The highly anticipated report of the statutory review of the Modern Slavery Act 2018 (Cth) (the Act) has been released. The review, led by Professor John McMillan AO, analysed the effectiveness of the Act in its first three years, including compliance with reporting requirements, as well as any further measures to improve its operation.

We set out the key recommendations and impacts on businesses below, including:

• Recommendations in line with the Albanese Government’s election commitments
• Recommendation to lower the reporting threshold from $100 million to a consolidated revenue of at least $50 million for the reporting period
• Recommendation to introduce penalties for non-compliance
• Recommendations relating to more prescriptive reporting requirements and more frequent changes, including that reporting entities must have a due diligence system in place
• Streamlining the reporting process by giving reporting entities the option of submitting a full statement every three years and an updated statement in the intervening two years

The Report includes 30 recommendations designed to strengthen the Act. The recommendations are largely targeted at perceived weakness in the current Act, including the variable standard of modern slavery reporting and the lack of enforcement of the reporting obligations. Overall, the Report notes that the majority of submissions acknowledged that the Act has had a positive impact in the first three years (wholly or somewhat). Notably, there was strong support that the Act had contributed to business cultural change – including a foundational change in business understanding of how modern slavery risks must be addressed. However, the widely expressed view was that there is no hard evidence that the Act has caused meaningful change for people living in conditions of modern slavery.

The Government will now consider the review and will consult across government and with stakeholders in formulating its response to the recommendations.

Key recommendations

Recommendations in line with the Albanese Government’s commitments

Many of the recommendations are in line with key election commitments from the Albanese Government’s Tackling Modern Slavery package, which are summarised in our article on Changes to Australia's modern slavery regime under a new Australian Labor Party government.

The Government has committed to establishing an independent office of Anti-Slavery Commissioner (Commissioner). The Report only considers the Commissioner's role in supporting compliance with the Act, as a separate project is considering the method and terms of appointing a Commissioner, as well as the functions and powers of the office and its relationship to Parliament. In this regard, the Report recommends that a function of the Commissioner is to issue guidelines on special issues relating to the reporting requirements in the Act.

Other recommendations in line with Government commitments include:

• the introduction of a penalties regime; and
• the ability for the Minister or the Commissioner to declare that a region, location, industry, product, supplier or supply chain is regarded as carrying a high modern slavery risk.

Significant increase in the number of reporting entities with reporting threshold dropped from $100 million to $50 million

The Report recommends lowering the reporting threshold from a consolidated annual revenue of $100 million to $50 million. This would significantly increase the number of reporting entities and extend to small and medium-sized businesses. It is estimated that an additional 2,393 businesses would become reporting entities under this lower threshold, which imposes a significant regulatory burden on those businesses.

Notably, it is also recommended that the penalty regime should not apply to an entity with a consolidated annual revenue of between $50 million - $100 million until two years after the entity has become subject to the reporting requirements of the Act.

Penalties for non-compliance

A number of recommendations aim to strengthen the regulatory and enforcement framework in the Act.

Significantly, this includes a recommendation to impose penalties for a number of reporting failures that breach objective standards, including:

• failure to give the Minister a modern slavery statement within a reporting period for that entity (without reasonable excuse);
• submission of a materially false statement;
• failure to comply with a statutory direction to take specified remedial action to ensure compliance with the reporting requirements of the Act; and
• failure to have a due diligence system in place that meets requirements that are set out in rules made under the Act.

Penalties would significantly increase non-compliance risk for businesses. Entities will need to be cognisant of whether the reporting requirements apply to them and, if so, must ensure that compliant modern slavery statements are submitted for each reporting period. The Government has previously committed to the imposition of penalties.

More prescriptive reporting requirements and more frequent changes

Australia's modern slavery regime is already considered the most prescriptive in the world and will become more prescriptive if a number of key recommendations are adopted, including a longer list of mandatory criteria and the ability for the government to change the mandatory criteria.

These changes include:

Due diligence

Reporting entities would be required to have a due diligence system in place that meets certain requirements and explain the activity undertaken in accordance with that system in the entity's annual modern slavery statement. A failure to have a compliant due diligence system in place would attract penalties.

High risk declaration

The proposed reforms would also allow the Minister or the Commissioner to make a written declaration of a region, location, industry, product, supplier or supply chain that is regarded as carrying a high modern slavery risk, including the ability to prescribe the extent to which reporting entities must have regard to that declaration in preparing a modern slavery statement.

Further changes to mandatory criteria

The report recommends consideration of whether the mandatory reporting criteria can be prescribed in a rule or regulation made under the Act, and deal with specified matters, rather than listed in s 16 of the Act as at present. This could lead to more frequent changes, and more mandatory criteria, imposing an additional regulatory burden on businesses complying with the Act.

Mandatory incident reporting

The report recommends consideration of new mandatory reporting criteria that would require an entity to report on modern slavery incidents or risks identified by the entity during the reporting year.

Potential reduction in red tape – 3 year reporting option

There are also a number of recommendations designed to streamline the reporting process. This includes the option of reporting entities to submit a modern slavery statement that addresses all requirements of the Act every three years, and in the intervening two years to submit a report that updates the information in the full statement.

Key takeaways for businesses

Businesses should be conscious of these potential upcoming changes and the introduction of more onerous obligations and penalties (and that these may be subject to further changes on an ongoing basis). Small and medium-businesses should consider if they now fall within the scope of the reporting requirement, and all entities currently reporting should reassess which entities in their structure are 'reporting entities'.

For advice and assistance in relation to ensuring that your company is operating in compliance with the Modern Slavery Act, please contact our team.