19 December 2017

The Criminal Finances Act 2017 (the “Act”) came into force on 30 September 2017 and creates new corporate criminal offences of failing to prevent facilitation of UK and foreign tax evasion.

The Offences

The Act makes it a criminal offence for companies, partnerships and other corporate bodies (“relevant bodies”) to fail to prevent a person associated with it from criminally facilitating the evasion of tax, both in the UK or abroad. The offences are strict liability offences and do not require proof of involvement of the directing mind. This means that if an “associated person” facilitates tax evasion whilst acting for the relevant body, the relevant body will be liable unless it can prove that it had reasonable prevention procedures in place. Until now, it has not been possible to ascribe criminal liability to the firm where it occurred.

The offences are similar to the Bribery Act 2010 offence of failing to prevent bribery, however in contrast to the Bribery Act 2010, it does not matter whether any benefit has been obtained from facilitating the tax evasion. 

What is an “associated person”?

An associated person is defined as:

• an employee;
• an agent; or
• any other person who performs services for or on behalf of a relevant body.

Scope

Professional services companies and partnerships are considered to be most at risk of an associated person facilitating tax evasion, however, in its guidance the government provides examples outwith the financial services sector and stresses that any sector can fall within the ambit of the Act.

Defence

A relevant body may avoid criminal liability where it can show that it had reasonable prevention procedures in place. These procedures need to be dynamic and must be capable of changing over time in response to (i) changes to evaders’ methods; (ii) organisational learning and improvement; (iii) changes to technology and best practice; and (iv) changes to the nature of a relevant body’s business and markets.

The government guidance suggests that prevention procedures should be informed by the following six principles:

Risk assessment – the relevant body must assess the nature and extent of its exposure to the risk of those who act in the capacity of a person associated with it criminally facilitating tax evasion offences.

Proportionality – reasonable procedures will be proportionate to the risk of an associated person committing tax evasion facilitation offences, and will depend on the nature, scale and complexity of the business.

Commitment from senior management – firms must demonstrate that senior management is committed to preventing persons associated with it from engaging in facilitation of tax evasion. Top-level management should foster a culture within its organisation that the facilitation of tax evasion is never acceptable.

Due diligence – relevant bodies should apply due diligence procedures, taking an appropriate and risk-based approach in respect of associated persons in order to mitigate identified risks. This means understanding the risks posed by the different business areas in which the firm is involved and developing and applying procedures in order to identify and mitigate risk of criminal facilitation of tax evasion being carried out by any associated person.

Communication – firms must ensure that their prevention policies and procedures are communicated, embedded and understood throughout the firm.

Monitoring and review – firms must monitor and review their prevention procedures and make improvements when necessary.

Contacts:
Jeremy Glen, Partner jsg@bto.co.uk T: 0141 221 8012