The corporate offence of "failing to prevent the facilitation of tax evasion" comes into force on 30 September 2017. Ahead of this date, corporations must ensure that they have developed a plan for implementing "reasonable prevention procedures". For further information on this offence please click here.
Failure to Prevent Model
The new corporate tax evasion offence, set out in the Criminal Finances Act, is modelled on the Bribery Act 2010 and the corporate offence of failure to prevent bribery. Both corporate offences are strict liability meaning, among other things, that prosecutors do not have to satisfy the identification principle. The provisions are engaged where a person associated with the corporate (interpreted widely in both Acts) commits the underlying offence; it is irrelevant whether the senior management knew anything about the bribery or tax evasion.
The strict liability is qualified by it being a defence if the corporate can show it had "adequate procedures" in place to prevent bribery or "reasonable procedures" in place to prevent the facilitation of tax evasion. Despite the different adjectives, and the fact that the legislation does not define what preventative procedures would satisfy a defence, both sets of accompanying guidance bring the preventative standard to an almost identical level. The guiding principles being:
- Proportionate procedures
- Top-level commitment
- Risk Assessment
- Due diligence
- Communication (including training)
- Monitoring and review
The "failure to prevent" model was developed following the Corporate Manslaughter and Corporate Homicide Act 2007 (CMCHA) which introduced corporate liability for management failings. However, whilst the CMCHA widened the corporate's accountability from a sufficiently senior individual to the "senior management", it did not create a strict liability offence.
Under the CMCHA, a corporate offence is committed if the way an organisation manages or organises its activities (i) causes a death; and (ii) amounts to a gross breach of a relevant duty of care owed by the company to the deceased.
A key and distinguishing element of the corporate manslaughter offence is that it has to be proved that the senior management played a substantial part in the breach; this is often difficult if the senior management are removed from the day to day operation of the company. This difficulty, coupled with the requirement for a gross breach, might explain the lack of corporate convictions under the CMCHA since its introduction in April 2008, in comparison to the number of investigations opened.
Individuals in Corporate Investigations
Individuals interviewed as part of any investigation into a corporate offence, whether they are senior managers or not, should carefully consider their own exposure to non-corporate offences. Anything said in interview, unless protected, most commonly under section 2 of the Criminal Justice Act 1987, will be admissible in other criminal proceedings. The individual may be charged and appear in the same proceedings as the company.
The new tax evasion law represents a further manifestation of regulation requiring corporate monitoring of criminal activity, with the expectation of self-reporting. Given the recent consultations on corporate criminal liability for economic crime in general, it is unlikely to be the last. There seems to be an increasing preference for the failure to prevent model and it remains to be seen whether it will be adopted in other types of corporate liability, such as the CMCHA.