In brief
In July, we flagged the proposed new modern slavery offence. The Government has now released a consultation paper seeking written submissions regarding the design of the regime.
The proposed criminal "failure to prevent" offence would apply to corporations with annual consolidated revenue exceeding AUD 100 million. A corporation could be criminally liable where modern slavery (limited to slavery, servitude, forced labour, and debt bondage offences) occurs within its supply chain and there is a sufficient connection between the offence and the corporation's sourcing arrangements and conduct, unless the corporation can establish a "reasonable steps" defence. The consultation paper also covers potential Deferred Prosecution Agreements (explained below), civil remedies, and financial penalties.
Key takeaways
- A new criminal "failure to prevent" modern slavery offence is under consideration, potentially exposing corporations with annual consolidated revenue over AUD 100 million to liability for modern slavery occurring within their supply chains.
- The Government is considering an absolute liability model, which could mean corporations may be liable even where there is no knowledge, intention, or recklessness regarding the underlying conduct.
- The scope of corporate liability remains uncertain, including the degree of connection required between a corporation's conduct and the modern slavery offence, and how far liability could extend through supply chains.
- A proposed "reasonable steps" defence would be the primary safeguard for companies, but there is currently limited guidance on what measures would be sufficient to establish the defence in practice.
- Significant financial penalties are proposed, including penalties potentially reaching 10% of annual turnover in some circumstances.
- Deferred Prosecution Agreements are being considered, which could allow corporations to avoid prosecution by meeting specified compliance, remediation, and cooperation obligations.
In depth
Threshold for corporate liability
The consultation paper proposes that there must be a nexus between the offence and the corporation's conduct, but it does not settle on the relevant test. The paper considers several alternatives, including where a corporation "caused", "significantly contributed to", "materially contributed to", "facilitated" or "enabled" the offending. These concepts potentially capture a broad spectrum of conduct and could be interpreted differently by courts. For example, the difference between "caused" and "enabled" is potentially substantial from a liability perspective.
The paper also contemplates that omissions may be sufficient and gives examples such as omissions made in the context of purchasing practices, cost pressures, unrealistic deadlines, or failures to respond to indicators of exploitation. As a result, liability may extend beyond direct involvement in exploitation and potentially encompass procurement decisions and supply chain management practices.
Fault element
The consultation paper does not settle on the applicable fault element and seeks feedback on whether the offence should be based on absolute liability, strict liability, or recklessness.
As noted, under an absolute liability model, a corporation could be liable without any need to prove knowledge, intention, or recklessness, leaving the proposed reasonable steps defence as the primary safeguard.
Strict liability would operate similarly but would include the statutory mistake of fact defence, which would apply where the relevant employee, agent, or officer acted under a mistaken but reasonable belief about facts that, if true, would have meant no offence had occurred, and the corporation can prove it exercised due diligence to prevent the conduct. The consultation paper notes that this defence may provide limited practical protection because of its significant overlap with the proposed reasonable steps defence.
In contrast, recklessness would require proof that the corporation was aware of a substantial risk of modern slavery occurring and unjustifiably proceeded in the face of that risk.
Absolute liability would create the broadest exposure for companies, while recklessness would require a much stronger connection between the corporation's knowledge and the offending conduct.
Scope of supply chain connection
The proposal is intended to capture indirect suppliers. However, the paper acknowledges the practical difficulties in tracing goods and services through complex supply chains and seeks views on how broad the nexus should be. The Government is also considering whether liability should be confined to situations where the offence can be linked to specific goods or services acquired by the corporation, or whether a broader approach should apply where modern slavery occurs in any goods, services, labour, materials or inputs forming part of the corporation's sourcing arrangements.
This creates uncertainty regarding how far down a supply chain liability may extend and the level of traceability required to establish the necessary connection between the offence and the corporation.
Reasonable steps defence
The reasonable steps defence is intended to be the primary safeguard for companies. The corporation would bear the legal burden of proving the defence and the standard would be the balance of probabilities. However, the consultation paper currently provides only high-level guidance and states that whether reasonable steps have been taken will ultimately be determined by courts on a case-by-case basis. While ministerial guidance is proposed, that guidance has not yet been developed.
Therefore, there is currently limited certainty around what would be sufficient to establish the defence in practice. Companies may face a period of uncertainty until legislation, ministerial guidance, and judicial decisions provide greater clarity. We anticipate that the majority of submissions as part of the consultation process will be aimed at obtaining more information about how the defence will work.
Deferred Prosecution Agreements (DPAs)
The consultation paper proposes introducing DPAs as an alternative enforcement mechanism alongside the new failure to prevent modern slavery offence. A DPA would allow a corporation to avoid or defer prosecution by entering into an agreement with authorities, under which it accepts certain obligations and complies with specified conditions. If those conditions are met, the prosecution would not proceed or would be discontinued.
The Government suggests DPAs could be used where there is reasonable suspicion an offence has occurred, there is a realistic prospect of conviction, and it is in the public interest to resolve the matter through a DPA rather than prosecution. Possible obligations could include strengthening governance and due diligence systems, cooperating with investigations, compensating victims, implementing remediation measures, and paying financial penalties.
However, the paper acknowledges concerns that DPAs may be perceived as allowing corporations to "buy" their way out of criminal convictions. It notes that DPAs would not extinguish any existing legal rights or remedies available to victims.
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Overall, while the consultation paper provides a clearer indication of the Government's direction, many of the concepts that will ultimately determine liability remain open for consultation. In our view, the most significant unresolved issues are the required degree of connection between a corporation and the offence, the breadth of the supply chain nexus, and the content of the proposed reasonable steps defence, particularly given the possibility that the offence may ultimately be framed as one of absolute liability. Written submissions close on 25 September 2026, and the Government is proposing a 12-to-18-month implementation period after commencement of legislation.
Claudia Campi, Associate, has contributed to this legal update.