Australian companies are facing a potential crunch on their supply chains. Recent reports indicate that many companies do not adequately understand or address modern slavery risks in their supply chains, and legislative action may soon impose real sanctions and import bans. This will leave unprepared companies with real pressures on their supply chain. Businesses should act now and increase their focus on responsible sourcing throughout their supply chain to ensure that they are prepared for potential regulatory changes.

Australian Legislation as current

Modern Slavery Act 2018 (Cth)

Under the Modern Slavery Act 2018 (Cth) Australian entities and entities carrying on business in Australia with consolidated revenue over $100 million must submit an annual modern slavery statement (Statement). The Australian Border Force (ABF) makes statements submitted publicly available on an electronically maintained register. Over 3,000 statements have been lodged to date.

Statements must address the mandatory criteria in section 16 of the Act, including a description of:

• the risks of modern slavery practices in the reporting entity's operations and supply chains;
• the actions taken by the reporting entity during the reporting period (typically the entity's financial year) to assess and address those risks; and
• how the reporting entity assesses the effectiveness of its actions taken towards assessing and addressing modern slavery.

Various reports (including from ACSI and Monash University) have indicated that modern slavery statements submitted in the first reporting cycle under the Act largely adopt a 'compliance' approach, and do not adequately address risks of modern slavery in Australian supply chains, or describe the actions taken to assess and address such risks. A recently released Human Rights Law Centre report from the was perhaps more damning, finding that only 23% of companies fully addressed the mandated reporting requirements.

For more information on the Act, read our article on Modern Slavery reporting – A year in review.

Modern Slavery Act 2018 (NSW)

On 17 November 2021, the NSW Parliament amended its Modern Slavery Act 2018 (NSW) with effect from 1 January 2022. As originally passed, the Act had significant overlap with the Commonwealth Act, including a slightly different modern slavery reporting regime. The amendments have removed the reporting regime and now the Act:

• provides for the appointment of a Modern Slavery Commissioner;
• establishes the Modern Slavery Committee as a joint committee of Parliament; and
• requires NSW State owned corporations to publish a Commonwealth modern slavery statement.

Potential regulatory changes

Customs Amendment (Banning Goods Produced By Forced Labour) Bill 2021

The Customs Amendment (Banning Goods Produced By Forced Labour) Bill 2021 (Cth) (2021 Bill) was introduced into the Senate by independent Senator Rex Patrick on 24 June 2021. It passed the Senate with support from Senators from the Labour Party, the Greens and One Nation, but not government members. The 2021 Bill was moved for a second reading in the House of Representatives on 22 November 2021.

The 2021 Bill seeks to insert section 50A into the Customs Act 1901 (Cth) (Customs Act) stating:

The importation into Australia of goods produced or manufactured, in whole or in part, through the use of forced labour (within the meaning of the Criminal Code) is prohibited absolutely.

The definition of forced labour within the Criminal Code is wide, including all conditions where a person provides labour or services because of coercion, threat or deception and that a reasonable person in the position of the victim would not consider themself to be free to cease providing the work or leave the place of work.

The 2021 Bill followed another bill introduced by Senator Patrick on 8 December 2020, when he introduced the Customs Amendment (Banning Goods Produced By Uyghur Forced Labour) Bill 2020 (Cth) (2020 Bill). While the 2020 Bill was discharged from the notice paper on 24 June 2021, it was referred to the Foreign Affairs, Defence and Trade Legislation Committee for review, whom issued their report on 17 June 2021 (Senate inquiry).

The Senate inquiry of the 2020 Bill found practical issues with its implication, primarily that it is impossible to identify at the border whether goods have been made by forced labour. The Senate inquiry made 14 recommendations, most relevantly:

• that the Customs Act be amended to prohibit the import of goods made wholly or in part with forced labour; and
• that the ABF be empowered to issue rebuttable presumptions for specific goods, companies and/or regions with particularly high risk of being associated with forced labour (with the immediate example of cotton sourced from Xinjiang).

A rebuttable presumption order would put the onus of proof on the importer to prove goods subject to the presumption were not made using forced labour. This approach has been adopted, and implemented, in the United States.

On 24 June 2021, United States Customs and Border Protection (USCBP) issued a "withhold release order" against silica-based products made by Hoshine Silicon Industry Co. Ltd. including materials and goods derived from or produced using those products. The company is the world's largest producer of metallurgical-grade silicon that other manufacturers refine into polysilicon, which is used in solar panels. Because of this, numerous solar panel companies have had their panels seized by USCBP. For importers to prove that their items were not made with forced labour is a high evidentiary bar, with the USCBP recommending importers provide the agency with detailed statements, affidavits, purchase orders, a list of entities which supplied inputs and daily manufacturing process reports.

Three year review

Under section 24 of the Act, a three year review of the Act must occur in 2022. The government indicated in its submission to the Senate inquiry that this review will include 'consideration of compliance, penalties and other complementary measures'. The Senate inquiry recommended that the Act be amended to include financial penalties for entities which fail to comply with requirements under the Act, as well as introducing an 'Independent Anti-Slavery Commissioner' who would investigate Australian companies and Australian suppliers overseas and make recommendations and comments.

It was also recommended a 'Commonwealth Modern Slavery List' be implemented, which would include goods, classes of goods, regions and/or entities which have a rebuttable presumption of forced labour or modern slavery, alongside amending procurement rules to bar companies from procurement contracts that do not uphold transparency requirements, or that are suspected of having modern slavery in their supply chains.

The government may use the opportunity presented by the review to further push forward a rebuttable presumption regime.

Summary

There seems to be strong appetite within the Federal Parliament to strengthen the modern slavery regime, directed particularly at alleged human rights abuses in Xinjiang. Independent reviews of modern slavery statements lodged under the Modern Slavery Act indicate that many companies have taken a formulaic compliance based approach in preparing these statements, and reviewing their supply chains. For companies which have not conducted meaningful reviews into the risks of modern slavery in their supply chains, the imposition of tougher rules and particularly the chance of goods being withheld at the border means there is a risk of serious disruption to supply chains.

Entities should review their approach and if appropriate, strengthen their due diligence and supplier engagement processes to properly identify the risk of modern slavery occurring in their supply chain, and to minimise the risk of disruptions to their supply chain.