The Criminal Finances Act is the Government’s response to the first UK National Risk Assessment in relation to money laundering. Several areas were identified where legislative change could help fight financial crime. The Act introduces new investigation and information sharing powers for law enforcement and the regulated sector. Most notably, and of widest application, is the introduction of the new corporate offence of failing to prevent the criminal facilitation of tax evasion, which came into effect on 30 September 2017.
A firm will be liable if it has failed to put in place reasonable procedures to prevent a person associated with it (an employee or agent) from facilitating tax evasion. The consequences are fines for the firm, risk of regulatory sanctions, and reputational damage. Firms which can demonstrate they have reasonable prevention procedures in place will have a defence.
Under the previous legislation, Government felt that holding corporate bodies criminally liable was difficult because often the board would have no knowledge of the facilitation. The decision-making or advice which can constitute facilitation of tax evasion is often at a lower level, particularly in large organisations. There was little incentive for the management to implement systems to look for the facilitation of tax evasion or to encourage whistleblowing of such activity. This legislation will hold firms accountable if they are “turning a blind eye”.
HMRC has acknowledged that it will take time for firms fully to implement reasonable procedures, but at the very least it expects firms to have:
- demonstrated a clear commitment to compliance, which might include the design of a plan to achieve compliance;
- top-level commitment to preventing the facilitation of tax evasion by the firm or its associated persons;
- an initial communication plan – this could be an email to all explaining the offence, and the steps the firm is going to take to prevent the facilitation of tax evasion.
That said, HMRC has said it will still expect rapid implementation, so firms will need to keep up the momentum to ensure implementation as soon as possible.
What is the new offence?
There are three stages to the offence.
- There must be tax evasion by a taxpayer. The offence applies to the evasion of UK and overseas tax, provided there is a UK connection and a corresponding UK offence. Note: there does not have to be a conviction for this to apply.
- There must be the criminal facilitation of the tax evasion by a person associated with the firm. A person is associated if they are an employee, agent or another person who performs services for or on behalf of the firm. This will be judged on the circumstances, rather than the contractual arrangements which are in place.
- The firm failed to prevent the associated person from committing the facilitation.
What is the defence?
There is a statutory defence that the firm had in place reasonable prevention procedures. HMRC has issued draft guidance which explain the six guiding principles for a firm to have regard to when designing the prevention procedures. They are:
- Risk assessment – assess the nature and extent of the risk that those acting on the firm’s behalf will engage in the facilitation of tax evasion.
- Proportionate prevention procedures – depending on the size and nature of the firm, implement policies and steps to ensure they are complied with. Consider the opportunity, motive and means for a person to facilitate
- tax evasion, and if identified, how this risk can be eliminated.
- Top-level commitment – demonstrate top- level management commitment to preventing tax evasion, both in the involvement with the risk management process, but also their management and communication of those who could facilitate tax evasion.
- Due diligence – carrying out appropriate due diligence on persons acting for or on behalf of the firm, who may not be subject to the same sort of monitoring as employees.
- Communication – ensuring that your policies and procedures are communicated and embedded through training. It is also important that the firm’s zero tolerance approach is communicated, both internally and externally, to deter those seeking to use the firm to evade tax.
- Monitoring and review – this could be seeking internal feedback to ensure employees and agents are aware of the policies and procedures, or formal review with documented findings. Firms need to establish whether the measures they have in place are being complied with and that they meet the risks the firm faces, which may evolve over time.
What should firms do today?
Firms should consider the extent of their risk of exposure to this offence as soon as possible. They should conduct a risk assessment, identifying which departments, services, and relationships provide the opportunity, motive and means to facilitate tax evasion.
Policies and procedures will need to be reviewed to mitigate any risks identified. This offence may appear to be similar, in terms of the process, to the adequate procedures required under the Bribery Act, but firms should not assume it is as simple as inserting the works “and tax evasion” into those policies.
It is important that the policy is communicated to associated people; that the firm has a zero tolerance approach to the facilitation of tax evasion; and that examples are provided through training as to how tax evasion could present itself to staff. Reinforcement of the commitment to the whistleblowing process, and protection for reporters, is also crucial.
Gail joins Lockton
Master Policy insurance broker Lockton has appointed Gail Cook to its Master Policy Practice Management Team in Edinburgh. Gail joins from Zurich Insurance where she held the role of Head of Financial Lines. She comes with 30 years’ experience in the field of professions underwriting and risk management and will be the main Lockton contact for risk management matters. She can be reached on 0131 345 5571 or email@example.com
In this issue
- Enforceable rights or progressive policy goals?
- Data processors beware: GDPR holds you responsible too
- Insolvency in a post-Carillion world
- Employee ownership: a strategy that fits
- A mediation Act? The Irish experience
- Journal magazine index 2017
- Reading for pleasure
- Opinion: Andrew Tickell
- Book reviews
- President's column
- Digital progress given go ahead
- People on the move
- Tipping point for legal aid?
- Arrest: all change
- Legal software: are you still listening to Gangnam style?
- Defamation law for the digital age
- Choosing our judges: could we do it better?
- A journey through trust compliance
- The Cashroom: 10 years of service
- From dockets to defences
- Sex discrimination runs deep
- Wealth not a bar to s 28 claims
- No spying on the job
- Scottish Solicitors Staff Pension Fund: not the final instalment?
- Scottish Solicitors' Discipline Tribunal
- The Clark Foundation for Legal Education
- LBTT's birthday alert
- Doing all the white stuff
- Solicitor's CBE for life of service
- From the Brussels office
- Paralegal pointers
- Public policy highlights
- The kindest cut
- Wish list for the review
- Benchmarking: take the benefits
- Tax evasion: don't get caught up
- Ask Ash
- Time to call out harassment
- Q & A corner