New Criminal Offence of Failure to Prevent Facilitation of Tax Evasion

Following a consultation by HM Revenue and Customs (HMRC) on the creation of a corporate offence of failure to prevent the facilitation of tax evasion, the offence has been incorporated in Part 3 of the Criminal Finances Bill, presented to Parliament on 13th October 2016.

The proposed legislation contains parallels with Section 7 of the Bribery Act 2010, the corporate offence of failing to prevent bribery. As will be apparent, it is easier to prosecute companies for these types of offences, where there is no mens rea element and it is sufficient that bribery had been committed by an individual acting on behalf of the company.

The proposed offence of failure by a company to prevent facilitation of tax evasion offences by associated persons, has three stages:

Stage 1: criminal tax evasion by a taxpayer (under the existing criminal law).

Stage 2: criminal facilitation of this offence by a person acting on behalf of the corporate.

Stage 3: the failure by the corporate to take reasonable steps to prevent those who acted on its behalf from committing the criminal act set out in Stage 2.

As currently drafted, the offence would have extra-territorial jurisdiction and includes both United Kingdom tax offences and overseas tax fraud offences where the overseas offence would amount to an offence in the United Kingdom. This latter element is included because the government has stated that it believes that companies with a presence in the United Kingdom should be obliged to take reasonable steps to prevent their agents being complicit in tax evasion, wherever that tax is owed.

As noted above, the proposed legislation incorporates a statutory defence of having in place "such prevention procedures as it was reasonable in all the circumstances to expect [the company] to have in place", "or it was not reasonable in all the circumstances to expect [the company] to have any prevention procedures in place". Whilst this has similarities to the defence of "adequate procedures" under the Bribery Act 2010, the language proposed is deliberately different.

It remains to be seen how HMRC will finally seek to interpret and apply the "prevention procedures" deemed to be "reasonable". Whilst the current draft guidance provides some detailed information on the principles required for reasonable prevention procedures, these will continue to be debated in Parliament.

Consultation on Expanding Corporate Criminal Liability

Looking forward, the development of corporate offences of failing to prevent the commission of economic crimes appears more likely to occur. In May the government announced that it would publish a consultation "this summer" in respect of its goal of expanding these types of offences into other economic crimes, such as money laundering, false accounting, and fraud.

Then Justice Minister Dominic Raab MP said that the Government wants carefully to consider whether the evidence justifies any further extension of the section 7 Bribery Act model to other areas of economic crime, "so that large corporations are properly held to account".

As yet, the Government’s promised publication has not been forthcoming. However, an extension of the law in this area was referred to by the Attorney General (Jeremy Wright QC) speaking at the Cambridge Symposium on Economic Crime on 5th September. Mr Wright QC referred to the Prime Minister’s intention to "get tough on irresponsible behaviour in big business", and to tackle "vested interests" through the development of a cross-government anti-corruption strategy to complement the existing Serious and Organised Crime Strategy.

The Attorney General referred to the benefits that the Bribery Act and Deferred Prosecution Agreements have brought in strengthening the United Kingdom’s response to corruption but noted that the Government hopes to do more and to improve the United Kingdom’s reputation by creating corporate offences of failing to prevent economic crime. Until such a change is implemented, Mr Wright QC noted that there was little chance of those occupying boardrooms doing anything other than distancing themselves from companies’ operations.