Is your entity prepared for the first reporting period for the Modern Slavery Act due by the end of this year?
Australian legislation enacted on 1 January 2019, requires certain entities to submit a Modern Slavery Statement that addresses risks in their operations or supply chain. The first reporting period for most Australian businesses is due from 1 July up to 31 December 2020. However, companies with an international financial year may have to report earlier.
The Australian government takes Modern Slavery very seriously and have also announced the formation of a Modern Slavery Expert Advisory Group, to provide strategic advice to ensure the effectiveness of the legislations implementation.
In this article, Quin Rijnders and Mark Griffiths provide a brief background into modern slavery in the business context; discuss how entities can identify human trafficking and slavery; outline what the reporting requirements are, and guide organisations through their next steps.
What is modern slavery and how do you identify it in your operations or supply chain?
Broadly, Modern slavery refers to enslavement of vulnerable people whose freedom is impacted by exploitation including threats, violence and coercion, abuse of power or deception.
Modern Slavery in the context of business is a complex, global problem transpiring in various forms. It’s estimated over 40 million people are affected. In Australia, it’s estimated that over 3000 people are forced into labour - across the world, it’s estimated that 25 million people are forced to work through coercion, threat or other forms of restraint, such as financial. In Australia, sexual exploitation is more common, with the Australian Federal Police (AFP) saying sexual exploitation represents 30 percent of all cases in Australia.
Given that Australia’s businesses rely on global networks; it’s important to identify and take action to rectify risks in global supply chain where regulation may be weak. It’s also important to assess where issues may arise in the domestic business environment. By enacting this legislation, larger businesses are responsible for ensuring that risks are addressed along their supply chain – and turning a blind eye to third parties mistreatment is no longer acceptable – positively impacting entire business communities.
In the Australian environment, the following is considered an offence under the Criminal Code, with each offence carrying varying degrees of penalty, including four to twenty-five years imprisonment:
- Forced labour
- Deceptive recruiting for labour or services
- Forced marriage
- Trafficking in persons
- Domestic trafficking
- Child trafficking
- Organ trafficking
- Debt bondage.
So, how does a business know how to identify these practices, which may not be overtly visible, or considered unthinkable in their business?
There are known hot spots where this type of activity takes place in regards to location, industry and types of people who are targeted. For example, certain high-risk industries with complex global supply chains such as Financial Services, and those that operate on short term projects such as the construction industry. There are also well-known geographical locations, more inclined to have modern slavery occurring, such as, Indonesia, China and North Korea. Vulnerable people most likely to be targeted include migrant workers, students or low-skilled workers. It’s important you are assessing these higher-risk activities, business partners and/or geographical areas through every part of your organisation, whether domestically, or abroad.
Once you have assessed areas of vulnerability – what type of actions are considered slavery?
Identifying indicators of modern slavery may include, but are not limited to:
- Unlawful withholding of wages
- Withholding identity documents
- Excessive work hours and restriction of movement
- Deducting excessive fees for remuneration
- Inflated loans to be paid back to employer.
An example of identifying this as it pertains to your business, could be observing the cleaning service you use transporting a group of cleaners back and forth to the workplace each day, and keeping them under strict supervision. While you may not directly employ these people, you have an ethical and legal obligation to report.
When do reports need to be submitted?
The Modern Slavery Act 2018, requires entities based, or operating in Australia which have a consolidated revenue of more than $100 million, to report annually to the Home Affairs Minister. Reports must identify their entities risks of modern slavery and actions to address those risks – with a ‘Modern Slavery Statement.’ This statement will be made publically available online through a Modern Slavery Statements Register.
The deadline for the first report is six months after the entities financial year ends. For most Australian businesses, this will mean they need to report between 1 July 2020 and 31 December 2020. However, companies with an international financial year may have to report earlier, depending upon the timing of their end of financial year. For example, companies with a 31 March 2020 end of financial year will need to report by 30 September 2020. Joint Modern Slavery Statements are permitted for corporate groups.
What happens if your entity doesn’t report?
For those entities that are obligated to comply, and don’t, the Minister may request an explanation about the entity’s failure to comply with the requirement. They may also request that the entity undertake remedial action. If the entity fails to comply with the request, the Minister may publish information about the failure to comply on the register or elsewhere, including the identity of the entity.
Can I voluntary submit a modern slavery statement?
While there is a mandatory compliance requirement for some businesses, other entities based or operating in Australia, can complete a voluntary Modern Slavery Statement. With many businesses placing emphasis on Corporate Social Responsibility (CSR), volunteering a Modern Slavery Statement is a way for businesses – especially those operating in high risk environments - to take actions toward creating transparency. This ultimately has a positive effect on their business with minimised legal ramifications, increased reputation and improved commercial relationships. However, The Homes Affairs Minister outlines entities must consider their resources and capabilities to do so, as once you have volunteered a report, you will be bound by it, as though you were a mandatory entity. An alternative is to prepare a statement for your own website – however, it must clearly state it isn’t formally submitted.
How can entities prepare for their modern slavery review?
The Home Office’s statutory guidance has mandatory requirements that you must cover. They include the following six areas in your statement:
- Organisation structure and supply chains
- Policies in relation to slavery and human trafficking
- Due diligence processes
- Risk assessment and management
- Key performance indicators to measure effectiveness of steps being taken
- Training on modern slavery and trafficking.
- Check if your entity is required to report – this includes both foreign and Australian entities - and undertake an assessment to identify risks and actions to address those risks in your supply chain or operations
- Prepare a ‘Modern Slavery Statement’ that responds to the six mandatory criteria
- Get your ‘Modern Slavery Statement’ approved by your entity’s principal governing body and responsible person within your entity
- Provide your finalised ‘Modern Slavery Statement’ to government to be published on their central website
- Assess areas of improvement – this is a key part of reporting requirements - repeat phases 2-5 annually.
How BDO can help
BDO can help you undertake enterprise-wide risk assessments, consider your internal processes and supply chains, and begin collecting data to comply with the new reporting obligations. BDO can ensure you are compliant by:
- Advise and assist your entity to produce a Modern Slavery Statement
- Undertaking an enterprise-wide risk assessment and identifying modern slavery risks
- Mapping supply chains
- Reviewing policies and procedures
- Revising procurement terms and conditions to cover the new obligations
- Revising employee codes of conduct and policies to address modern slaver – such as human rights policies
- Training employees on risks and compliance related to modern slavery
- Setting up systems and procedures to monitor risks in operation and supply chain, including grievance mechanisms
- Develop a monitoring system to assess the effectiveness of the systems.
If you need assistance to ensure your entity is compliant for the first reporting period of the Modern Slavery Act, contact the authors, Mark Griffiths and Quin Rijnders, or your local Partner.