Australia’s modern slavery laws: Do foreign-owned subsidiaries need to comply?

Australia’s Modern Slavery Act 2018 (Cth) (‘the Act’) creates a requirement for entities with annual consolidated revenue of more than AUD$100 million who are based, or operating, in Australia to comply with the Act and transparently provide a statement on their compliance on an annual basis.

The present definition of ‘consolidated revenue’ provides that the calculation of consolidated revenue is the sum of the total revenue of the entity and all its controlled entities. The keyword for foreign-owned subsidiaries here is ‘controlled’, which provides that the equation is not multidirectional, but only looks down the chain of control.

As a result of the word ‘controlled’ compared to an alternative phrase such as ‘controlling and controlled’, a foreign-owned subsidiary based in or operating in Australia with annual consolidated revenue of less than AUD$100 million will not meet the definition of ‘reporting entity’ under the Act and therefore need not comply.

As a result of the fact that the Act ignores the annual revenue of the foreign controlling entities of Australian foreign-owned subsidiaries when calculating annual consolidated revenue, corporate groups with similar attributes receive different treatment solely based on the location of a parent company.

It’s worth noting that in New South Wales, the revenue threshold could be lower if the state’s own modern slavery law is enacted.

Compare the pair

Scenario A

An entity based in Australia with annual revenue of AUD$20 million need not comply with the Act. However, as a subsidiary of a large Australian company with annual revenue of over AUD$100 million, the subsidiary’s activities must be reported upon as the Australian parent company is considered a ‘reporting entity’.

Scenario B

An entity based in Australia with annual revenue of AUD$20 million need not comply with the Act. Even though the entity is a foreign-owned subsidiary of a parent company with annual revenue of over AUD$100 million, neither the entity nor the parent company is required to comply with the Act.

The disparity between the treatment of corporate groups based in Australia and those overseas has recently caught the eye of the President of the Law Council of Australia, Arthur Moses SC, and the media. As a result, this disparity may receive attention as part of the mandatory three-year review of the Act.

Entities can also choose to voluntarily comply if they do not have a consolidated revenue of more than $100 million, and in doing so can submit an annual modern slavery statement on their compliance to the Modern Slavery Statements Register.

The Act sets out the mandatory criteria for an annual modern slavery statement as to compliance in section 16, which outlines that the report must describe:

• the entities’ structure, operations and supply chains;
• the associated risks of modern slavery within these operations and supply chains;
• the actions the entity has taken to address those risks;
• how the entity has assessed the effectiveness of such actions; and
• the process of any consultation undertaken with any other entities that the reporting entity owns or controls.

Modern slavery is increasingly a focus of regulators and consumers alike, and all companies, whether or not they are otherwise required to comply with laws such as the Modern Slavery Act, should conduct the necessary due diligence to protect their supply chains.

Macpherson Kelley first published a version of this article, and to the extent that elements of this article are the same as or similar to another version, they are published here with permission.