The bilateral trade and investment relationship between Australia and Indonesia is well established. In 2015–16, two-way trade in goods and services was valued at AU$15 billion and two-way investment was valued at AU$9.8 billion. Businesses in Australia investing in Indonesia and Indonesian companies partnering with, or supplying Australian businesses need to be aware of both nations' increased focus on tackling modern slavery.
An Australian Modern Slavery Act
The Australian Government has announced an intention to enact a Modern Slavery Act. The proposed regime will make it a requirement for large corporations and other entities operating in Australia with a turnover of AU$100 million to report annually on their actions to ensure transparency in their operations and supply chains and the steps they are taking against modern slavery. Statements will need to be approved at board level and signed by a company director. Businesses with revenue below the reporting threshold will have the option to submit annual statements. It is currently proposed that the statements will need to cover:
- the entity’s structure, its operations and its supply chains;
- the modern slavery risks present in the entity’s operations and supply chains (for parent companies this requires a global review of risk);
- the entity’s policies and process to address modern slavery in its operations and supply chains and their effectiveness; and
- the entity’s due diligence processes relating to modern slavery in its operations and supply chains and their effectiveness.
The annual statements will be held in a central repository which will improve transparency and increased public scrutiny for non-government organisations, interest groups and consumers to review, compare and consider the steps being taken by reporting entities. By publishing the statements, companies will be able to convey their commitment to addressing modern slavery in their operations and supply chains to their consumers who are increasingly more critical in evaluating the origins of the goods and services they purchase.
Indonesia’s efforts to combat modern slavery
Indonesia has taken a lead role in Asia in its endeavours to address modern slavery. For example, Indonesia recently launched a National Action Plan on Business and Human Rights, the first country in Asia to do so.
Last year, the Indonesian government developed a human rights certification process in the fisheries industry which is likely to be replicated for the construction and agricultural sectors. In addition to government-led initiatives, at the recent Bali Process Government and Business Forum held in August 2017, Indonesian business leaders committed to adopt the Indo-Pacific Modern Slavery Acts in a collective effort to end modern slavery in the region. It is envisaged that the Indo-Pacific Modern Slavery Acts will include mandatory reporting requirements of companies in relation to their supply chains. The Indonesian Government’s response to the business leaders' proposal of the Indo-Pacific Modern Slavery Acts is likely to be monitored closely by companies operating in Indonesia and by human rights groups.
The extent of the problem
In excess of 40 million people globally who are subjected to some form of modern slavery generate around US$150 billion per year in the global private economy from their forced labour alone. Asia Pacific has the highest number of slaves in the world. As at 2016, it was estimated that 0.29 per cent of Indonesia’s population were enslaved. The size of the Indonesian population means that Indonesia is in the top 10 nations for slavery in the Global Slavery Index.
What industries in Indonesia are reported as highest risk?
The following industries in Indonesia have been reported as having high risk for slavery:
- agriculture including palm oil and tobacco
- domestic services
Given the diversity and volume of natural resources and manufactured products exported by Indonesia, many Australian companies have materials sourced from Indonesia in their supply chains. In addition, there are over 470 registered Australian businesses operating in Indonesia.
It is widely recognised that slavery is not confined to developing countries. Developed countries around the world also have cases of slavery, be it from labour and wage exploitation, debt bondage or human trafficking, to name a few examples. It is envisaged that the introduction of the Modern Slavery Act will ensure Australia’s response to modern slavery is as effective as possible and contribute to global efforts to eradicate slavery.
These developments in Australian and Indonesia are part of a global wave to address modern slavery. By way of example:
- companies that carry on business in the UK with total annual turnover exceeding £36 million are required to publish annual statements, signed off by senior management, reporting on the steps they have taken to eradicate slavery and human trafficking in their operations and supply chains over the previous year;
- in California, companies with global revenues greater than US$100 million per annum are required to disclose information about their efforts to remove slavery and human trafficking from their tangible goods supply chains;
- France recently passed legislation requiring certain companies to undertake due diligence to identify and respond to human rights abuses;
- the Dutch Parliament recently adopted a law (currently awaiting approval by the Senate) requiring companies to determine whether child labour exists in their supply chains and prepare a plan of action to combat it.
Much of the momentum towards tackling modern slavery has been driven by business and government working together. We expect that in the short term further jurisdictions will enact due diligence or transparency obligations, with the support of their local business communities.
What can business do now to prepare?
Having regard to the heightened exposure on the issue of modern slavery and the introduction of legislation on the horizon, many businesses in Australia and around the world are embracing the pursuit of an end to modern slavery by evaluating their domestic and international supply chains and seeking ways to implement corrective actions if needed.
Indonesian businesses ought be prepared for questions from Australian customers, business partners and governments regarding the steps that they have taken to ensure modern slavery does not occur in their operations. The decision in Australia follows a global trend of seeking to address modern slavery. Many Indonesian companies will already have experienced similar requests from entities engaging in businesses in the UK.
Multinational companies, including those from Australia, operating in Indonesia need to follow carefully developments in Indo-Pacific Modern Slavery Acts. They also need to critically assess the risk of modern slavery in their operations and supply chains within Indonesia. Businesses required to prepare Modern Slavery Statements in Australia will no longer be able to turn a blind eye to these issues and will need to undertake a thorough risk assessment having regard to sector, jurisdictional and entity specific risks.
Companies can start preparing now by (at least) considering the following steps:
- Mapping the organisation’s structure, businesses and supply chains;
- Formulating policies in relation to modern slavery – this will involve collating current policies, identifying gaps, adapting existing policies and formulating new policies, as needed;
- Carrying out a risk assessment – identifying those parts of the business operations and supply chains where there is a risk of modern slavery taking place;
- Assessing and managing identified risks – this may include carrying out further due diligence in the entity’s operations and supply chains and reviewing and adapting contract terms and codes of conduct with suppliers;
- Considering and establishing processes and KPIs to monitor the effectiveness of the steps taken to ensure that modern slavery is not taking place in the business or supply chains;
- Carrying out remedial steps where modern slavery is identified;
- Developing training for staff on modern slavery risks and impacts.
For more information contact Abigail McGregor to discuss how your business can start preparing ahead of the introduction of the Modern Slavery Act. For Australian companies with an operational presence or supply chain in Indonesia, Norton Rose Fulbright can assist you with "know your supplier" due diligence in conjunction with our colleagues in Jakarta.
Norton Rose Fulbright is a global law firm, with offices in more than 50 cities worldwide, including cities across Europe, the USA, Canada, Latin America, Asia Pacific, the Middle East and Central Asia. We have experience in Australia and globally assisting clients with modern slavery risk management and reporting, as well as broader business and human rights advice. We made a submission to the Joint Standing Committee on Foreign Affairs, Defence and Trade’s Inquiry into a Modern Slavery Act (No. 72), provided regular pro bono assistance to the Committee and participated in the public hearing held in Sydney on 23 June 2017. Click here to download our paper. We also have been actively participating in the Attorney-General’s Department national consultation process to refine the Government’s proposed Modern Slavery in Supply Chains Reporting model.
Financial services monthly wrap up: December 2019 to January 2020
The months of December 2019 and January 2020 have proven to be a busy time for our Government and regulators, with significant changes and proposals for the funds and financial service sector. In particular, Treasury have released 17 bills in response to 22 recommendations made by Commissioner Hayne in the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Royal Commission), as well as ASIC releasing draft guidance for industry consultation on the new product design and distribution obligations.