Failure to prevent modern slavery in supply chains: Australia's next corporate criminal offence

The Australian Government has announced it will introduce a new criminal offence for failing to prevent modern slavery in corporate supply chains, as part of major reforms to the Modern Slavery Act 2018 (Cth) (the Modern Slavery Act). 

Summary of modern slavery changes 

• The federal government will introduce a new criminal offence for companies with annual consolidated revenue over $100 million that fail to prevent modern slavery in their supply chains.
   
• A ‘reasonable steps’ defence will be available where companies can demonstrate they had adequate procedures in place to prevent modern slavery in their supply chains.
   
• Civil penalties and enforcement powers will be introduced to address non-compliance with existing reporting obligations under the Modern Slavery Act.
   
• The reforms remain at an early stage. No legislation has been drafted, and key details (including penalty quantum and the scope of the defence) will be determined through consultation.
   
• Consultation will also consider a deferred prosecution agreement scheme and remedies for victims.
   
• If introduced, in-scope entities will face a significant uplift in compliance obligations, requiring enhanced governance, due diligence and supply chain controls.

The proposed offence and ‘reasonable steps’ defence

In a world first, the government’s announcement suggests it will adopt a ‘failure to prevent’ model of corporate criminal liability for companies that fail to prevent modern slavery in their supply chains.

It will place the onus on companies to demonstrate they have taken reasonable steps to mitigate the risk of criminal conduct connected to their supply chain. 

While not much is known about the government’s proposal yet, the proposed offence will apply to companies with annual consolidated revenue over $100 million. This is the same revenue threshold for reporting under the Modern Slavery Act. Assuming the offence defines modern slavery by reference to the Criminal Code, companies found to have forced labour, deceptive recruiting, human trafficking, slavery, debt bondage, forced marriage or servitude in their supply chains will be exposed to corporate criminal liability where they did not do enough to prevent it occurring.

However, companies that can demonstrate they have taken ‘reasonable steps’ to prevent modern slavery in their supply chain by having adequate processes and controls in place will have a complete defence to prosecution.

The first Australian example of a ‘failure to prevent’ offence is the corporate criminal liability for failing to prevent foreign bribery by an ‘associate’. Companies that prove they had ‘adequate procedures’ designed to prevent such conduct at the time of the offence have a complete defence. This may give some indication of how the modern slavery changes will be implemented. 

The announcement also suggests the government may draw elements from the NSW Anti-slavery Commissioner’s Guidance on Reasonable Steps to manage modern slavery risks (NSW Guidance). This guidance is based on the principles of human rights due diligence in the UN Guiding Principles on Business and Human Rights.

Lessons from the ‘adequate procedures defence’ for failing to prevent foreign bribery 

The ‘failure to prevent’ foreign bribery offence imposes absolute liability: if an associate of the company engages in foreign bribery, the organisation commits the offence unless it can establish it had adequate procedures in place to prevent the conduct from occurring. A company cannot avoid liability merely because it was unaware of or had no involvement in the foreign bribery offence. It can be convicted regardless of whether the associate has been convicted. 

The term ‘adequate procedures’ is not defined in the Criminal Code. However, the Commonwealth Attorney-General’s guidance identifies six key principles:

1. Fostering a control environment to prevent foreign bribery
    
2. Responsibilities of top-level management
    
3. Risk assessment
    
4. Communication and training
    
5. Reporting foreign bribery
    
6. Monitoring and review 

If convicted of foreign bribery, an organisation faces a maximum fine equal to the greatest of:

• 100,000 penalty units (AUD $36.4m as at 1 July 2026); 
   
• three times the value of the benefit obtained from the foreign bribery; or 
   
• 10% of annual turnover for the 12 months prior to the offence where the value of the benefit cannot be determined.

The penalties for the proposed modern slavery offence have not yet been determined. If the foreign bribery model is adopted as a template, companies should anticipate penalties of a comparable magnitude.

NSW Anti-slavery Commissioner’s guidance to manage modern slavery risk

Since 2022, public entities in NSW have been legally obligated to take reasonable steps to address modern slavery risks in their supply chains. While the NSW Guidance is designed to apply to NSW government procurement, it provides a robust framework for identifying, assessing, mitigating and remediating modern slavery risks in supply chains. The NSW Guidance is likely to assist companies to introduce a robust framework for modern slavery risk mitigation, which will provide a strong foundation to avoid potential exposure under the proposed federal ‘failure to prevent modern slavery’ offence. 

 The seven steps are:

1. Commit: engage key stakeholders, identify salient risks, and adopt a modern slavery policy and risk management plan
    
2. Plan: identify and map supply chain risks and develop a risk-reducing sourcing strategy
    
3. Source: select appropriate suppliers and adopt a shared responsibility approach in contracting
    
4. Manage: monitor and evaluate supplier performance and build supplier capabilities
    
5. Remedy: provide or enable access to effective grievance mechanisms, take steps to remedy harm, use leverage to remediate deficient practices, and withdraw responsibly where necessary
    
6. Report: establish a victim-centred reporting protocol and report on modern slavery risk management efforts
    
7. Improve: learn from performance data and train your workforce

Impact of forced labour bans in other jurisdictions

The United States has operated and actively enforced a forced labour ban since 2016. It has made forced labour a core issue in trade negotiations (including through its recent proposal of a 12.5% tariff on exports from countries it considers have inadequate frameworks to prevent forced labour). The commencement of India’s forced labour ban is imminent, the European Union’s forced labour ban will commence in 2027 and Canada is set to strengthen its existing modern slavery legislation. Jurisdictions including Indonesia, Malaysia and Bangladesh have all committed to introducing forced labour bans.

The proliferation of legislated forced labour bans globally will increase the likelihood that instances of forced labour within corporate supply chains are detected. This heightens the risk of exposure to criminal liability for in-scope companies when the new ‘failure to prevent’ offence is introduced.

What the modern slavery changes mean for your organisation

A ‘failure to prevent modern slavery’ criminal offence is fundamentally different from the existing transparency reporting regime in Australia. Avoiding criminal liability will require a significant uplift in governance, human rights due diligence and compliance processes. With the government also strengthening enforcement of modern slavery reporting obligations, companies should expect increased scrutiny from regulators, stakeholders and the broader community. The government has indicated that the reforms will be complemented by practical guidance and education initiatives to assist companies to identify, manage and remediate modern slavery risks in their supply chains.

Companies that adopt a structured, risk-based approach to supply chain due diligence, a demonstrable commitment from senior leadership and ongoing monitoring and action where modern slavery risks are identified, will be best positioned to satisfy any ‘reasonable steps’ defence.