure that the modern slavery risks relating to the other entity have been appropriately identified, assessed and addressed
  • ensure the other entity is aware of what actions they need to take. 

7. Any other relevant information

Reporting entities may include any other information on a topic which may not fit into the other criteria, but it is not essential if all other six criteria have been satisfied. 

How do I approve and publish a statement? 

For a statement to be approved, it must be: 

  • approved by the principal governing body of the reporting entity
  • signed by a responsible member of the reporting entity (in most cases, a responsible member means a member of the reporting entity’s principal governing body).

Delegation of these responsibilities is not permitted under the Act. For most entities, the principal governing body will be the board of the reporting entity. 

Following approval, the statement must be submitted to the Department of Home Affairs for publication within six months after the end of the reporting period. 

Failure to do so may lead to ministerial remedial action, including public identification as a non-complying entity.

Generally, once a statement has been submitted, an entity will not be permitted to revise or alter it other than in exceptional circumstances (e.g. to correct false or misleading or market sensitive information). 

Can I prepare a joint statement? 

For entities within a corporate group, joint statements may be prepared if that statement: 

  • is prepared in consultation with each reporting entity covered by the statement
  • addresses each of the mandatory reporting criteria for each reporting entity covered by the statement, including describing the process of consultation with any entities owned or controlled by each reporting entity covered by the statement
  • meets the specific requirements for approval
  • is provided to the Department of Home Affairs for publication on the central register of statements.

Notably, a foreign parent entity may report on behalf of multiple subsidiary reporting entities, even though the parent entity itself may not be required to report. A parent reporting entity of a corporate group is also required to report on all subsidiary entities, even if not all subsidiaries are required to report. 

A joint statement may be approved by the principal governing body of each reporting entity covered by the joint statement so long as a ‘responsible member’ of each of those reporting entities also signs the statement.

Conclusion

The Guide is a welcome tool to the modern slavery regime, providing detailed and plain-English guidance for entities to ensure they understand their compliance requirements, in particular in relation to what a Modern Slavery Statement must include. 

Further guidance is required in relation to:

  • entities that opt in, that inadvertently fail to comply with the requirements of a statement – will they be subject to, or exempt from, the ministerial ‘naming and shaming’ powers? 
  • how far down a supply chain does an entity need to investigate to satisfy the requirement of conducting due diligence? While some guidance has been provided on this (including that supply chains extends beyond direct suppliers), we expect submissions to be received from the business community requesting more definitive guidance on this issue. 

We will continue to report on this exciting development in the procurement space, in particular providing updates as soon as the following are released: 

  • the Draft Guidance for Commonwealth Government entities
  • the release of the final Guide following the consultation process 
  • the NSW Regulations for the Modern Slavery Act (NSW), which may address some of the remaining questions of the interaction with the Commonwealth and NSW regimes. 

Authors: Scott Alden, Victoria Gordon & Julia Wyatt

Contacts:

Sydney
Scott Alden, Partner & National Head of Procurement
T: +61 2 8083 0419 
E: scott.alden@holdingredlich.com

Melbourne
Stephen Natoli, Partner 
T: +61 3 9321 9796 
E: stephen.natoli@holdingredlich.com

Brisbane
Troy Lewis, Partner & National Head of Construction and Infrastructure 
T: +61 7 3135 0614 
E: troy.lewis@holdingredlich.com

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this publication is accurate at the date it is received or that it will continue to be accurate in the future. We are not responsible for the information of any source to which a link is provided or reference is made and exclude all liability in connection with use of these sources. 

Scott Alden

Published by Scott Alden, Victoria Gordon

Share this