A current topic of great interest in the international community is that of modern slavery. Following the lead of the United Kingdom and other European countries, late last year Australia’s commonwealth parliament passed the Modern Slavery Act 2018, which came into effect on 1st January 2019. The purpose of the Act is described in the Act’s long title, which is “to require some entities to report on the risks of modern slavery in their operations and supply chains and actions to address those risks.”

In this column I would like to explain the main points of the Act and how it could affect Japanese companies doing business in Australia.

What is modern slavery?

Although there are various definitions of what constitutes modern slavery, there is no clear definition in existing international law or Australian domestic law.1 The Act defines it broadly to include all forms of human trafficking, slavery and slavery-like practices, and the “worst forms” of child labour.2 Specifically, the Act’s definition of modern slavery includes (i) slavery and other slavery-like acts that are offences under the Commonwealth Criminal Code, including servitude, forced labour, forced marriage, human trafficking, organ trafficking and debt bondage; (ii) the same acts being performed outside of Australia; (iii) human trafficking as defined in the Protocol to Prevent, Suppress and Punish Trafficking in Persons, Especially Women and Children, supplementing the United Nations Convention against Transnational Organized Crime; and (iv) the worst forms of child labour, as defined in the International Labour Organisation’s Convention concerning the Prohibition and Immediate Action for the Elimination of the Worst Forms of Child Labour.3

As there are various definitions of modern slavery, there are also various estimates of the number of people affected. The International Labour Organisation estimated that 40.3 million people were victims of modern slavery in 2016, with 24.9 million people subject to forced labour and 15.4 million people subject to forced marriage.4 Through globalised supply chains, products consumed in countries such as Australia and Japan may be the result of forced labour in developing countries.

What does the Act require?

It goes without saying that the acts of slavery defined in the Act are already illegal under Australian commonwealth law. Therefore, the purpose of the Act is to “to assist the business community in Australia to take proactive and effective actions to address modern slavery” to hep “mitigate the risk of modern slavery practices occurring in the supply chain”.5

The Act requires all entities that are either based in or operating in Australia with an annual consolidated revenue of more than $100 million to submit an annual report on the risks of modern slavery in their operations and supply chains, and actions to address those risks.6 Other entities that do not meet the $100 million revenue threshold may report voluntarily.
The report, called a Modern Slavery Statement, must describe the following points:7

• • the structure, operations and supply chains of the entity;
  • the risks of modern slavery practices in the operations and supply chains of the reporting entity and its subsidiaries;
  • the actions taken by the reporting entity and its subsidiaries to assess and address those risks, including due diligence and remediation processes; (for example, the development of policies and processes to address modern slavery risks, and providing training for staff about modern slavery)
  • how the effectiveness of such actions is assessed;
  • the process of consultation with the entity’s subsidiaries; and
  • any other relevant information.

Importantly, the final requirement is that the report must include details of its approval by the company’s board of directors and signed by an authorised director. It should be noted that the Act requires the Minister to make all Modern Slavery Statements available to the public via an online register.

When is the first report required?

An entity that is required to report must submit its Modern Slavery Statement within six months after the end of the entity’s financial year. The first applicable reporting period starts after the commencement of the Act, in other words, the first financial year that commences after 1st January 2019. Therefore, if a company has a financial year of April-March, the first report will be due in September 2020 for the period April 2019 to March 2020. Draft guidance for businesses was released for comment by the Department of Home Affairs in April 2019 and the final guidance will be released later this year.

What if an entity fails to report?

If an entity that falls under the mandatory reporting criteria fails to report, the Minister has the power to request the entity to explain the failure to comply and submit a report by a certain deadline. If the entity fails to comply with the Minister’s request, then the Minister may publish the name of the entity and the details of its non-compliance.
It is interesting to note that Section 25 of the Act allows the Minister to make rules to implement the Act, but those rules must not create an offence or civil penalty, provide powers of arrest, search or seizure, or impose a tax. It is therefore quite clear that the Commonwealth government’s current position is that the only penalty for failing to comply will be public embarrassment through the publication of failures to comply with the Minister’s requests.

Is there anything else to keep in mind?

As always, it is necessary to remember that Australia is a nation with a federal system of government, so the existence of relevant state law must also be considered. On the topic of modern slavery, the state of New South Wales, which has Sydney as its state capital, passed its own Modern Slavery Act in 2018. So far it is the only state law on the topic, and will come into full effect on 1st July 2019.

The NSW Act requires companies to submit an annual report with similar contents to the Commonwealth MSM. The Act applies to any company that has a turnover of $50 million and at least one employee within the state. Unlike the Commonwealth Act, however, the state Act also contains a maximum penalty of $1.1 million for failing to report or submitting a false or misleading report. Understandably, the Commonwealth’s Act has been criticised as being weak compared to the NSW Act.

The NSW Act also includes the creation of an independent Anti-slavery Commissioner, who will have the power to report information related to slavery to the police or other government agencies.
The commencement of reporting requirements will be clear after regulations are published. The regulations will also be important for another reason; if the regulations list the Commonwealth Act as a “corresponding law”, then a company which is subject to the Commonwealth law will be exempt from the state law. This could create a strange situation where a company with $50 million in turnover is bears a risk of substantial penalties for non-compliance, yet larger companies above the $100 million threshold under the Commonwealth Act are not subject to such risk.

Therefore, it is necessary for companies to pay attention to any updates in relation to the Commonwealth Minister’s final guidance and the NSW government’s regulations.

How does this affect Japanese companies?

The definition of “carrying on business” in Australia under the Commonwealth Act refers to the definition of the same term in the Corporations Act. Deciding whether a foreign company is “carrying on business” in Australia is a difficult topic in itself (and possibly the subject of a future column). For the purpose of this column, I will say that it is the same test that decides whether a company is required to register with ASIC as a foreign company. Therefore, if a Japanese company is required to register as a foreign company in Australia, then it will also be subject to the Modern Slavery Act requirements if it exceeds the $100 million turnover threshold. It should be noted that this threshold includes revenue earned outside of Australia. Therefore, any Japanese company with an annual consolidated revenue of $100 million that is required to register as a foreign company in Australia must comply with the Commonwealth Act.

Deciding whether compliance with the NSW is required is easier, as it clearly says a company must comply if it has an annual turnover of more than $50 million and has an employee within the state.

In this era of increasing corporate social responsibility, being published on the Commonwealth government’s register as a non-complying entity could be very damaging to a company’s worldwide reputation. Therefore, Japanese companies should regularly review whether business activities connected to Australia bring it within the scope of the Act’s reporting requirements. In order to assist with the worldwide movement to eradicate modern slavery, companies should be seeking access to their supply chains in order to identify and manage potential risks. Having contracts that impose similar commitments on suppliers is another important step.