Introduction

The new corporate offence of failure to prevent the facilitation of tax evasion reflects a wider move toward corporate self-policing in the UK. Appearing in Part 3 of the Criminal Finances Act 2017, the proposal is largely modelled on the corporate liability provisions contained in the Bribery Act 2010. A company could be prosecuted if an “associated person” commits a specific wrong and a complete defence is available if the company had adequate preventive processes. The conventional scenario would see a company exposed to criminal liability if, say, one of its tax consultants advised on a seemingly clever way for a client to evade taxes due to the Revenue. The criminal liability would fix on the company’s lack of safeguards, and whilst it would be contingent on the tax consultant’s commission of a “tax evasion facilitation offence”, this is not necessarily a high bar. The Act does not require the associated person to have been convicted of the offence for a company to be liable. Consequently, the corporate liability model potentially engages a due process concern. Even if actual corporate convictions for failure to prevent the facilitation of tax evasion are rare, the way in which the provisions are configured means that a company could be found guilty on the basis that an associated person has committed a criminal offence – despite him never having had the opportunity to defend themselves. Why the provisions have been crafted in this way and whether this sits entirely comfortably with an individual’s due process rights is explored in this piece.

Triggering corporate liability

The corporate liability model which features in the Act – the ‘tax model’ – is similar to that in the Bribery Act 2010 subject to a notable distinction. For a company to be prosecuted for failure to prevent bribery, the associated person must have committed a bribery offence or, in other words, the substantive criminal conduct. The tax model arguably goes a step further by exposing a company to criminal liability despite the nexus between it and the substantive criminal conduct being less direct. A company could be prosecuted where a person associated with it facilitates or, in other words, aids or assists another’s tax evasion. It follows that, on one view, an intermediate actor separates the company from the substantive criminal offence, indicating that the net of corporate liability is widening to encompass situations where the link between the company and the substantive criminal offending is more remote. Whether this really is the case, however, is questionable. There is a strong counter argument that there is no such separation between the company and the substantive criminal offending in the tax model. The facilitation of tax evasion by the professional enabler – who conventionally owe professional duties yet are the architects of illicit schemes – ought to be considered serious criminal offending in its own right.

Notwithstanding the larger question of whether the tax model is an expansion of the ‘failure to prevent’ framework, one of the fundamental features of the framework is that an individual criminal conviction is not a prerequisite to corporate prosecution. Justifications for this approach were raised by the UK Law Commission close to a decade ago, when it recommended the wholesale reform of bribery laws. In its 2008 report to Parliament, the Commission contended that making corporate liability for bribery contingent on individual liability posed “too onerous and too restrictive”[1] a requirement. For corporate prosecutions to be workable, the Commission considered that:

“…it should be enough that, in the proceedings against the company for a failure to prevent bribery, the tribunal of fact is satisfied by the prosecution so that they are sure that the bribery offence was committed by someone on behalf of the company.”

Similar views have been expressed in regards to the concept of corporate criminal liability more broadly. In its 2007 report on the criminal liability of organisations, the Tasmanian Law Reform Institute referred to the following observations of academics Jonathan Clough and Carmel Mulhern:

“…it seems a backward step to make criminal liability contingent upon individual liability, particularly as the difficulty of prosecuting individuals is one of the justifications for proceeding against the company.”[2]

These observations tie into the wider developing notion that individual criminal liability has no place in a contemporary model of corporate liability. The continued rise of corporate behemoths, whose actions and global influence are not driven by specific individuals suggests that making the conviction of a corporation contingent on individual liability is unsuitable. This is only reinforced by the difficulties that can arise in prosecuting an individual for wrongdoing in a commercial setting. When it comes to bribery, for example, variables include the lack of consistency in anti-bribery laws – and enforcement – around the world and diverging ideas about what amounts to a bribe and what is business efficiency. The same applies to tax evasion. Despite consensus at an inter-governmental level that tax evasion should be treated as a crime,[3] identifying the circumstances that justify an individual’s prosecution for tax evasion is challenging in practice. All prosecutions, particularly those that involve any kind of financial investigation or cross-border conduct, require significant time and financial resources. In these circumstances, a model which enables a company to be prosecuted in the first instance holds considerable attraction. In terms of penalty, the pockets are deeper. The scope for large penalties combined with the ability to strike directly at the top sends a stronger message of general deterrence to companies. Further, the removal of individual criminal liability as a prerequisite means that the corporation’s ability to disentangle itself from the wrong is limited as there is not necessarily a convicted employee to blame.

A due process deficit?

Against this background, the notion that corporate criminal liability should not be contingent on individual criminal liability would seem unanswerable. However, any proposed new criminal offence – even one premised on this broad principle – should be evaluated for its implications.

Essentially, in its present form, the tax model appears to permit a court finding that an individual has committed a tax evasion facilitation offence, for example aiding an individual to cheat the Revenue, even if he has never had the opportunity to defend himself against the accusation of criminal conduct. In finding the company guilty – either following a trial or plea of guilty – the court is implicitly also making a finding of the associated person’s guilt. Whilst the finding would not expose the associated person to any court-ordered penalty, this outcome raises several potential concerns.

Chief among these is that the new failure to prevent the facilitation of tax evasion offence would seem to permit a ‘mini-trial’ of the associated person to be held without affording him a right to be heard. One of the elements is “commission” of a criminal offence, not “conviction”. Although in the early days of the offence, prosecutors are likely to be reluctant to pursue a company for failing to prevent tax evasion where the associated person has not himself been convicted of a related criminal offence the prospect is not unforeseeable. Practically, the requirement that an associated person has committed the tax evasion facilitation offence could be proven if, say, he disclosed his role in the evasion to the Revenue in exchange for a non-criminal settlement of the matter. Of course, where a person has confessed to tax evasion any due process concerns about his subsequent mini trial fall away. However, in some cases, the requirement could be established in the absence of the individual’s deliberate admissions, for example, by reference to a paper trail showing involvement in establishing a tax evasion scheme. More creative prosecutors could even seek to establish it by inference against the associated person if the scheme recommended seemed so transparent in its purpose that a jury considered that it could only ever have been a vehicle to cheat the system.

In the light of recent calls for more aggressive action against tax evasion, the last two scenarios are possibilities and would fall within the ambit of the provisions. However, in this way, a due process concern is at least engaged as there would appear to be no scope for the associated person – say, the tax consultant – to defend himself against the alleged criminal conduct. The ability to challenge the accusations would, at best, occur indirectly if he was called as a witness or through the corporate defendant if it tactically chose to dispute the tax consultant’s involvement in a tax evasion, alongside reliance on the complete defence of adequate safeguards. In those circumstances, the tax consultant might be called upon to provide his version of events and detail his belief at the relevant time. In either scenario, however, the ability for him to put the prosecution to proof, call witnesses and raise defences specific to his case is non-existent. This is cause for concern as the line between non-criminal tax avoidance and criminal tax evasion is ever shifting, with variables including not only time and place but new international agreements and prosecution policy change spurred on by public outcry. However, at its simplest, the associated person would lack any right to be heard even though the trial could result in a finding that he committed a serious offence of dishonesty.

Reconciling the mini trial with due process rights

Considering the grave criminal allegations that would be raised, the question arises as to whether the provisions as presently framed are satisfactory. The duty to act fairly and the presumption of innocence are at the heart of our criminal justice system. How then does the prospect of a mini trial for a serious offence in which the individual concerned lacks the right to be heard reconcile with these fundamental concepts?

On one hand, the provisions square comfortably. Although in the offence is drafted in a way that leaves scope for a mini trial to take place, the associated person – the individual – is not charged with any criminal offence. Whilst he would be exposed to an adverse finding, this is distinct from a verdict of guilt. Even if a company were to be found guilty and, therefore, indirectly the court was satisfied that the associated person had committed a criminal offence, there is no court-ordered punitive effect on him. And where proceedings are not directed at the determination of a charge against a person or the finding of guilt, such as in proceedings for the civil recovery of property believed to be proceeds of crime, the European Court of Human Rights has held that an individual’s criminal trial due process rights in Article 6 of the Convention are simply not engaged.[4] This includes the right to be presumed innocent, have a fair hearing, call witnesses and prepare a defence.

In any event, before an adverse finding affecting the associated person could be made, a jury would have to be satisfied on the evidence to the highest of standards – beyond reasonable doubt – that an offence of tax evasion facilitation had been committed by him. This would necessarily entail being satisfied that he acted with the requisite intention when setting up the tax arrangements. Beyond this, it is also true that criminal offences which derive from the commission of offences by others, even if they have not been convicted, are an established feature of our criminal justice system. This is the case for offences of money laundering and receiving stolen property to any number of offences based on the principles of aiding or abetting.

Still, on the other hand, there is an argument that the corporate liability model upon which the new offence is based does not sit entirely happily with a commitment to due process, manifested in the right to be presumed innocent and to heard. The European Court of Human Rights decisions which support that criminal due process rights are not engaged where proceedings do not result in a finding of guilt were decided in the context of civil asset recovery. Entirely distinct from a criminal trial, civil asset recovery proceedings are brought against property (in rem) rather than the individual (in personam). The proceedings are not directed at establishing whether an individual has committed a particular offence but rather whether, on the balance of probabilities, the property is derived from some illicit activity. As Lord Bingham observed in McIntosh v Lord Advocate [2003] 1 AC 1078 at 1088, the process is directed at determining “an accounting record and not an accusation.” Quite simply, a criminal trial and determination to the criminal standard of proof that an offence has been committed never enters the frame.

Further, unlike the offences which derive from the conduct of others identified above, the new offence expressly makes the commission of a criminal offence by a particular person – the associated person – a necessary element. This is an important distinction. In an aiding or abetting case there is no need to prove beyond reasonable doubt that a particular ‘other’ did a particular act. Although in practice, the acts of another are likely to be relied upon by the prosecution it is not a prerequisite to establishing guilt. The tax model, in contrast, includes in the statute books the criminal acts of one as an express element to establishing guilt of another. This is a significant step. Similarly, for a money laundering or receipt of stolen property offence to be proven, there is no need to first establish that a particular person committed the underlying crime resulting in the illicit wealth or property theft. There is, in other words, no mini trial or finding against another individual to be made. And it is the latter that arguably causes the unease. Whilst an indirect finding that an associated person has committed an offence might not lead to any punishment by the court, it shares some of the stigmatising and punitive elements of punishment. In handing down the penalty on the company, a court can readily be expected to outline the facts as found or agreed and, in so doing, identify the individual and his conduct said to amount to a criminal offence. A public finding of this kind has a wider punitive effect in the sense of being highly damaging to a person’s prospects, future employment and perhaps even their livelihood.

Conclusion

Fundamentally, this piece aims not to side with facilitators of tax evasion but to prompt thought about whether the new offence contains a due process deficit and, if so, how this reconciles with fundamental values or is otherwise addressed. In this regard, two suggestions are offered. First, where the associated person has not been tried in respect of the serious allegations or made admissions, the default position ought to be that all publications relating to the corporate prosecution anonymise the associated person’s identity. This would go some way to mitigating the stigma surrounding a public finding over the commission of an offence when he has not been heard on it. Second, ahead of any ‘failure to prevent’ prosecutions, it is perhaps time to think about whether an associated person should be heard on the accusation of criminal conduct or, at a minimum, notified of the accusation prior to the commencement of any proceedings against the company. This could be readily accommodated in legislation or Guidance. Indeed, Guidance has been issued but as of writing a copy of it has not been released. Ultimately, should future provisions targeting corporates be crafted in the image of the new offence, this would go some way to quelling concerns about procedural fairness.