At a Glance…

The United Kingdom’s Criminal Finances Act 2017 (the “Act”) creates two new corporate offences of failure to prevent facilitation of tax evasion (the “Corporate Offences”). These new Corporate Offences will be committed where a relevant body fails to prevent an associated person criminally facilitating the evasion of tax, whether the tax is evaded in the UK or in a foreign country. The new offences therefore have far-reaching implications for any international business that comes within the jurisdiction of the UK. Read our summary of what this might mean for your business below.

The United Kingdom’s Criminal Finances Act 2017 (the Act) creates two new corporate offences of failure to prevent the facilitation of tax evasion (the Corporate Offences).

These Corporate Offences will be committed where a relevant body fails to prevent an associated person criminally facilitating the evasion of tax, whether the tax is evaded in the UK or in a foreign country. The offences therefore have far-reaching implications for any international business that comes within the jurisdiction of the UK.

Like the corporate offence contained in the UK Bribery Act 2010, prosecutors will no longer be required to show that a senior member of a relevant body was involved in and aware of the illegal activity for criminal liability to be attributed to the relevant body.

The Act received Royal Assent on 27 April 2017 and the Corporate Offences are due to come into force on 30 September 2017.

Key Elements of the Corporate Offences

There are two Corporate Offences set out in the Act:

  • Failure to prevent facilitation of UK tax evasion offences.
  • Failure to prevent facilitation of foreign tax evasion offences.

Government guidance on the Corporate Offences issued in October 2016 identified three elements to each of the Corporate Offences:

  • Criminal tax evasion by a taxpayer (either an individual or a legal entity).

No conviction of the taxpayer is required before a prosecution can be brought against a relevant body although the prosecution would still have to prove, to the criminal standard of beyond all reasonable doubt, that the taxpayer-level offence had been committed.

For an offence to constitute a foreign tax evasion offence, it must be a criminal offence under the law of a foreign country and be conduct which would be regarded by the UK courts as amounting to being knowingly concerned in, or taking steps with a view to, the fraudulent evasion of tax.

  • Criminal facilitation of the tax evasion by a person associated with the relevant body.
  • Failure by the relevant body to prevent the associated person from committing the criminal facilitation act.

The Corporate Offences are strict liability offences. If there is criminal tax evasion by a taxpayer and an associated person criminally facilitated that tax evasion, the relevant body will have committed one of the Corporate Offences unless it can show that it had reasonable preventative procedures in place.

What is a ‘relevant body’?

Only a relevant body can commit the Corporate Offences. A relevant body only includes incorporated bodies (typically companies) and partnerships. The Corporate Offences cannot be committed by individuals.

What is an ‘associated person’?

A person (whether an individual or an incorporated body) is ‘associated’ with a relevant body if that person is an employee, agent or other person who performs services for or on behalf of the relevant body.

Whether a person is performing services for or on behalf of an organisation is to be determined by reference to all of the circumstances and not merely by reference to the nature of the relationship between that person and the relevant body.

The associated person must commit the tax evasion facilitation offence while acting in the capacity of an associated person. Any activity undertaken by the associated person, for example, for other relevant bodies or carried out in their private capacity would not lead to liability for the relevant body.

The UK’s jurisdiction

The Corporate Offences are relevant to businesses that are both inside and outside the UK. Specifically:

  • The UK tax evasion facilitation offence can be committed by a relevant body as long as there has been evasion of a UK tax regardless of whether the relevant body is UK-based or established under the law of another country, or whether the associated person who performs the criminal act of facilitation is in the UK or overseas.
  • The foreign tax evasion facilitation offence can be committed if the relevant body carries on business in the UK or if any conduct constituting part of the foreign tax evasion facilitation offence takes place in the UK.

Penalties

Penalties for the Corporate Offences include unlimited fines and ancillary orders such as confiscation orders or serious crime prevention orders.

A criminal conviction may also require disclosure to professional regulators both in the UK and overseas and prevent the relevant body being awarded public contracts.

Prevention procedures: what is ‘reasonable’?

It will be a defence to the Corporate Offences if a relevant body can demonstrate that it had in place a system of reasonable prevention procedures that identified and mitigated its tax evasion facilitation risks or that it was unreasonable to expect it to have such procedures.

The draft government guidance issued in October 2016 sets out what may amount to reasonable preventative procedures. In the guidance, it is acknowledged that any regime that is risk-based and reasonable cannot also be a zero failure regime.

The guidance sets out six guiding principles:

  • Risk assessment
  • Proportionality of risk-based prevention procedures
  • Top-level commitment
  • Due diligence
  • Communication (including training)
  • Monitoring and review

These are the same principles as those contained in the guidance given for what constitutes adequate procedures for the purposes of showing a defence to the corporate offence under the UK Bribery Act 2010. As with those procedures, it is not possible to prescribe ideal procedures in the abstract. However, typical procedures will assess the risk of facilitating tax evasion from the point of view of geography, the nature of third parties dealt with, and the practices of a particular industry.