Modern Slavery Act and the supply chain: how firms can get the full picture

A recently-introduced law in Australia requires companies of a certain size to publicly state the steps they are taking to keep their supply chains free from forms of modern-day slavery.

Under this, companies will have to file annual statements on their modern slavery efforts according to a set of mandatory criteria, including a description of the company’s operations and supply chain. The first of these statements is likely to be due by mid-2020.With these obligations in mind, it is crucial that firms get the full picture of their supply chain and know what is behind all operations.

Here, Encompass’ Business Development Manager, Gary Clarke, explores the issues and how Encompass’ capabilities when it comes to identifying beneficial owners could assist in what is now a key task.

Background

It has been almost seven months since The Modern Slavery Act 2018 came into effect in Australia.

Adopted in January 2019, the Commonwealth Modern Slavery Act means that all entities that carry out business in the country, and have an annual consolidated revenue of more than $100 million, must give an annual report, in the form of a mandatory statement, providing a detailed account of the risks in relation to modern slavery in their operations and supply chains, as well as the steps they are taking to address those risks.

While, statistically, the incidence of modern slavery within the nation appears to be relatively low, there remains concerns about a low level of awareness of the issues, and this new development is considered to be vital.

Mandatory statements

As part of their obligation, the mandatory statements that applicable businesses need to provide should include the following information:

• the structure, operations and supply chains of the reporting entity
• the risks of modern slavery practices in the operations and supply chains of the reporting entity, and any entities
• that the reporting entity owns or controls (eg. group companies)
• the actions that were taken by the reporting entity and any entity that the reporting entity owns or controls, to assess and address those risks, including due diligence and remediation processes
• how the reporting entity assesses the effectiveness of such actions
• the process of consultation with any entities that the reporting entity owns or controls

As yet, there are no financial penalties set out for non-compliance with the Act, although the Minister for Home Affairs can make an inquiry if a company has not complied.

If a company doesn’t respond, the Minister may publicly disclose information about the failure to comply. As a result, the potential reputational risk it carries is huge and could have significant consequences for any deemed to fall short.

t is also worth noting that that failure to ensure robustness of statements may attract the attention of regulators who will want to have a closer look for any potential breaches in respect of anti-money laundering (AML)/counter-terrorist financing (CTF) legislation and the Criminal Code.

To be publicly named and shamed for not taking modern slavery seriously could have a hugely detrimental impact on an organization’s reputation, which, in turn, would have various knock-on effects.

Getting the full picture

How can organizations get a full picture of their supply chain?

It’s now more important than ever for an organization to understand who it is doing business with, as well as who, and what, lies behind their dealings.

With this in mind, the Ultimate Beneficial Owners (UBO) of an entity need to be identified early – along with other associated companies and individuals. This involves unwrapping what can often be complex ownership structures, and screening related sanctions. This is a process many of the reporting entities will be familiar with but may be struggling to implement in a timely and cost-effective manner.

To have a full and complete understanding means crossing jurisdictional lines, combining public and private data sources, accessing registries on a global scale and drawing out ownership and control structures. It’s a time heavy, manual process, that in itself carries a level of risk that comes with working from different data sets and the chance of human error that is associated with manual work.

How automation can help

Technology, such as the Encompass platform, can alleviate these burdens and, thanks to automation, can make for a robust, effective process.

Encompass automatically accesses all relevant public and private data sources to dynamically unwrap corporate ownership structures, discover beneficial owners, screen for Politically Exposed Persons (PEPs) and Sanctions and identify regulatory and adverse media risk using advanced AML automation.

Using Intelligent Process Automation (IPA) and Artificial Intelligence (AI), Encompass gathers and analyzes a wealth of information to dynamically build a visual picture of a company or individual in just minutes.

This allows for quick evaluation of potential risks, with the visualization of corporate structures, or an individual’s family and business network.

The use of these automation tools increases efficiency and brings benefits connected to cost and time savings, as some of the manual work is taken away from humans, allowing them to focus on more complex work.

By integrating data sources and conducting intelligent analytics to deliver easy to understand global corporate linkage and personal share ownership, this makes it easier to comply with the new rules and making use of an automated process also means checks can be completed in hours, in comparison to the days it may take with human entry.

The digital profiles created as a result can be monitored going forward, meaning firms are also able to stay on top of Office of Foreign Assets Control (OFAC) requirements, boosting compliance across the board.

By utilizing automation tools when it comes to the work needed to meet the points of the Act, organizations are able to be sure of who they are in business with – customers and vendors – right down to 1% ownership, ultimately ensuring financial and reputational risk is kept to a minimum.