At the end of April, the Criminal Finances Act 2017 was passed, bringing to life a new raft of measures aimed at increasing state powers to tackle financial crime. The rules are set to come into force in September 2017 and include new powers to obtain information, share knowledge and recover criminal property. Of most relevance to the professional community is the new power to prosecute corporate bodies whose agents or employees fail to prevent the facilitation of tax evasion carried out by another person, including customers and suppliers.
The Act creates two separate but related offences – the first to prevent facilitation of UK tax evasion and the second to prevent facilitation of foreign tax evasion. Prosecuting foreign tax evasion requires the approval of the Director of Public Prosecutions or the Director of the SFO, so will in all likelihood be reserved for more serious failures on behalf of the corporate body or more extreme instances of tax evasion.
The key ingredients of the new offences are that (1) a person evades tax; and (2) an "associate" of the relevant corporate body criminally facilitates the evasion whilst acting as an associate of that body, i.e. by "performing services for or on behalf of" the corporate body.
The new offences are an example of the Government's continued focus on two key areas of interest:
measures seeking to eradicate tax evasion; and
a new breed of "corporate" criminal offences that render corporate bodies liable for the acts of individual employees or agents acting on their behalf (modelled on the "failure to prevent bribery" offence created by the Bribery Act 2010).
It is also worth noting the following three key features of the new offences:
the offences can be committed by any corporate body whether or not that body is established for business purposes;
the offences can be committed even if the senior management of the corporate body has no knowledge or awareness of the individual's acts that facilitated the evasion; and
the corporate body can be prosecuted regardless of whether the individual facilitating the evasion or the individual carrying out the evasion is prosecuted or found liable. In fact, it will be possible for either the facilitator or the evader to make a disclosure of their individual acts in order to assist prosecution of the corporate body and secure their own immunity from prosecution.
The only defence available to a corporate body facing an accusation of committing either offence will be to show that the body has "reasonable prevention procedures" in place to prevent tax evasion being facilitated. The clear message to professional bodies is to ensure that proper procedures are implemented and maintained to minimise the risk of those performing services on their behalf being able to facilitate tax evasion.
In light of recent research indicating that over 50% of the financial services and accountancy sector are not aware of the new rules, advisory firms should act now to ensure that their services are not provided in a way that could risk facilitating tax evasion and that prevention procedures are in place before September. Clearly, firm's services linked to tax planning will be directly affected as an over-zealous employee wishing to provide the best service for clients could risk recommending a course of action that may step over the line into tax evasion. However, firms should also take care to identify less obvious business areas that involve high risk scenarios such as clients or suppliers with businesses that often deal with payments in cash or moving money off-shore.