Reading the Tea Leaves: What the UK Modern Slavery Act Review Tells Us about the Future of Modern Slavery Disclosure Legislation

Having just spent a few days in the UK with key stakeholders a party to modern slavery legislation, I’d like to offer a few insights to organisations reporting under the Australian Modern Slavery Act 2018 (AMSA) on recent developments that may indicate what the future holds at and beyond the AMSA’s three-year review. 

Many will be aware that the UK’s Modern Slavery Act 2015 (UK MSA) has recently undergone a review. The committee’s final report, published last month, has endorsed some longstanding criticisms of the UK's Act, calling for some significant legislative belt-tightening.

First, it should be noted that ‘modern slavery’ disclosure legislation, starting with the California Transparency in Supply Chains Act 2010 and finishing, for now, with the new Australian and New South Wales laws, has been slowly refined with each attempt. Indeed, the NSW government has just announced its intention to delay implementation and return the law to committee to address “defects” that will make the law “unoperational.” 

Stakeholders involved in the development of the AMSA had the benefit of hindsight in terms of where the California and UK Acts were falling down—particularly around poor-quality reporting resulting from weak guidance, optional reporting criteria, and no government mechanism to monitor and enforce compliance. 

So, as the UK completes its first formal review, we could expect some leap-frogging to begin, where the UK reaches ahead of Australia and then Australia, in three years’ time, reviews and, hopefully, improves its own Act, potentially driving a ‘race to the top’ amongst States. Below, I lay out some examples, extracted from the review recommendations that focus on section 54 of the UK MSA.

Lining up the Acts 

If adopted, several of the reforms recommended by the Review would bring the UK MSA into line with the AMSA. For instance, the Reviewers recommend several changes to improve the quality of statements, including removing Section 54(4)(b), which allows companies to report that they have taken no action and still be compliant with the law, and strengthening the statutory guidance provided to business. 

This first point reflects an important shift in the attitude toward risk—most notably, that it is natural and inherent rather than a signifier of misconduct on the part of business. Within the Australian context, business led government on this issue, calling out the inclusion of a similar provision originally included in the first draft of the bill on the basis that everyone has risk. To its great credit, the government listened, effectively shifting the debate from ‘if’ to ‘what’ and thus shaping a more positive business mindset toward risk. The subtle lesson here is that effective legislation isn’t just about what obligations it imposes but on how it frames an issue to increase knowledge, shape attitudes and influence behaviour. 

Other reforms recommended by the panel that would line up with UK MSA with the AMSA focus on enhancing transparency. These include creating a government-run repository for modern slavery statements, that to date has been relegated to civil society, and requiring companies to be more specific about applicable time frames for respective statements. There is also a recommendation to extend reporting obligations to the public sector, which is likely to proceed via Baroness Young’s Private Members Bill currently before the English parliament. 

Reaching Ahead

In addition to the above, Reviewers identify a series of additional, more progressive reforms that would, if adopted, advance the UK well ahead of Australia. If adopted, these reforms could serve as ‘tea leaves’, indicating where we may be headed if the business community does not rise to the challenge.

The List

The first of the proposed reforms seeks to clarify to whom the Act applies—an issue that ultimately fell into the ‘too-hard’ basket in the Australian context. Reviewers have recommended the UK Government develop a non-exhaustive, internal list of companies and a process through which to engage companies in determining whether they are subject to the reporting requirement or not. Whilst this recommendation targets government, not business, it recognises that modern slavery legislation, including potential penalties for non-compliance, cannot be effective if we do not know to whom it applies. 

Beyond Tier 1

Reviewers also seek to address the limited description of business operations beyond tier 1, recommending a requirement for companies to consider the entirety of their supply chain—a step the Australian Government deliberately refrained from taking to allow some flexibility for firms at the beginning of their reporting journey.  

Reviewers do suggest a caveat whereby companies that have not gone beyond tier 1 be required to at least explain why not and what steps will be taken in the future, reasoning that “this would address the issue of companies offloading their responsibilities at the first tier in their supply chain or by using agency staff”. 

Should this recommendation be adopted, it may prove to be a double-edged sword where too much focus on mapping may detract from strategic focus on salient risks—a concern already identified by some UK-based groups. As in so many things, the trick is balance, and we will have to carefully monitor this aspect of reporting to uncover potential unintended negative consequences.

Culture and Compliance

The most ambitious reforms recommended in the UK Review pertain to embedding modern slavery reporting into business culture and to strengthening compliance. 

Culture

On the issue of business culture, the Reviewers recommend an amendment to the Companies Act 2006 to require a reference to modern slavery statements in annual reports and amending Section 54 to extend a similar duty to non-listed companies that meet the threshold, but which are not captured by the Companies Act. Reviewers also want companies to be required to nominate a designated board member to be personally responsible for the production of the statement and to create an offence under the Company Directors Disqualification Act 1986, for failure to comply or act when instances of modern slavery are discovered. 

This is significant. First, raising the stakes for individual board members is likely to address the lack of board-wide engagement with the issue that has been noted by groups like Ergon Associates. In its 2018 review of 150 company modern slavery statements, Ergon found that whilst board sign-off has sparked internal policy reviews and risk assessments, an “enhanced level of activity [has] not [been] necessarily observable across the board.” Noting the importance of strong senior engagement and leadership in forming “the basis for corporate momentum” to address modern slavery, such a change could accelerate currently lagging efforts to report in the first place and also to report with a view to continuous improvement. This should be a signal for companies reporting under the AMSA of the importance of (and inevitable demand for) vigorous engagement with Boardroom Australia so the necessary understanding and will is in place to cascade real reform throughout the supply chain.  

Secondly, the Reviewers’ recommendation to create a provision for disqualification on the basis of “failure to act” expands on the original intention of the law and suggests growing appetite for a move toward due diligence legislation. However, similar to the recommendation to improve descriptions of operations beyond tier 1, this step could also yield an unintended negative consequence—that of discouraging meaningful disclosure. Attaching a penalty to failing to act, rather than establishing a sufficiently robust system—as the French Law of Vigilance does—may prove more effective in terms of both disclosure and remediation. Either way, Australian companies should again take note: if they do not rise to the challenge under the current lighter-touch, disclosure legislation, States will be left with few options but to brandish the proverbial ‘stick’. 

Compliance

The question of lack of monitoring and enforcement is, understandably, the most contentious issue and has been raised time and time again in various critiques of the Californian, UK and Australian laws.

The UK Reviewers want to establish a graduated enforcement model for non-compliance, beginning with warnings, then fines, followed by court summons and ultimately director disqualification. Notably, the reviewers also recommend the Government set up or assign an enforcement body to impose sanctions—a mandate likely to fall to the Anti-Slavery Commissioner. 

Noting that they do not recommend any changes to the threshold, an important omission in the review is what would constitute reasonable resourcing to ensure comprehensive monitoring of all companies reporting under the Act. The reviewers also fail to acknowledge the need for increased resources were the role given to the Anti-Slavery Commissioner, to ensure the office’s broader mandate of overseeing the UK’s response is fulfilled.

Conclusion

In conclusion, reporting under the AMSA is going to have to exceed the standard set to date under the UK Act. If it doesn’t, the Australian Government will face mounting pressure—from both civil society and business—to institute stricter requirements. For example, Ergon’s research found that leading companies are frustrated with the rate of noncompliance of other companies and are looking to government to raise the bar. Ergon also predicts that “with several pieces of new legislation on modern slavery reporting being proposed in various countries, it would seem that voluntary approaches may soon give way to greater regulation.” 

If you’re reading the tea leaves, the best course is to prepare your organisation now, regardless of if there is a penalty and whether or not it is currently required to report. All signs point to greater expectations—from civil society, from government and certainly from the wider business community. The good news is there is plenty of time and plenty of support. The first set of Australian reports are not due until late 2020 and final government guidance is being released this week. 

Additionally, Monash has developed a tool to assist firms monitor and evaluate their efforts to know whether their investment in compliance with the AMSA has made a meaningful reduction in risk. You can find out more by visiting our website at https://arts.monash.edu/research/the-trafficking-and-slavery-research-group, emailing [email protected] or messaging us via Linked In.