The Criminal Finances Act 2017 Don't Be Caught Asleep At The Wheel

Issue 29

The Government's continued drive to stamp out tax evasion took a new turn in September when new UK legislation, the Criminal Finances Act 2017 was introduced

The Criminal Finances Act requires that all incorporated bodies (usually companies) and partnerships, irrespective of size or sector, must act to prevent potential criminal facilitation of tax evasion by persons associated with them. Failure to prevent this occurring will now constitute a criminal offence, unless it is possible to demonstrate that “reasonable prevention procedures” are in place. We are currently supporting businesses across a range of sectors to understand the offence and to address what needs to be done to ensure the reasonable defence can be met. So, what is the offence and how should you approach addressing the “reasonable prevention procedures” requirement?

Firstly, the offence. In its simplest terms, it would be that someone associated with your organisation helped facilitate tax evasion. Although we are looking primarily at UK tax evasion, an offence may also arise in relation to foreign tax evasion where at least part of the facilitation takes place in the UK. The proviso is that it would have been a criminal offence under UK law (had it occurred in the UK) and the overseas jurisdiction has an equivalent facilitation offence. The term ‘associated with’ the organisation is widely drawn and encompasses anyone who provides services for, or on its behalf. Therefore, it not only includes employees but suppliers, advisers, agents, intermediaries and contractors. The offence of ‘failing to prevent’ attracts strict liability so the organisation itself does not need to have been guilty of deliberate dishonesty, but only to have been ‘asleep at the wheel’ while someone associated with it knowingly helped another company or individual commit tax evasion. The offence carries an unlimited fine, but the reputational damage associated with conviction is likely to be of equal if not greater concern. So, what do you need to do? In many instances you will not be starting from scratch.

You are likely to have already given consideration to similarly structured legislation, such as the Bribery Act 2010. It is also likely that you will have an existing due diligence programme in place designed to tackle risks in areas such as corruption and money laundering. Ideally your response will sit within your existing governance, risk assessment and due diligence framework. In cases where you do not already have an existing and sufficiently robust risk management framework in place, such a framework will need to be developed and quickly. Broadly your risk assessment will require you to identify: the potential risks of tax evasion being facilitated by an associated person; the areas of the business which pose the greatest risks with regard to this new offence; the extent to which existing procedures mitigate those risks; and where the gaps are. Based on that risk assessment you ideally need to draft a policy statement and communicate that policy within the organisation providing initial and ongoing training. You should also consider carrying out due diligence on other ‘associated persons’ where they have been deemed to pose potential risks. Our experience to date shows that there is no “one size fits all approach”.

What is key is to undertake an appropriate assessment of the risk that tax evasion could be facilitated by someone associated with the business and ensure there are proportionate procedures to prevent this. Don’t be caught asleep at the wheel. Take advice regarding the new legislation and ensure you have robust procedures in place which you continue to monitor as your business develops.

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