Failure to prevent the facilitation of tax evasion

Failure to prevent the facilitation of tax evasion

Corporate Criminal Offences: Overview The corporate criminal offence of failure to prevent the facilitation of tax evasion became law in April 2017 as part of the Criminal Finances Act 2017. It took effect from 30 September 2017. It is based on the UK Bribery Act 2010 and is designed to be a key tenet in HMRC s on-going drive to stamp out tax evasion and close the tax gap. The table below demonstrates the effects of the legislation: Who? Companies Partnerships LLPs Charities What? The failure by businesses to prevent the facilitation of tax evasion by employees or associated persons. (An associated person is one who is performing services for or on behalf of the entity when the tax evasion facilitation takes place e.g. contractors). Corporate Criminal Offence Why? One of the aims of the legislation is to make it possible to attribute criminal liability to a corporate for the criminal actions of employees and associated persons. Perhaps more significantly the purpose behind the new law is to fundamentally change corporate culture by making businesses more accountable by denying companies the opportunity to escape sanction on the basis that senior management was unaware of the problem. Where? All businesses both in the UK and elsewhere in respect of the facilitation of UK tax evasion. Businesses with a UK connection in respect of the facilitation of non-uk tax evasion (where there is dual criminality e.g. the offence is criminal tax evasion under the existing laws of the overseas jurisdiction and would also be a criminal offence in the UK). 1

Scope of the offences Both the facilitation of UK tax evasion offence and the foreign tax evasion offence must have three key stages for the legislation to apply: Stage 1 Criminal tax evasion by a taxpayer (although there must be sufficient evidence for a charge, the taxpayer does not need to be charged for the offence to apply). Applies to either UK or foreign tax evasion but foreign tax offence can only be committed by an entity with a UK connection. Stage 2 Criminal facilitation of the offence by an associated person of the organisation. The facilitation must be deliberate and dishonest rather than accidental or negligent. Stage 3 Failure by the organisation to prevent the associated person from committing the offence at Stage 2. Failure is as a result of the entity having inadequate processes and procedures in place to prevent the offence happening. 2

The consequences and defences UK tax offence: Investigation by HMRC and potential prosecution by the Crown Prosecution Service (CPS). Foreign tax offence: Investigation by the Serious Fraud Office (SFO) or National Crime Agency (NCA) and potential prosecution by SFO or CPS. Potential consequences/sanctions: Unlimited fines Confiscation orders or Serious Crime Prevention Orders Loss of licences Damage to reputation Loss of opportunity to bid for public contracts Job losses Defences: The entity has reasonable prevention procedures in place to stop facilitation by its associated persons. The entity can demonstrate that it was reasonable not to have had such procedures at the time of the offence. 3

HMRC guidance HMRC have set out six guiding principles for the defence of reasonable prevention procedures. Risk Assessment Top Level Commitment Due Diligence Proportionality Communication and Training Monitoring and Review What should businesses be doing now? Business should assess the nature and exposure of its risk to associated persons facilitating tax evasion Senior personnel should be committed to prevention and should foster a culture in which facilitation of tax evasion is never acceptable Due diligence procedures should take a risk-based approach, proportional to the risks identified, and should be reviewed regularly Businesses must monitor and review policies and prevention procedures to accommodate changing risks and to make improvements where necessary Prevention policies and procedures must be communicated throughout the business, including appropriate training for staff and other relevant persons Risk-based prevention procedures will depend on the nature of the business and its complexity and the level of supervision exercised over those acting on its behalf 4

How can we help? Blick Rothenberg can help you: Identify the key individuals in your organisation who do, or should, own the compliance function relevant to the requirements of the corporate criminal offence and determine the most appropriate methodology for assessing the risk of associates engaging in activity to criminally facilitate tax evasion. Carry out a high-level review of current procedures for prevention of the facilitation of tax evasion. Prepare internal and external communications, including policy statements reflecting the senior management commitment necessary to form part of the procedures which constitute a defence. Analyse where new or enhanced procedures might be necessary to ensure that reasonable procedures are in place for the purposes of ensuring that the corporate criminal offence does not apply. Carry out training for staff and other associated persons which is proportionate to the risks. Devise an on-going programme to monitor and review prevention procedures. For further information or to discuss your specific requirements, please contact your usual Blick Rothenberg contact or: Fiona Fernie Partner +44 (0)20 7544 8994 fiona.fernie@blickrothenberg.com Gary Gardner Partner +44 (0)20 7544 8784 gary.gardner@blickrothenberg.com Blick Rothenberg 16 Great Queen Street Covent Garden London WC2B 5AH +44 (0)20 7486 0111 email@blickrothenberg.com October 2017. Blick Rothenberg Limited. All rights reserved. While we have taken every care to ensure that the information in this publication is correct, it has been prepared for general information purposes only for clients and contacts of Blick Rothenberg and is not intended to amount to advice on which you should rely. Blick Rothenberg Audit LLP is authorised and regulated by the Financial Conduct Authority to carry on investment business and consumer credit related activity.