As part of the Government's strategy to strengthen measures relating to tax evasion and tax avoidance, HMRC is seeking to target agents and others that enable wrongdoing
In this article, and in a series of articles to follow, we focus on the impact of the new legislation on banks and other financial institutions.
From 30 September 2017 the Criminal Finances Act 2017 (CFA) introduces a criminal offence of corporate failure to prevent the facilitation of tax evasion (UK or offshore). Lenders will commit a criminal offence if their employees or other people associated with them criminally facilitate the evasion of tax. The offence will apply to lenders based outside the UK as well as those in the UK if UK tax is evaded.
Previously, to prosecute a corporate for the facilitation of tax evasion, it was necessary to show that senior members of the organisation were aware of, and involved in, the activity in question. The CFA is aimed at eradicating financial crime by seeking to beat tax evasion as close to the source as possible.
The definition of associated person is wide and covers employees, agents and "any other person who performs services for or on behalf of the relevant body" (so may include accountants or service providers).
The offence will also apply in respect of the facilitation of non-UK tax evasion if it involves a UK entity or branch or if any part of the facilitation takes place in the UK.
Unlimited fines can be imposed upon conviction and orders for confiscation of assets may also be made.
The only defence available is that the lender had in place reasonable procedures designed to prevent persons associated with it from facilitating tax evasion.
The draft HMRC Guidance sets out six principles to take into account in formulating procedures to prevent falling foul of the new offence:
Lenders should be taking immediate steps to ensure they have strong, up to date and effective anti-evasion policies and systems in place by the implementation date (30 September 2017).
There is no grace period set out in the legislation and whilst HMRC say in their draft guidance that some latitude may be afforded to organisations in rolling out new procedures, the expectation is that there is "to be rapid implementation, focusing on the major risks and priorities, with a clear timeframe and implementation plan on entry into force".
The draft guidance published by HMRC acknowledges that banks and financial institutions operate in a high risk sector. The guidance sets out the following example of a higher risk scenario involving a lender:
The bank undertook no tax evasion focussed due diligence assessment of the accounting firm to which the client was referred. In these circumstances, although the bank could attempt to mount a defence of having reasonable procedures in place on paper for tackling the facilitation of tax evasion, in reality it had relied on unaltered money laundering and bribery procedures.
Despite being in a high risk sector, it had also failed to undertake a thorough risk assessment, or follow Government or sector-focused guidance on the types of processes and procedures needed to mitigate risks. It is therefore likely that the bank would be found to have committed the new offence and would be unable to put forward a successful reasonable procedures defence.
If you have any questions regarding the content of this article and the wider impact of the CFA on your organisation's operations then please either contact Jason Cropper, Nathan Williams or your usual TLT contact.
As part of our programme of updating our clients on the implications of this new legislation, we will be hosting a seminar on the subject in our London office on Wednesday 15 November 2017 so please do let us know if you would be interested in attending.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at September 2017. Specific advice should be sought for specific cases. For more information see our terms & conditions.