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The Criminal Finances Act 2017 includes the Corporate offences of failure to prevent facilitation of tax evasion (see:'the Act') linked to: (i) UK tax evasion; and (ii) foreign tax evasion.
The corporate offence is one of strict liability, where no knowledge or intention is required on the part of the relevant body. Nor does a tax evader or facilitator of tax evasion have to have been convicted.
Under the Act a relevant body commits an offence if it fails to prevent an ‘associated person’ from committing a tax evasion facilitation offence (i.e. criminally assisting another person to evade a tax liability). The associated person must be acting in a capacity of an associated person of the company (i.e. not in a personal capacity).
The corporate offence applies to relevant bodies which are Companies, partnerships or LLPs, where the Act provides for:
The facilitation of non-UK (i.e. foreign) tax evasion requires an element of dual criminality – where both the tax evasion and its facilitation, must be an offence under foreign law and amount to conduct that would be an offence in the UK if it related to UK tax.
Tax evasion is a predicate offence leading to money laundering. Firms (and their employees) operating in the regulated sector are subject to:
For Guidance published by HM Revenue & Customs on the two offences applying to – (i) the facilitation of UK tax evasion; and (ii) the facilitation of foreign tax evasion click ('Guidance'), which includes: ”Where the relevant body has put in place reasonable prevention procedures to prevent the criminal facilitation of tax evasion by an associated person (or where it is unreasonable to expect such procedures) the relevant body shall have a defence. This guidance provides suggestions of the types of processes and procedures that can be put in place to prevent associated persons from criminally facilitating tax evasion.”
The Association of Foreign Banks worked in conjunction with other financial services trade bodies to produce ‘industry guidance’ on the ‘corporate criminal Offence: failure to prevent tax evasion’ requirements, originally proposed in the Criminal Finances Act 2017.
An associated person can be an individual or an incorporated body. In general, this is likely to be someone “associated” with the relevant body or company, when acting in the capacity of being an employee, agent or other person performing services for or on behalf of the relevant body. A broad concept encompassing a wide range of persons who might facilitate tax evasion when acting on behalf of the relevant body.
HMRC Guidance indicates what might constitute reasonable procedures towards preventing the facilitation of tax evasion. These include:
In court proceedings, the onus would be on the company/relevant body to prove it had reasonable prevention procedures in place (or that it was unreasonable to expect it to have such procedures).
HMRC could investigate UK tax offences, with prosecutions brought by local prosecuting bodies in the UK. Foreign tax offences could be investigated by the Serious Fraud Office (‘SFO’) or National Crime Agency (‘NCA’) and prosecutions brought by the SFO or Crown Prosecution Service. Penalties could be severe - including unlimited financial penalties, confiscation orders or serious crime prevention orders.
HMRC publishes a list of deliberate tax defaulters.
From information available in the public domain, not many HMRC investigations into the failure to prevent the facilitation of tax evasion, appear to have resulted in criminal proceedings. It is unclear if the number of criminal investigations has increased, or if self-reporting leads to non-criminal proceedings or settlement arrangements.
You might be interested in an Accountancy Daily article from March 2019.
Self-reporting is voluntary. If you are authorised by a company or partnership that did not prevent the facilitation of tax evasion see: Guidance. Always consider obtaining professional legal advice and reading relevant guidance before submitting any report.
The FCA does not enforce or issue guidance on the Criminal Finances Act 2017. As the main conduct regulator for the UK’s financial services sector, the FCA does expect the firms it supervises to have considered and taken steps to assess money laundering risk in its operations, a predicate offence for which is Tax Evasion.
The FCA is also interested to know about any civil, criminal or disciplinary proceedings against firms it supervises. The FCA Handbook (SUP 15.3.15 R) includes: A firm must notify the FCA immediately if the firm is prosecuted for, or convicted of, any offence involving fraud or dishonesty, or any penalties are imposed on it for tax evasion.
You should take account of HMRC Guidance, particularly with regards to reasonable prevention procedures that need to be in place. A good place to start is an assessment of where a facilitation offence is most likely to be committed by an associated person. For example:
Consider also, the requirements that need to be in place for a defence to the corporate offence. The internal control framework should be proportionate to the risk of associated persons committing tax evasion facilitation. Other key principles include:
For more on our Anti-Money Laundering services - See AML Services