WRITER: Dr Katherine Christ
While illegal in every country, modern slavery infects the supply chains of companies the world over, with 40.3 million people currently enslaved and US$354 billion-plus ‘at risk’ goods imported into G20 countries each year.
In Australia, a Modern Slavery Bill is before Federal Parliament. Expected outcomes for businesses generating $100M+ are to publish an annual statement disclosing their strategy on modern slavery in their supply chains.
In NSW, legislation already exists, with penalties of up to $1.1M for non-compliance. Business should prepare for the inevitable: diligently tracking and auditing beyond first-tier supply chains in order to reduce risks of modern slavery.
IF AUSTRALIA ADOPTS A MODERN SLAVERY ACT, BUSINESSES THAT MAKE $100M+ MUST DISCLOSE THEIR STRATEGY FOR ADDRESSING SLAVERY IN THEIR SUPPLY CHAINS. IT’S THE RIGHT STEP TO OBLITERATE INTOLERABLE HUMAN WORKING CONDITIONS, SO HOW SHOULD BUSINESS COMPLY?
In 2014, the Thai fishing industry was infamously exposed for the blatant abuse of boat workers. Bought and sold like chattels, these people were held against their will, tortured and forced to labour under appalling conditions, all to catch ‘trash fish’ to fuel Thailand’s multi-billion dollar farmed prawn industry. This is the coal face of modern slavery.
Companies implicated by the scandal via supply chain connections included Tesco, Woolworths, Walmart, and IGA. And although it can be argued these companies did not directly engage in slavery themselves, the discovery in Thailand did raise an important question: Given the power associated with business in the global economy, is it time to start holding large companies downstream in international supply chains accountable for the actions of the individuals and organisations they buy from?
Illegal in every country around the world, modern slavery disturbingly prevails. According to the 2018 Global Slavery Index (GSI) there are currently 40.3 million people enslaved worldwide, with 24.9 million in forced labour, and US$354 billion in ‘at risk’ goods imported into G20 countries every year. Such shocking statistics beg the questions: what exactly is modern slavery, where is it happening, and why does it still exist?
WHAT IS MODERN SLAVERY?
Although an exact and consistent definition is yet to be agreed upon by international regulatory bodies and governments, modern slavery is in general held to incorporate a set of practices which include: human trafficking, traditional slavery including forced servitude, forced labour, forced marriage, organ trafficking, sex slavey, the worst forms of child labour, and debt bondage. From a business perspective the most prominent concerns relate to forced labour, debt bonded labour, child labour and human trafficking which is often required to transport victims to the places where they are ultimately exploited.
Unfortunately, cases like the Thai fishing exposé are not isolated incidents, with people commonly exploited in industries such as agriculture, fisheries, mining, garment manufacturing and textiles, and electronics.
With most multinational enterprises implicated in modern slavery to some extent (whether directly or indirectly) governments and non-government organisations worldwide have begun to question the best way to engage the corporate sector in activities aimed at eradicating this scourge on society.
WHAT’S BEING DONE?
In 2015, modern slavery was added as a last-minute addition to the United Nations Sustainable Development Goals. Spurred by 164,603 advocates who sent messages directly to the United Nations Secretary-General Ban Ki-moon, and supported by public contributions, modern slavery was finally recognised as a high priority in the United Nation Sustainable Development Goals.
Goal 8, Target 7, explicitly encourages all parties to: “Take immediate and effective measures to eradicate forced labour, end modern slavery and human trafficking and secure the prohibition and elimination of the worst forms of child labour, including recruitment and use of child soldiers, and by 2025 end child labour in all its forms.”
This led to development of Alliance 8.7, a partnership of eight countries, including Australia, and 143 organisational partners, that aims to eradicate forced labour, modern slavery, human trafficking and child labour around the world.
Increasing interest has led to enactment of legislation in several jurisdictions, in particular the state of California in the United States and the United Kingdom, with Australia also becoming the latest country to consider the adoption of a modern slavery act.
In June 2018, New South Wales (NSW) enacted its own state-based legislation to address modern slavery, and a Federal Modern Slavery Bill is now before Federal Parliament.
The NSW laws go beyond the federal proposals by providing penalties for non-compliance and establishing an Anti-Slavery Commissioner. Yet both include a reporting requirement with the aim of eradicating modern slavery in the operations and supply chains of businesses.
WHAT DOES A MODERN SLAVERY ACT MEAN FOR BUSINESS?
In relation to business, modern slavery legislation in different jurisdictions has tended towards a common approach which concerns promoting awareness and action via improved transparency and disclosure. For example, the California Transparency in Supply Chains Act 2010, UK Modern Slavery Act 2015, and proposed Modern Slavery Bill 2018 in Australia all incorporate a requirement for organisations over a certain size to prepare and publish an annual statement which outlines the activities and actions taken to identify and eradicate modern slavery in both their own operations and in their supply chains.
In Australia it’s proposed that organisations with an annual turnover of more than $100 million must publish an annual statement which discloses their strategy on modern slavery in their supply chains. In NSW, this threshold is lower at $50 million dollars, while smaller entities are also being encouraged to consider their position, especially if they trade with larger entities downstream.
The modern slavery statement will need to be signed by a representative from the board of directors (or equivalent principal governing body) and will need to include information about the entity’s structure, including its operations and supply chain; the risk of modern slavery within its operations and supply chain, and the operations and supply chains of any entity the organisation owns; any actions taken by the entity, and any entities it owns, to assess and mitigate the risk of modern slavery (which may include due diligence and remediation procedures); how these actions are assessed in terms of their effectiveness; and any other information the entity deems relevant.
Research by the UniSA Business School suggests that many large Australian businesses are not prepared for the responsibilities that will shortly be thrust upon them. And with federal reports potentially due for reporting periods starting on or after 1 January 2019, and the first NSW reports possible due by the end of this financial year (2018-19), now is a good time for business to take stock.
WHAT DOES BUSINESS NEED TO DO NOW?
As managers prepare for the inevitability of having to prepare a modern slavery statement they need to consider the information that is needed and where it can be located, including who within the organisation is responsible for its collection and collation.
At the very least, a list of suppliers and supply chain participants – beyond the first tier – will be required. This may involve liaising with suppliers to obtain details of their suppliers. Entities then need to consider where supply chain risks exist in relation to their operations.
Supply chain risks are usually related to the countries in which suppliers are located and the specific industry in which they engage. If organisations do not have a dedicated human rights policy or commitment to supplier related due diligence, now is the time for business to consider what this means and what it should entail. Updated supplier codes of conduct could be a good place to start.
Finally, it’s expected that many organisations will engage in a process of internal and external audit aiming to identify areas for potential improvement. Access to education and professional development programs will also be useful as staff prepare to move into the new area of accounting for modern slavery.
WHAT IF BUSINESS DOESN’T COMPLY?
At present, the Federal Government has not committed to penalties for noncompliance with the proposed legislation. Indeed, some have argued that reputational advantages and disadvantages will be enough to encourage corporate competition to see Australia positioned as a leader in the fight against contemporary forms of slavery.
However, despite evidence from other jurisdictions which shows noncompliance is an ongoing problem, Australian businesses must not be complacent. The NSW Act has already flagged penalties of up to 10,000 penalty units, equivalent to $1.1 million, for noncompliance and it can be expected that, after an initial period of adjustment, the Federal Government might follow suit. Additionally, Chartered Accountants ANZ strongly recommends the annual publication of a list of noncompliers, which should ensure any reputational costs and benefits associated with compliance are internalised by reporting entities.
Despite the commitment and claims of organisations around the world, modern slavery is a scourge embedded in myriad products used by people in the developed world every day. Business is inextricably part of the problem.
The time has come for organisations to stop turning a blind eye to this horrific problem and start being part of the solution.
Modern slavery management and reporting is just one step forward; it’s not a quick fix and it will take time. But with commitment, significant learning and continuous improvement we can make a difference and move towards a world in which slavery is finally relegated to the pages of history.
Dr Katherine Christ is a Lecturer in Accounting in the School of Commerce. Her research interests include sustainable accounting and managing modern slavery risk in corporate supply chains.