Public Safety Canada’s inaugural annual report on Canada’s modern slavery legislation

On September 27, 2024, Public Safety Canada tabled in Parliament its first annual report under the Fighting Against Forced Labour and Child Labour in Supply Chain Act (the "Act"). This report marks a significant milestone in Canada's efforts to combat forced and child labour in supply chains, summarizing the information received from reporting entities and their existing practices with respect to forced and child labour in supply chains.

In September 2024, KPMG published, Fighting modern slavery in Canadian supply chains, outlining its key takeaways after conducting its own review and assessment of the inaugural mandatory reporting of forced and child labour under the Act.

The Act came into force on January 1, 2024, requiring certain government institutions and private sector organizations to report on their efforts to prevent and reduce risks of forced labour or child labour in their supply chains. The reports, which are publicly accessible on Public Safety Canada's library catalogue¹, are due by May 31 each year. In turn, Public Safety Canada must submit a report to Parliament on or before September 30 summarizing the activities, risks, and remedial actions taken by reporting entities in the previous fiscal year.

Public Safety Canada's report covers data collected through the online questionnaire and, based on a qualitative analysis on a sample of reports, insights on the risks and mitigation strategies that some reporting entities described in their reports.

• In its report, Public Safety Canada acknowledged that gaining visibility into a complex supply chain can be difficult, and mapping possible risk areas is an ongoing process for organizations.
• 2,156 (38.2%) of reporting entities reported identifying risks of forced or child labour within their supply chains, while 2,225 (39.4%) had begun the process of identifying risks but were still considering gaps in their assessment and 1,268 (22.4%) had not started the process of identifying risks. Identified risks were commonly associated with raw materials used, the sectors or industries involved, and specific suppliers or geographic locations.

The most common step mentioned by entities with respect to preventing and reducing risk was regular auditing and monitoring of suppliers such as screening potential suppliers, vendors, and partners, and conducting internal or third-party audits.

Public Safety Canada reported on the steps taken by reporting entities to mitigate the risks of forced and child labour within their supply chains. This is an area of increasing importance, as global supply chains are often complex, involving multiple tiers of suppliers, and can span multiple industries and countries with varying levels of regulatory oversight.

Reporting entities most commonly reported on the following measures:

• Internal risk assessments: Over 2,800 entities (48.6%) conducted internal risk assessments to identify areas where forced or child labour might occur. These assessments were commonly aimed at increasing visibility into supply chains, particularly at the level where entities have less direct control, such as tier 2 and tier 3 suppliers. Many entities relied on software tools and third-party risk monitoring services to screen potential suppliers and identify high-risk areas with the raw materials used in production frequently highlighted as a vulnerable point.
• Due diligence policies and audits: Approximately 2,545 (44.4%) implemented due diligence processes designed to identify and address forced labour and child labour risks. These processes often included mandatory codes of conduct for suppliers, which outlined explicit expectations regarding labour practices. Moreover, 2,174 entities (37.5%) instituted regular supplier audits as part of their monitoring efforts. These audits were either conducted internally or through third-party organizations and typically involved background checks, on-site inspections, and interviews with workers to assess labour conditions.
• Supplier engagement: 1,643 entities (28.4%) reported working collaboratively with their suppliers to improve labour practices and ensure compliance with anti-slavery standards. These engagements often involved providing suppliers with training and resources to meet ethical sourcing requirements. Entities also required their suppliers to adopt anti-forced labour and child labour policies, ensuring these standards were integrated at all levels of the supply chain.
• Grievance mechanisms: Approximately 1,537 entities (26.5%) reported implementing such mechanisms, which included hotlines, online portals, and third-party ombudsman services. Some entities reported that these mechanisms were critical in identifying instances of labour abuses that might otherwise go unreported due to fear of employer retaliation.
• Training and awareness: Approximately 44% of reporting entities implemented training programs to educate employees on the risks of forced labour and child labour. This training was often mandatory for employees involved in procurement and supply chain management, ensuring that those making critical decisions were aware of potential risks and knew how to address them. In the manufacturing sector, for instance, 1,132 entities provided training on these issues, reflecting the industry's significant exposure to forced labour risks, particularly in the sourcing of raw materials like textiles and electronics components.
• Remediation efforts: Only 228 entities (4%) reported taking substantial remediation measures, while 88 entities (1.6%) took some remedial actions but acknowledged gaps in their response. Remediation actions varied but often included ending relationships with non-compliant suppliers, financial compensation to victims or reimbursed workers for illicit recruitment fees, and direct support to victims and their families, including psychosocial support and reintegration programs.

In 2024, no orders were issued under section 18 of the Act and no charges were laid against any entities under section 19. Despite this, Public Safety Canada has signaled that it will consider taking enforcement actions in future reporting cycles as awareness of the legislation grows and expectations become more firmly established. Reporting entities that fail to comply with the reporting obligations in subsequent years are likely to face greater scrutiny and potential legal consequences.

• Public Safety Canada received 5,795 reports on or before the May 31^st deadline in fiscal year 2024, of which 5,650 (97.5%) were from entities and 145 (2.5%) were from government institutions².
• Of the reports received, 2,086 (36%) of the reports covered parent or subsidiaries or multiple entities belonging to the same corporate group.
• 135 (2.3%) of reporting entities submitted a revised report following the May 31^st deadline in accordance with sections 7 and 12 of the Act. These reports were not considered for the data analysis in Public Safety Canada's report.
• As of July 31, 2024, Public Safety Canada received 503 late reports. Public Safety Canada continues to receive late reports on an ongoing basis.  These reports were also not considered for the data analysis in Public Safety Canada's report.
• 796 (13.7%) reporting entities indicated they were subject to modern slavery or supply chain reporting requirements in other jurisdictions, with such entities most commonly reporting under United Kingdom's Modern Slavery Act, California's Transparency in Supply Chain Act, and Australia's Modern Slavery Act.
• 82.4% of entities that submitted reports represent the manufacturing (38.3%), wholesale trade (22.3%) and retail trade (21.8%) sectors.
• 18.05% of reporting entities are headquartered or principally located outside of Canada, with such entities most commonly being based in the United States.

The report highlights that companies need to move from a compliance reporting approach towards substantive improvements in their due diligence efforts. While 2024 was largely viewed as a year of adjustment for reporting entities and Public Safety Canada, the framework is now in place for more rigorous oversight and compliance measures in future years, with more changes anticipated in coming years.

In a recent National Post article³, MP John McKay, proposed transferring the responsibility of the modern slavery reports from Public Safety Canada to the Canadian Ombudsperson for Responsibility Enterprise ("CORE"), a government entity responsible for reviewing complaints about human rights abuses by Canadian companies abroad. MP Mckay acknowledged that the CORE would need more "distance from government and more teeth to enforce rules."

In addition, the United Nations Special Rapporteur, Tomoyo Obokata, has made similar comments in his final report to Canada on its efforts to prevent and address contemporary forms of slavery⁴. Mr. Obokata recommended that Canada strengthen the mandate and enforcement powers of the CORE, as well as broaden its scope to apply to all Canadian organizations.  to include powers to compel testimony and impose more sanctions.

In the National Post article, MP McKay also raised that further legislation may be in Canada's future, requiring companies to take a "reverse onus" approach to goods from certain areas where forced labour is considered high risk, like the  Xianjiang region in China. His sentiments were largely echoed by several US legislators in letters to the Canadian Minister of Export Promotion, International Trade and Economic Development, Mary Ng, urging the Canadian government to adopt tougher rules and better enforcement in the future⁵.

Since July 2020, the Government of Canada has imposed an import ban on goods mined, manufactured, or produced, wholly or in part, by forced labour. The import ban was implemented as part of Canada's commitments under the Canada-United Stated Mexico Agreement (CUSMA).  however, both Canada and Mexico have come under increased pressure from the US recently over the need for tougher rules and better enforcement in Canada⁶.

On October 16, 2024, Minister Ng announced a 30-day public consultation on measures to strengthen Canada's enforcement of this import ban⁷.

The Government of Canada is seeking views from stakeholders on the potential benefits and risks of the following potential measures to change the current regime:

1. Publication of a risk list: A list of goods at risk of forced labor will be published, based on the International Labour Organization's (ILO) indicators and supplemented by additional sources.
2. Minimum traceability process: Importers of goods on the risk list will be required to document the supply chain journey of these goods to ensure traceability.
3. Cost-recovery model changes: Importers of goods identified as produced by forced labour will bear all costs related to detention, removal, abandonment, and forfeiture, including transport and storage fees.
4. Dispute resolution mechanism: A streamlined process will be established to resolve disagreements between importers and the government regarding market entry decisions for specific goods.
5. Strengthened regulatory authorities: Legislative and regulatory powers concerning information collection, enforcement, and disposition will be enhanced within North America.

The consultation period ended on November 15, 2024 and interested parties were requested to consider several key questions in their submissions including:

• effectiveness and prioritization of the measures,
• tools and information sources for creation of a goods at-risk list, and
• potential negative effects and mitigations for impacted workers and industries. 

With increasing pressures, both domestically and internationally, to combat forced and child labour, Canadian companies should plan for stricter regulations and enforcement efforts moving forward.