Modern Slavery Act Supply Chain Compliance - 3 Tips for Working with Your Suppliers to Operationalize Australia's Modern Slavery Act
Moving from Good Cause to Great Program for Modern Slavery Act Supply Chain Compliance
Most companies with national or global supply chains have implemented some form of vendor risk management program to minimize the risk of disruptions in their supply chains due to, among other things, the sudden closure of an essential supplier. These programs recognize the critical nature that third-party suppliers play in a company’s overall business operations and allow companies to proactively manage these risks through new vendor due diligence and on-boarding questionnaires, on-going monitoring activities, and other measures. Another risk may be present in supply chains.
The International Labour Organization has noted that approximately 40.3 million people around the globe were enslaved in 2016, including 24.9 million people in some form of forced labor. Modern slavery and human trafficking produce approximately USD $150 billion in illegal profits each year, which makes the modern slavery business one of the most lucrative forms of global organized crime behind drug trafficking and the trade in counterfeit goods. The current global pandemic may also be increasing the risk of modern slavery. In a May 11, 2020 statement, the Global Business Coalition against Human Trafficking (GBCAT) urged companies to protect workforces against modern slavery risks, as follows:
… the most vulnerable of humanity are at greater risk now than ever. When businesses and supply chains are strained, so too are the people that keep businesses and supply chains running. In particular, the current conditions expose vulnerable populations to a greater risk of being exploited and caught in the web of modern slavery ….
Modern slavery compliance is becoming an increasingly important issue to companies not simply because eradicating slavery around the globe is an important social cause, but also because of increasing legal reporting requirements. The Modern Slavery Act 2018 (AU MSA) established Australia’s national Modern Slavery Reporting Requirement (Reporting Requirement). Domestic and international companies and not-for-profit entities operating in the Australian market with annual consolidated revenue of at least AU $100 million must submit an annual Modern Slavery Statement (Statement) describing their actions to assess and address modern slavery risks in their business operations and supply chains. These Statements will be submitted and made available to the public through an online central register maintained by the Modern Slavery Business Engagement Unit in the Australian Border Force (ABF).
The first reporting deadline under the AU MSA was extended to September 30, 2020 due to the current pandemic, but that deadline is quickly approaching. Companies subject the Reporting Requirement will need to merge their practical experience in addressing vendor risk in their supply chains with their corporate social responsibility programs to develop a formal program to ensure they are maintaining responsible and transparent business operations and supply chains.
Companies will need to engage or reengage with their suppliers to help build, develop, and continuously improve their AU MSA compliance programs. The ABF released a guidance document, the Commonwealth Modern Slavery Act – Guidance for Reporting Entities (GRE), to assist companies in complying with the Reporting Requirement. The GRE outlines three principles that may assist companies in engaging and working closely with their suppliers to assess and address their modern slavery risks.
- Build Meaningful Partnerships with Your Suppliers
Supplier support should be an integral component of your company’s MSA compliance program. The GRE encourages companies to provide practical support to their suppliers to help those suppliers build awareness of the risks of modern slavery. Simplistic approaches to compliance, such as requiring suppliers to agree to statements or contract clauses certifying that their business operations are slavery free, may incentivize your suppliers to not disclose modern slavery risks to your company. Practical support, such as training to help your suppliers address modern slavery risks that may impact your company, will likely be needed in your company’s initial implementation of an AU MSA compliance program as your company’s suppliers will have different levels of understanding about modern slavery risks. Some suppliers may be subject to the AU MSA and required to file their own Statements, but these requirements may be new to other suppliers.
Companies should also clearly communicate their expectations to suppliers and encourage collaborative engagement. Suppliers should know how to engage with your company if they identify a case of modern slavery in their operations or in the operations of their suppliers and under what conditions your company would terminate the supplier relationship.
Suppliers may also be subject to the Reporting Requirement, but your company should not outsource compliance to any supplier. Your company and its suppliers, whether subject to the Reporting Requirement or not, share responsibility for assessing and addressing modern slavery risks in your operations and supply chains. Although a supplier’s Statement can provide important information about how they are responding to modern slavery and may assist your company in identifying possible risks and areas for collaboration and additional work, companies should not simply copy and paste from the Statements filed by their Suppliers. Your company will need to decide whether it is satisfied with the information and actions taken by each of its suppliers. More importantly, your company’s Statement should reflect your company’s unique supply chain and the unique risks within that supply chain.
As noted above, companies may leverage their existing vendor risk management processes to address modern slavery risks. For example, modern slavery questions can be added to existing due diligence questionnaires for new suppliers. However, companies also need to recognize that modern slavery presents unique risks and those risks must be individually evaluated, assessed, and managed throughout the life of each supplier relationship. Separate MSA questionnaires may provide companies with a clearer and wider picture of the modern slavery risks in its supply chain.
- Focus on Risk-based Supplier Engagement
Some companies may view compliance with the AU MSA as a form of vendor management 2.0 and that is not a bad analogy. However, the risks of modern slavery should be viewed with a different lens. The United Nations Guiding Principles on Business and Human Rights notes that when addressing human rights risks, such as modern slavery and human trafficking risks, the relevant lens is the risk to people and not the risk to your company or its supplier.
The GRE encourages companies to avoid blanket approaches to compliance and to, instead, adopt a risk-based approach that prioritizes high risk suppliers, whether that higher risk is due to the country of location of the supplier, the particular business sector of the supplier, or some other factor. Although most companies have a robust risk program, the “risk to people” lens may require a realignment of your company’s existing risk analysis in its vendor management program. For example, a critical parts supplier with its only manufacturing facility in a geographic area with a high incidence of severe flooding may present a significant risk of disruption in your company’s business operations. That supplier may be classified as a high-risk company in your company’s vendor management program, but that same supplier in that same location in that same country may not present a high level of modern slavery risk.
- Recognize and Use Your Company’s Leverage to Influence Change
The GRE notes that, in some cases, your company’s actions and purchasing practices may increase modern slavery risks in your supply chain. For example, your company may require suppliers to meet unrealistic pricing and/or deadline requirements. If your company determines that all of its suppliers are using forced labor, it may be time to review your company’s pricing and deadline requirements.
The GRE recognizes that some scaling may be required. Companies should encourage their suppliers to respond to modern slavery risks in a way that is appropriate to their unique circumstances, including their size, capacity, structure, risk profile, and leverage with their own suppliers. Although these factors do not change any supplier’s responsibility to assess and address their modern slavery risks, these factors may impact how they complete these tasks. For example, a small supplier with limited financial resources may need to prioritize the order in which they respond to such risks.
The GRE also notes that companies should identify and engage with suppliers that operate at “control points” in the supply chain. For example, a supplier that operates a factory assembling engines that will be incorporated into construction equipment manufactured and sold by your company may use multiple components from various sub-suppliers. Suppliers at these control points will have greater visibility over activities further down the supply chain and can assist your company in gaining a better understanding of the modern slavery risks that may exist in the deeper layers of your supply chain. Your company and its control point supplier can then exert the leverage needed to change those practices.
If your company is subject to the Reporting Requirement under the AU MSA, your company will need to identify and address the modern slavery risks it faces in its domestic and global operations and supply chains and in the operations and supply chains of any entities owned or controlled by your company. This is a first step, but a required step to complete your company’s Statement for submission to the online central register.
The AU MSA does not require your company to certify that its business operations and supply chains are slavery free. Your company should, however, aim to highlight the following in its first Statement:
- How your company is taking meaningful action to assess and address its modern slavery risks;
- Why your company is prioritizing certain risks and actions; and
- How your company plans to improve your AU MSA compliance program over time.
The ABF website notes that “[t]Australian Government is taking a global leadership role in combating modern slavery” and that “[t]here is no place for modern slavery in the Australian community or in the global supply chains of Australian goods and services.” The first reporting deadline under the AU MSA is only months away so it is time for companies to make the leap from good cause to great program.