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Legal and Constitutional Affairs Legislation Committee

BURN, Professor Jennifer, Director, Anti-Slavery Australia

REDMOND, Professor Paul, Member, Anti-Slavery Australia


CHAIR: We have your submission, which for our purposes we've numbered as submission No. 50. I'm sure we've given you material on parliamentary privilege and the protection of witnesses. With that, I ask one or both of you to make an opening statement. Who's going to go first?

Prof. Burn : That will be me. With me is my colleague Professor Paul Redmond, a national expert on corporations law, business and human rights. I wanted to show you how modest he is—

Prof. Redmond : I have reason to be modest.

Prof. Burn : and that response was entirely predictable. We would like to address a couple of issues. While sitting and listening to our partners, STOP THE TRAFFIK, I developed my own three words slogan—that is: recognise, conserve and advance. I think this is appropriate in the context of considering the Modern Slavery Bill 2018. I recognise everything that has been done in Australia since the 2000s. I have been a member of the National Roundtable on Human Trafficking and Slavery since 2008, but I am aware that Australia has been developing a robust response to trafficking and slavery since the early 2000s when we started to look at the emerging Trafficking Protocol. I have observed the dedication and strong bipartisan approach by Australian parliamentarians over this very long time to end the scourge of human trafficking and slavery. These practices are now in this bill called modern slavery. I also commend the government for the extensive period of consultation that has led to the drafting of the bill. Further, I want to recognise government representatives and agencies who have shown a long commitment to addressing human trafficking and slavery in Australia. I'm thinking particularly of the human trafficking teams in the Department of Home Affairs, formerly in the Attorney-General's Department, and the exemplary work of the Australian Federal Police, Border Force, Employment, Social Security and DFAT. I also recognise the work by civil society. In the room today we're joined by Sister Noelene Simmons from ACRATH. ACRATH have been providing support for victims of trafficking for over a decade.

Turning to this inquiry, Anti-Slavery Australia supports the successful passage of the Modern Slavery Bill. In particular, we support the reporting framework that requires large entities to report annually on the risk of modern slavery, and we appreciate that those entities are defined broadly. We value the provision in the bill that allows entities to opt into the scheme. We are impressed by the inclusion of Commonwealth procurement in the reporting requirement, and I note that the Australian National Audit Office and the Department of Finance reports that procurement in the public sector for the 2016-17 year was in the order of $47.4 billion. This is a world-leading initiative. It is excellent that there will be publicly and freely available statements through the modern slavery statements register, and we value that there will be a three-year review, although I recommend that the section be amended to make it clear that the review will include public and targeted consultation.

I would like to see the Modern Slavery Bill strengthened by the inclusion of an independent anti-slavery commissioner and the establishment of a victim's compensation scheme. I believe that these initiatives fit squarely within the framework of an Australian modern slavery act and they will provide real and tangible benefit to forgotten people—the people who aren't referenced in this bill; the people who have been trafficked and enslaved, and those who have experienced forced labour in Australia. We know that there are many people who have experienced these grave, egregious, dreadful forms of human rights abuse and to craft a modern slavery bill forgetting these people seems regrettable.

I've already mentioned today that I'm joined by my colleague Professor Paul Redmond. He is one of Australia's foremost experts on the law relating to corporations, business and human rights. He is going to address specific issues relating to the reporting period, including compliance mechanisms and thresholds. He'll make overall comments on the proposed scheme.

Prof. Redmond : I thank the committee for the opportunity to speak to and share this important discussion. If I could first pick up the aspect of our submission concerning the promotion of compliance. I wanted to make this first point. What is distinctive about this reporting requirement is its reliance upon market mechanisms, in particular consumer and investment pressure, to drive the race to the top and to secure its objectives. A very important part of considering the efficacy of that reliance is what has been the experience over these past three years in the United Kingdom in relation to its legislation, upon which this is modelled. What has been the quality of reporting? Rather than spending this time and the opening remarks responding to that question, I rather hope there'll be an opportunity in the discussion to actually explore that, because I think there's a rich load of material there from which we can draw to test the assumptions on which this reporting requirement, unsanctioned by a legal penalty, is based.

I will make the opening remark that, in terms of its reliance upon civil society and media resources for enforcement and attentiveness, we have a much lower level. We have fewer resources in this country than others. I pose the question: who can we reliably turn to for active monitoring of compliance with this reporting requirement at least within those sectors of civil society and investor communities which are the assumed drivers of conduct here?

Secondly, in relation to the assumptions as to market discipline, we would at least expect that market monitors would want a list of companies liable to report and comply. Yet I notice from the explanatory memorandum, page 57, it says:

The Australian Government does not hold sufficient information to compile an accurate list of all entities required to report.

If the Australian government cannot do it, how can civil society and investor communities? What incentives would there be, even for the Australian Council of Superannuation Investors, to make that investment? It negates the assumed capacity for market discipline.

Thirdly, there's quite a significant body of evidence—and I think Senator Marshall referred to it in the last presentation—around the significant limitations on consumer and investor interest in corporate and social responsibility, even for the small subset of entities which are public facing, and they aren't the whole body of entities covered by this legislation. In fact, if we look to institutional investors, they are under very strong performance pressures which sharpen the focus upon financial reporting, typically in a shorter-term time frame than we're assuming in relation to the assessment of reputation.

If we look to what legal sanctions there might be in relation to this, operating under the general law, absent the bill itself, you look initially to the misleading or deceptive conduct provisions of section 18 of the Australian Consumer Law. It's not clear whether they apply, though there are strong indications that they probably would by most entities, including corporate entities. It would be very helpful if there were a statement in this act indicating the relationship of section 18 to this bill. But, even if there were such a provision, there's a very significant economic impediment to any party taking on action to say that a modern slavery statement is misleading or deceptive. To start with, what economic interest would drive such a person to do that? Who would have that interest? And it would, in any event, likely be a David-and-Goliath contest, particularly since we're going to be talking about enterprises with turnovers of more than $100 million.

I want to list briefly four other possible incentives for compliance that warrant consideration. The first one is simply that the body of provisions of imposing civil penalties—not criminal penalties, but civil penalties—not only under the Corporations Act but also under many other provisions in our legislation to sanction compliance by entities and by corporate officers, like our market integrity rules and our continuous disclosure provisions under the Corporations Act, rely upon civil penalties to give effect to their norms.

Secondly, we can look at compliance with a modern slavery reporting requirement as a precondition for participation in Australian government tender processes. Thirdly, the developing area of concern we face elsewhere about responsible business conduct looks to whether you in fact have met certain standards and sanction less formally by exclusion from economic diplomacy support, whether it be export credit agency support or economic diplomacy. At the moment, the Canadian government is an exemplar in that development, but it's a soft form of regulation of conduct in this area.

There is a variety of legislation that have a human rights due diligence or other due diligence process as a ground of exculpation: if you satisfy certain due diligence processes, then you escape liability. The Illegal Logging Prohibition Act is one such example. One has to ask: why modern slavery? If it is so important for singling out in this reporting context, why it isn't that we don't consider it in the like area. If we were to bring in any of those compliance mechanisms, there ought to be a transitional provision, of course, to enable understanding and compliance.

I wonder if I could pick up on what's called the threshold question which we consider under the heading 'Entities required to report.' There are difficulties with a threshold approach. Where do you set the quantum? We initially asked for $25 million. We've now moved to $50 million. There's an indeterminacy around this. Of course, this problem of indeterminacy is compounded by the difficulty of identifying on a threshold basis which companies on a consolidated basis actually have a requirement to report. It's a crude regulatory tool, and the justification in the documentation is in terms of the assumed capacity of large entities to report and their assumed enhanced leverage. Both of those assumptions are unclear. But, in any event, it's poorly targeted and produces both under-reporting and over-reporting when there are mechanisms for more appropriate targeting. I want to come to one of those mechanisms.

If we don't focus on the consolidated revenue threshold but look instead to sectoral risk, industry risk and regional risk as the criteria for reporting, it makes for a much more targeted response to the problem of modern slavery. Secondly, there are ample resources available, as was discussed in the previous set of presentations. The ILO, the Walk Free Foundation, the Global Slavery Index, the European Union's documentation, the annual Trafficking in persons report, the Verisk Maplethorpe slavery index—there's a considerable body of evidence available that looks to not only region but sector and industry for risk profiles. Thirdly, a major argument for this, I put to the committee, is that it is consistent with the United Nations framework on business and human rights, which Australia co-sponsored and which is operationalised in the Guiding Principles on Business and Human Rights.

The Australian government is committed to the implementation of those guiding principles, and those principles are expressed in the OECD Guidelines for Multinational Enterprises. The Australian Treasury, to its considerable credit, is conducting a reform process to strengthen the operation of that agency, which is there to promote the OECD guidelines, which express the duty of enterprises to respect human rights, but also to provide a grievance mechanism. It is the global standard of responsible business conduct. It's referred to in the explanatory memorandum. It's missing from the act. It's the lighthouse by which we should be guiding action and its focus is upon risk. It applies to all enterprises, whether they're large or small. Its focus is upon human rights risk—the scope and scale of that risk, the severity of that risk and its irremediability.

Senator MOLAN: What was the technical name of that again?

Prof. Redmond : Guiding Principles on Business and Human Rights—a document of fundamental importance. As I say, chapter 4 of the OECD guidelines takes the responsibility-to-respect component of those guiding principles and expresses it as the OECD standard. We have a national contact point, located in the Treasury, charged with implementing it and providing a grievance mechanism. It's quite possible that grievances in relation to a failure to comply with a modern slavery act, if it came in in this form, would go to the OECD guidelines and would be adjudged by reference to the UN Guiding Principles on Business and Human Rights. The document provides a clear map of enterprise responsibility and clearly sets out a human rights due diligence process. Again, it's referred to in the explanatory memorandum. It says: 'You should be assessing risk and you should be integrating that finding into your general management systems. You should track it to see to what extent you've been effective in responding to that risk and communicate those findings.' This is the global framework, the global standard. The UK bill was criticised some years ago for failing to advert to it and operate within it, and in some ways we've operated on a parallel track rather than a track that takes its significance from that standard.

There's one more thing about a risk focus. There is a hunger in our community, I detect, to know about risk in this modern-slavery and human-rights-observance area. If the independent agency or the government arm charged with promotion in this area takes a risk focus, it will perform an enormous community-education function. Iwould note that the Department of Home Affairs, in its submission to this committee, talks about 'a confusing and complex reporting scheme' because the information on risk is unavailable. I hope we might be able to explore that, because I think there is a considerable body of information available in relation to modern slavery risk and other human rights risks, of which modern slavery is just a part, if perhaps a very egregious portion. Thank you for your indulgence.

Senator MARSHALL: I thought that was very impressive. You've touched on a lot of issues. We won't have time to go into all of them, so maybe I can home in on the last couple. You talked about high-risk industries—they know they're at risk; they could track the risk if they wanted to and they could analyse the risk. I suspect, being the cynical type of person I am, that there's probably a lot of wilful ignorance about actually doing that. You identified a lot of pressure to make money, and I think if you're making money you don't want to do anything that might jeopardise that. So that wilful ignorance comes in. But you also put the other position that you believe there's a lot of hunger in the community to know about that risk, and I think that was the basis of the STOP THE TRAFFIK submission too: you can change corporate behaviour by community standards and purchasing power. I want to bring it back to this. We've talked about the absence of penalties. Given that frame where you've taken us, could one of the penalties maybe be, instead of a financial penalty, a reputational penalty where non-compliance or guilt needs to be published in prominent positions in papers? That's the penalty. Public exposure is the penalty, as opposed to a financial penalty, which, unless someone's going to report on it, will never get into the public domain. Do you see that that may be a useful way of dealing with a penalty regime?

Prof. Redmond : In practice, being on the front page of The New York Times in a naming and shaming situation is the ultimate reputational penalty for public-facing businesses. And yet, as STOP THE TRAFFIK has just said, we're not in that business—we're not a naming and shaming organisation. What civil society organisation is going to pursue close analysis, close investigation and close monitoring? There aren't the resources available for that in this country. Identifying who would have to report is a very difficult task. If it's too complex for the Australian government, what civil society organization could take that on? What media could do it?

So, in a sense, that has been the major driver of responsible business conduct in the absence of something like a formalised reporting obligation, and it's in that context that the guiding principles, which express the expectations of conduct, operate. The ultimate sanction is reputation. In terms of the Australian government or an independent agency doing that, without statutory support it becomes very difficult. What if you get it wrong? These are judgments that need to build upon a body of expertise. I see that best residing in an independent slavery commission or some agency which develops an expertise and which has a prudential approach to shaming. As the explanatory memorandum makes clear, there's a risk in getting it wrong. There's very considerable risk for government or the agency, so there are limits to that. It's a grey area, but, at the end of the day, given that corporate balance sheets comprise very few assets or global enterprises nowadays, it's the reputation inherent in the brand that supports the stock market capitalisation.

Protecting that is the main driver, but there's a cloud of unknowing within our community in terms of the grounds for that reputation. Who of us could name the circumstances in which our shirts are made? Yet, every person in this room must wonder about that, and every person in the community wonders about that. Where do our phones come from—the precious metals in those phones? These questions weigh heavily on all of us in the community. There is this uncertainty, a deep, deep cloud of unknowing about origin. The risk is the key to resolving that uncertainty.

Senator PRATT: Professors, you've talked about the strong influence of reputational risk in getting good reporting happening. Nevertheless, you do support penalties as well. Why do you think that reliance on market and reputational risk is not enough?

Prof. Redmond : May I respond to that with the detail I threatened in my opening remarks?

Senator PRATT: Yes, that's what I was hoping for!

Prof. Redmond : I think it might be helpful to the committee. Let's look at the reporting rates. We have a crucial bill. We have three years of evidence from the UK experience. It's an enormously valuable body of evidence from which we can test our expectations that consumer and investor interest will drive responsiveness to this reporting requirement. If I may speak from my notes, that might be helpful and may facilitate movement.

The Home Office in the UK estimates that there are between 9,000 and 11,000 companies now required to report under the UK act. Only a short time ago, the estimate was 17,000, so it's floating around; there's some uncertainty. The Modern Slavery Registry, which is the authoritative collection of modern slavery statements collected, as of this morning reports that there are 6,394 statements by 5,596 companies. It doesn't indicate whether any of those are voluntary statements. So we are looking at roughly 50 per cent compliance simply in putting in a modern slavery report, three years after the introduction of that legislation. Look at the quality of the reports. The Modern Slavery Registry reports that only 19 per cent of the reports lodged meet the minimum requirement of the act—that is, they were approved by the by the board, signed by a director and published on a website. It is 19 per cent, and this is three years on.

There are two valuable reports by the consultancy Ergon Associates—the first in May 2016 and the second a year later—on the quality of reporting in published statements. I will paraphrase the May 2016 report: many statements do not go beyond disclosing general commitments and broad indications of the processes that have been adopted. Many statements say nothing about the company's risk assessment processes, and many do not identify priority risks in their operations and supply chains. Coming back a year later, Ergon Associates, a very reputable consultancy, reports this:

In terms of content, statements are generally longer and slightly more detailed than one year ago. Companies are producing better reports about their structure, operations, supply chains and modern slavery policies. There is also more information about trainings …

…   …   …

However, since our last analysis, there has been little improvement in most companies' reporting of due diligence processes and outcomes. Most statements (58%) only address risk assessment processes minimally and do not identify priorities for action based on the assessment.

While supply chains are relatively well covered, there is a significant gap in relation to contractors

the statements in relation to risk with contractors. These are all crucial areas where forced labour is involved.

On top of this, few companies in our sample (11%) disclose specific cases where steps have been taken in response to identified modern slavery risks.

That's not a requirement under the UK legislation and it wouldn't be under ours, but it's a touchstone for how attentive you are to the detail.

Approximately 80% of the statements do not mention key performance indicators (KPIs) or engagement with stakeholders or collaborative initiatives.

With some notable exceptions, most statements lack detail and are limited to broad descriptions of processes and activities. This level of reporting runs counter to the guidance supporting the Act and is unlikely to meet … expectations.

I will finish by looking at a report published a couple of months ago by the Business and Human Rights Resource Centre, a survey and analysis of the modern slavery statements by companies in the FTSE 100 Index, the largest 100 companies covered by the act. Almost half the companies—42, I think, was the number—do not meet the minimum requirements set out by the act—being signed by the board et cetera. The report says:

The majority of companies do not provide details on the complexity of their supply chains and risks they have identified.

It goes on:

50 companies provide no meaningful information on whether their actions were effective in addressing modern slavery risks.

This is 50 of the largest 100 companies.

Companies that did provide information relied heavily on performance indicators and did not indicate whether the results of the data collected from these indicators evidenced their processes were effective.

There was no connection in terms of the significance for their own internal processes. I think there's a body of evidence there which is very valuable to us, as we look to go down that path, as to whether the reliance on market sanctions is going to be sufficient.

Senator PRATT: Can I drill down into that with you a little bit more. What kind of penalty, in your view, is enough for, for example, a failure to get the board to sign it even though the act requires it? We've been told in evidence earlier this morning—I think it was by Woolworths—that the fact that a board is asked to sign off on it will be a powerful tool. But you're saying that a significant proportion are submitting reports that the board has not signed off on, but, because there's no penalty, it's seen as adequate to submit those reports anyway. At the very least, we should refuse to accept reports that have failed to be signed by the board.

Prof. Redmond : You start with the fact that half the companies who are estimated to be obliged to report don't do so. Of those that do report, 19 per cent don't meet the three basic requirements. Of the FTSE 100, the 100 largest, 42 don't meet the basic requirements. In a sense, I think one would expect that it's a threshold requirement that you at least comply with the basic elements, and—

Senator PRATT: I know this committee is struggling with having a list of companies that should report. You've talked about penalties, and I'm trying to think about other things that we could do. That could be naming companies that have failed to report that should have an obligation to report or finding a way of requiring them to be signed by the board—for example, refusing to accept them if they haven't been signed. The Labor Party has been debating penalties and has said that it's in favour of them, but I'm trying to find some triggers that might see us make progress on some of these issues.

Prof. Redmond : It's difficult without the list. That creates a great difficulty. If you're taking the threshold on a consolidated revenue approach, then you've got that difficulty, but there are some companies or entities about which I'm sure the Taxation Office would have a reliable list. We could identify a number of them. Clearly some have already come out. They reported under the UK act. I imagine those—

Senator PRATT: Because if we've got the potential to take the liberty of naming any particular company that we think has a turnover, then you'll create a de facto threshold at which people should be forced to opt in, you would think.

Prof. Redmond : Yes. You could sanction that very simply. The directors' duties provisions of the Corporations Act are civil penalty provisions, and they are a model for officer compliance and, of course, the numerous disclosure obligations of which this is a subset. They sanction the reporting entity that doesn't comply with the numerous disclosure provisions—not criminally but by a civil penalty. And that's the—

Senator PRATT: The penalty is simply for nonreporting, by virtue of which any company that has a board is going to need to opt in and at least report.

Prof. Redmond : If they're within the reporting obligation, yes. That would be a basic sanction.

Senator PRATT: I want to ask you about a commissioner. You've done significant work in helping victims of slavery-like conditions and trafficking within Australia. What do you think would be the role of a commissioner or advocate in supporting victims here in Australia?

Prof. Burn : Since 2003, we have provided legal representation to trafficked men, women and children experiencing forced labour, servitude, slavery and human trafficking.We have seen that there is a lack of coordination across Australia, and we recommend that the establishment of a broad-based anti-slavery commissioner would be a huge advance. There are proposals to establish a narrowly focused commissioner to provide advice and guidance to business along with the forecast establishment of the business engagement unit. But really, Anti-Slavery Australia recommends that the role of the commissioner should be much broader. And I note that, in considering our 82 current clients, none of the clients that we worked with in 2017 would have been identified by any form of supply chain reporting. If we observe the 21 convictions that have taken place in Australia since 2004 for the crimes of slavery and servitude and trafficking, none of those victims would be considered to be exploited in a supply chain.

There is an opportunity here for us to expand the focus of the modern slavery bill and establish a commissioner but ensure that that commissioner has a much broader focus than the very narrow focus of providing trusted friendship and guidance to business. Therefore, we have recommended that the commissioner should have powers to monitor and coordinate Australia's response, and coordinate across government departments and state and territory agencies. The commissioner should have an awareness-raising role, provide education and guidance, conduct inquiries and take evidence of systemic abuse in Australia. Anti-Slavery Australia further recommends that the commissioner should have a role in receiving and investigating complaints from individuals relating to the performance of government functions. There are multiple models for commissioners. As Paul provided a very learned and lengthy exposition of the business-reporting framework, I thought it would be helpful if we provided the committee with some additional information. Namely, we have done a comparison of different schemes that provide for commissioners.

Further—and I know it's coming up to morning tea, but I will just say one more thing—we really do need to establish a national compensation scheme. We have set out a framework for that at the end of our submission. The framework for the scheme sets out eligibility criteria. A person would be eligible for compensation if they have experienced a crime of modern slavery in Australia, if they have experienced harm as a result of that crime and if the application is lodged within two years, with some discretion. The scheme is essentially administrative in nature, modelled on existing schemes in the Commonwealth, but this scheme would provide real benefit to forgotten people, forgotten slaves, in Australia—those who have experienced such egregious harm and trauma in their lives. A compensation scheme provides formal recognition for people who had suffered here. It also provides a small amount of financial compensation that will help them take a different direction in their lives. It will help them move towards recovery.

I and Fiona McLeod, whom you heard from yesterday, have long submitted through many fora that Australia should establish a national compensation scheme. Two committee reports were handed down last year, one by the Joint Committee on Law Enforcement and the other by the joint standing committee. Each of those committees recommended the establishment of a national compensation scheme. We've costed it to be $5 million in each year. We've looked at historical data to evidence that costing. It would make a real difference to those in Australia who have been trafficked and enslaved, so I would commend that to the community.

Senator PRATT: Thank you both very much for your evidence.

Prof. Burn : On behalf of Paul, if the committee would like any additional information about any of these aspects, including further consideration on the issue of penalties, we'd be very happy to provide it.

Senator PRATT: Thank you.

CHAIR: Thanks very much for that offer, and for your written submission and for how you've helped the committee here today. We very much appreciate your assistance. With that, I'll adjourn the hearing until quarter past 11, when we'll hear from the Property Council of Australia.

Proceedings suspended from 10:59 to 11:19