The new Modern Slavery laws affect charities and not-for-profits in a number of ways. The new laws could directly apply, the organisation may voluntarily choose to participate in the new regime, or may be a part of another organisation’s supply chain and therefore compelled to comply. Whatever the reason all charities and not-for-profit organisations should be aware of the new Modern Slavery laws.
Overview: Modern Slavery Act
The Modern Slavery Act 2018 (Cth) passed into law on 29 November 2018. The Commonwealth Act establishes a national Modern Slavery Reporting Requirement that seeks to uncover the impact of large organisations on modern slavery both in Australia and abroad. The term modern slavery is defined in the new regime as conduct that amounts to serious exploitation. The Commonwealth Act describes eight types of serious exploitation which include crimes such as: human trafficking, forced and child labour, slavery and servitude. The Australian Government estimated that there were over 1,500 victims of modern slavery in Australia between 2015 and 2017. The Reporting Requirement is intended to force large organisations to consider their impact on modern slavery in areas of their supply chain that they may not have previously examined.
The first Modern Slavery Statements (MSS) under the Modern Slavery Act 2018 (Cth) are due to be lodged on 31 December 2020. The MSS regime requires large Australian entities (including charities and not-for-profits) to report on the impact of their domestic and international operations on modern slavery.
Depending on the nature, location and activities of your organisation and its supply chain participants, considerable effort may be required to comply with the Commonwealth Act.
This article provides information about how the new compliance regime may affect your organisation, including whether you are captured by the regime and key considerations for charities and not-for-profits considering voluntary compliance as part of best practice governance. It also considers the potential impact of the Modern Slavery Act 2018 (NSW), which is yet to commence.
Does my organisation need to report?
The Modern Slavery Act 2018 (Cth) (Commonwealth Act) requires entities based or operating in Australia which have an annual consolidated revenue of at least $100 million over a twelve month period to report on their organisation’s modern slavery risks.
While the Commonwealth Act itself is silent on its application to not-for-profits, the Guidance for Reporting Entities confirms that the law applies equally to individuals, companies, superannuation funds and not-for-profits, including charities. This means that if your organisation has a consolidated revenue of over $100 million then you will be required to create and lodge a MSS.
But what is consolidated revenue? Does this include charitable donations?
The Commonwealth Act applies the Australian Accounting Standards, which defines ‘consolidated revenue’ as the total revenue of your organisation and any organisations under your control. In line with AASB 1058, donations that are recognised as income will fall under consolidated revenue. Therefore, if your organisation has consolidated revenue of over $100 million, it will need to comply with the new MSS. If you are unsure how to determine your consolidated revenue you should speak to your accountant.
What about voluntary compliance?
Based on the Australian Charities and Not-for-profits Commission’s Australian Charities Report 2018, only 0.4% of registered charities report having annual revenue over $100 million. This means only a very small portion of registered charities will be captured by the Commonwealth Act. However, charities and not-for-profits that do not meet the revenue threshold may still choose to comply.
The Commonwealth Act facilitates voluntary compliance by entities who may not reach the compulsory compliance threshold. Voluntary compliance can be a great way of taking leadership and assisting in the fight to eliminate modern slavery in Australia and internationally. Some organisations may also be required by other entities in their supply chain to provide compliance by creating a MSS. However, if you do choose to voluntarily submit an MSS, it must comply with all requirements under the Commonwealth Act.
To submit a voluntary MSS, your organisation must notify the Department of Home Affairs before the end of the relevant reporting period (see below for the upcoming reporting periods). If your organisation has indicated it would like to comply for a certain period, it can change its mind right up until the start of the relevant 12 month reporting period. However, if your organisation fails to report as notified it may be required to explain its non-compliance to the Minister.
What does my organisation have to do to comply?
Entities that are required to, or choose to, submit a MSS, must generally do so within certain specified timeframes. The original reporting deadlines were extended by the Department of Home Affairs due to the ongoing COVID-19 pandemic, with reporting for the period from 1 April 2019 to 31 March 2020 due on 31 December 2020.
While the Commonwealth Act does not provide a set structure for the MMS to follow, it should include information such as:
- the structure, operations and supply chains of the organisation;
- an outline of the risks of modern slavery practices in the operations and supply chains of the reporting organisation; and
- a description of the actions and effectiveness of the organisation to address the risks of modern slavery.
In preparing a MSS, your organisation should also address the impact of the COVID-19 pandemic on your operations and supply chains, from the perspective of modern slavery. For more information on how to go about this see Preparing Your Modern Slavery Statement with COVID-19 in Mind.
The MSS must be approved by the board of directors or trustees of the disclosing organisation and signed by an appropriate representative, such as a director. The MSS must then be submitted to the Department of Home Affairs via the Online Register for Modern Slavery Statements. All the statements from disclosing organisations will then be made publicly available on an online central register.
For more information on how to comply see Eradicating Modern Slavery: How the new Modern Slavery Act affects your organisation.
Although the reporting obligations under the Commonwealth Act may at first appear to be relatively straightforward, depending on the nature, location and activities of your organisation and its supply chain participants, considerable effort may be required to comply with the Commonwealth Act. For instance, it may be necessary to update your organisation’s contracts, corporate policies and procedures, websites and other corporate statements. It will also be necessary to implement a process for obtaining information and for monitoring compliance by your supply chain participants.
What are the consequences of non-compliance?
Under the current regime there is no penalty for failing to comply with the Commonwealth Act or providing incorrect information in your MSS. However, the Minister may require entities to provide further explanations and may require remedial action.
What about the Modern Slavery Act 2018 (NSW)?
The Modern Slavery Act 2018 (NSW) (NSW Act) was passed in June 2018. However, the NSW Act has not commenced and so its directions are not in force.
Reporting requirements under the NSW Act will apply to ‘commercial organisations’ (companies, partnerships and associations) that have employees in NSW; supply goods and services for profit or gain; have a total turnover in a financial year of not less than $50 million and which are not NSW government agencies.
Penalties of up to $1.1 million will apply for failing to prepare a modern slavery statement, for failing to publish a modern slavery statement or for providing false or misleading information in connection with a modern slavery statement. However, the NSW Act states that the reporting provisions do not apply if another regime is in place, so it may have limited effect if the organisation is already covered by the Commonwealth Act.
While the NSW Act in its current form is unclear on its application to not-for-profits and charities, an amendment bill has been introduced which, if passed, would clarify the position with respect to reporting by charities and not-for-profits.
Under the recommended changes to the NSW Act, the definition of a ‘commercial entity’ (for reporting purposes) would also be expanded to include charities and not-for-profits. However, the draft regulations of the new laws have suggested a complete exemption for charity and not-for-profit organisations. The NSW Government’s response to recommended change was released on 24 September 2020. However, these have not yet been implemented. The NSW Government aims to resolve any inconsistencies between the federal and state laws before the NSW Act commences.
Conclusions and next steps
The introduction of the Commonwealth Act and the enactment of the NSW Act have increased public awareness of the existence and impacts of modern slavery and have brought larger Australian organisations into line with global best practice reporting. It is also likely that modern slavery will take on increased significance for most Australian consumers, organisations and businesses, regardless of their size.
Australian organisations (including charities and not-for-profits) will come under increasing pressure to sign up to the reporting regime, even if they are not legal obliged to do so – and as noted above, depending on the nature, location and activities of your organisation and its supply chain participants, considerable work may be required to comply with the regime.
If your charity or not-for-profit organisation is required to lodge a MSS, is considering voluntary compliance or is compelled to do so as part of another organisation’s MSS compliance strategy, it is important you are aware of the revised reporting deadlines. If you require assistance in updating your contracts, policies and procedures to facilitate compliance or otherwise want to know more please do not hesitate to contact us.