Failure to prevent the facilitation of tax evasion: update

Failure to prevent the facilitation of tax evasion

The Criminal Finances Act containing the corporate criminal offences has received Royal Assent and should become effective in September 2017.

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The Criminal Finances Act received Royal Assent on 27 April 2017. Included within the Act are the Corporate Criminal Offence provisions, expected to take effect in September 2017. Media reports suggest that many businesses are unaware of the new law. It is not just banks and advisory firms that are affected. The supply chain, labour arrangements and overseas aspects may be relevant to all organisations. In light of this, now is the time to think about what needs to be done to ensure readiness. For very few organisations will ‘do nothing’ be an appropriate response. If an instance of facilitation of evasion is identified as occurring at an organisation, the only defence that organisation can have against being criminally liable for failing to prevent it, is that it had in place ‘reasonable procedures’. The consequences of a failure to do so potentially involve criminal prosecution and unlimited financial penalties. 

Tax evasion and its facilitation are already criminal offences, however, it has to date been difficult to attribute criminal liability to a corporation or partnership where such instances occur. The new offences included within the Criminal Finances Act will shortly make this possible. 

There are three stages to the offences:

  1. Criminal UK or non-UK tax evasion by a taxpayer under the existing law;
  2. Criminal facilitation of this offence by an associated person of the organisation; and 
  3. The organisation failed to prevent the associated person from committing the criminal act at Stage two

There does not need to be a conviction for either stage one or stage two for stage three to have occurred. The legislation applies to evasion of both UK taxes and non-UK taxes, where there is a UK element. 

Should facilitation of evasion occur in an organisation, that organisation is presumed to be guilty, unless it can show that it had in place prevention procedures ‘reasonable in all the circumstances’ to prevent the facilitation occurring. 

HMRC’s draft guidance includes examples and suggestions of such reasonable procedures within the principles of:

  • Risk assessment
  • Proportionality
  • Top-level commitment
  • Due diligence
  • Communication
  • Monitoring & review

 

Industry specific guidance is also being developed. Whilst existing controls and procedures (e.g. for anti-bribery or anti-money laundering) are likely to prove useful, the guidance makes clear that an entity must undertake a risk assessment and ensure it has all the procedures it needs in response to the new offences.

Recommended actions for organisations to undertake include:

  • Get the right people involved (ideally include Financial Crime, Risk, Compliance, Tax, Legal; it is not just a tax issue);
  • Do a risk assessment (e.g. a workshop focussed on how the organisation could facilitate evasion)
  • Identify any gaps by evaluating the current controls to address the identified risks against what is needed; and 
  • Develop a programme to fill these gaps, including tone from the top, training, monitoring and review.

 

For further information please contact:

James Siswick

Chris Davidson


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