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Criminal Finances Act 2017 and the Facilitation of Tax Evasion

The two new corporate offences of failure to prevent tax evasion (in the UK and outside the UK) under the Criminal Finances Act 2017 (‘the Act’) came into force on 30 September 2017.

The introduction of the new offences will have a major effect on corporates or partnerships which are referred to under the Act as the “relevant body”. The offences themselves can only be committed by a relevant body; the relevant body will be criminally liable where an associated person (referred to below) facilitates the evasion of tax by others.

The relevant body does have a defence if it can show that it had in place, at the time of the offence, reasonable procedures to prevent the facilitation of tax evasion or that it was not reasonable in the circumstances to expect the relevant body to have any prevention procedures in place.

Crucially, the relevant body will not be criminally liable if the associated person was not acting on its behalf in the capacity of an employee, an agent or a person performing such services on its behalf. In determining whether or not the person is a person providing services for or on behalf of the relevant body, all relevant circumstances will be taken into account, not merely the nature of the relationship between the person and the relevant body.

The elements of the UK and Non UK Offences

The elements of the domestic and overseas offences are the same albeit there are additional requirements for overseas offences discussed further below. For there to be an offence there must be:

  • criminal tax evasion by a taxpayer (individual or corporate); and
  • there must be a criminal facilitation of the taxpayer’s evasion offence resulting from deliberate and dishonest behaviour by an associated person.

If the two elements are present and the relevant body does not meet the requirements of the defence available, it will be liable for having failed to prevent the associated person from committing the act.

The additional requirements for the overseas offence are that the relevant body must:

  • Be a body incorporated, or a partnership formed, under the law of any part of the UK;
  • Carry on a business or other undertaking, or part of a business or other undertaking, from a permanent establishment in the UK, for example, a UK office of a Spanish company; and
  • Any conduct (acts or omissions) that form part of the foreign tax evasion facilitation offence takes place in the UK, for example, the associated person commits the overseas facilitation offence in the UK.

There is also a requirement of dual criminality for overseas offences – the conduct comprising the facilitation offence and the tax evasion must be a criminal offence in the UK; and the overseas jurisdiction must have an equivalent offence.

Reasonable prevention procedures

It is important to note that at a corporate level the offences are ones of strict liability meaning that intention to commit the offences does not need to be demonstrated for a prosecution to follow, providing all other elements are present. Consequently, in order to rely on the defence relevant bodies should:

  • ensure a risk assessment is carried out in respect of its domestic and international business to identify the risks associated with it;
  • undertake due diligence on the activities of those the relevant body does business with or obtains services from;
  • review its current preventative policies and procedures or implement new ones;
  • communicate policies and procedures to associated persons; 
  • provide training to associated persons and record this in a central location; and
  • monitor and review the preventative procedures to identify whether any improvements can or should be made.

One of the important messages coming out of HM Revenue and Customs in respect of the offences is that they expect commitment from top level management of the implementation of these policies and procedures.

Relevant bodies found guilty of an offence under the Act can receive an unlimited fine and subsequent orders for confiscation of assets may also be made.

Similarities to the Bribery Act 2010

It can be said that the defence available to a relevant body under the Act is similar to that under the Bribery Act 2010 and it is worth noting that in the case of Serious Fraud Office v Standard Bank Plc in 2015, in which a Deferred Prosecution Agreement (‘DPA’) was entered into, it was confirmed that the offence was limited to an allegation of inadequate systems which had not prevented the offence being committed. Consequently, Standard Bank could not rely on the defence of adequate procedures. The Standard Bank case involved an overseas entity which shows the range and scope of these offences. It is understood that DPAs will be available to a relevant body for offences under the Act, providing the relevant conditions are satisfied.

With the introduction of the Act, the onus is shifting more to senior and top level management to ensure that offences are not committed by the relevant body or individuals acting on behalf of it. With recent revelations of alleged tax avoidance (and even alleged tax evasion) released by the Paradise Papers, the focus is likely to be firmly on what action the government and the courts are taking in respect of the offences of tax evasion. It remains to be seen under what circumstances the initial prosecution is brought.

Contributor: Angela Craven

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at December 2017. Specific advice should be sought for specific cases. For more information see our terms & conditions.

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