Earlier this year, the Government stated its intention to introduce new corporate offences relating to domestic and foreign corporate failures to prevent criminal facilitation of tax evasion. As the Criminal Finances Bill 2016 received further discussion in Parliament this month, clarification has been provided by ministers as to how these new offences are expected to operate and why the Government is so keen to implement them.
In essence, the new offences will be committed where a relevant body fails to prevent an associated person advocating and advising in favour of the evasion of tax. There will be two offences to cover situations where tax is owed here in the UK or in a foreign country.
The legislation is designed to effectively mirror Section 7 of the Bribery Act which introduced a new corporate offence of failure to prevent bribery. As with this Bribery Act offence, a defence will be available to relevant bodies that can show that all necessary steps were taken to introduce systems to prevent the criminal facilitation of tax evasion from taking place.
The government has made it clear that these are not offences of the corporate’s failure to prevent itself from evading tax. There is also no current intention to create a legal obligation for corporations to prevent their client’s tax evasion. Instead the focus is on the advice given by companies and their associated persons to clients regarding their tax affairs. Anyone evading tax would be prosecuted in the normal way. However, the company providing the advice on how to evade tax, either here in the UK or overseas, could find itself in the dock alongside its client.
As with the Section 7 offence, the new legislation will implement the ‘associated persons’ doctrine in respect of the persons who could attract liability for a relevant body. This will include an employee, an agent and any other person who provides services for, or on behalf of, the relevant body. There is the firm belief amongst regulators that corporations will intentionally structure their affairs to try to insulate themselves from liability. The most risky services are contracted out to various agents based in the most secretive jurisdictions.
When discussing the bill in Parliament, it was mentioned that there had been a surprisingly low number of convictions under Section 7 of the Bribery Act. The response from the Minister for Security, Mr Ben Wallace, was that this was due to the message of Section 7 having ‘gone out loud and clear’ - the lack of convictions was a result of the Act itself taking effect. UK corporations had taken notice of Section 7 and were taking the necessary steps to ensure that they were compliant with their duty to put effective systems in place to prevent bribery. It is hoped that a similar offence relating to tax evasion would have the same impact. Prevention rather than cure as it were.
UK companies operating overseas have been at pains to implement procedures designed to prevent bribery in order to avoid falling foul of Section 7. Now the same considerations will have to be given to the advice being provided to clients on their tax issues. Failure to do so could result in companies facing large fines following conviction, just as the Sweett Group PLC suffered upon pleading guilty to Section 7 offences at Southwark Crown Court earlier this year. It has been widely reported that the Sweett Group were ordered to pay £2.25 million in fines. What is less widely reported is that the Sweett Group also spent in the region of £2.5 million in legal fees. An expressive endeavour which could have been avoided had they taken the necessary steps to implement robust anti-bribery systems in all aspects of their operations in the UK and overseas.
Acting now to implement such systems in relation to the new offences proposed by the Criminal Finances Bill will prevent companies from suffering expensive punishments at a later date.