What is the Criminal Finances Act 2017 (CFA)?

The Act contains two new corporate criminal offences of failure to prevent criminal facilitation of tax evasion, both in the UK and overseas. They will be coming into effect on 30 September 2017 and make a company liable for the actions of its staff, agents or other associates, if it fails to have reasonable preventative procedures in place to avoid facilitation of tax avoidance. The legislation has been broadly worded as to encapsulate a variety of circumstances in which facilitation could occur.

Stages to offences

An offence under the CFA consists of three elements:

Evasion – Criminal UK or non-UK tax evasion by a taxpayer

Association – Requirement of deliberate and dishonest action by ‘associated person’ (including employees) to facilitate tax evasion.

Prevention – Offence will have occurred if reasonable prevention procedures are not implemented by the company.

Reasonable Procedures

The offence is a ‘strict liability’ offence and the only defence available to companies is to demonstrate that they have reasonable procedures in place to prevent the facilitation of tax evasion.

HMRC has provided six guiding principles on what could represent ‘reasonable’ procedures for the basis of the statutory defence:

  • Risk assessment – there is a need to assess the exposure to risk and the ease in which tax evasion could be facilitated.
  • Proportionality – in deciding what action to take there will not be a uniform approach possible and the prevention procedures must be tailored to risks posed.
  • Top-level commitment – the top-level management must be seen to be creating an environment where tax evasion is totally inexcusable.
  • Due diligence – there should be a thorough investigation when carrying out the risk assessment on all staff, third parties and clients.
  • Communication – Internal awareness of the dangers posed from the new legislation and processes for seeking advice must be communicated effectively to all staff. A suitable training programme should also be sought for staff at every level.
  • Monitoring and review – The constant need for formal review on periodic basis will be necessary to demonstrate procedures were up to date.

The above principles are identical to those required to defend a charge under similar provisions of the Bribery Act 2010, so they should be familiar to you. However, it is important to not rely only on existing anti-bribery policies without undertaking a proper risk assessment in relation to tax evasion. This should thoroughly assess perceived risks so as to ensure robust prevention procedures are in place and existing procedures may need to be tailored to ensure that facilitating tax evasion is prevented.