With potentially three months to go before the Criminal Finances Act 2017 comes into force, entities offering advisory services must now tackle the new list of measures put in place to tackle financial crime.
Whilst the new powers include the sharing of knowledge and information as well as recovering criminal property, of key relevance is the new power to prosecute corporate bodies whose agents or employees fail to prevent the facilitation of tax evasion carried out by another person, including customers and suppliers.
The Act creates two linked offences. These offences can only be committed by “relevant persons”, which includes corporates and partnerships but not individuals. This in itself could prove to be a challenge, particularly when it comes to prosecutions for reasons set out below. The offences can be categorised as follows:-
Tax evasion in the UK
This offence covers the failure of an “associated person” from criminally facilitating a UK tax evasion offence. The relevant body and the associated person can either be in the UK or overseas, although the requirement is that UK taxes are criminally evaded.
Tax evasion abroad
This particular offence is one in which there is a failure to prevent an “associated person” from criminally facilitating the foreign tax evasion and the “relevant body” must be sufficiently connected to the UK. This could be that it is incorporated in the UK or carries out business from a trading base in the UK. The activity must also give rise to a criminal offence in the overseas jurisdiction as well as in the UK even though the conduct occurred in the UK.
The application of the offences is wide:-
- The offences can be committed without senior management of the corporate bodies knowledge or even the awareness of an individual's acts that facilitated the evasion;
- The corporate entity can be prosecuted regardless of whether the individual facilitating the evasion or carrying it out is prosecuted or found liable. There is also a possibility that if there were to be a prosecution against a corporate body, it could be assisted by the individual's evidence in making a disclosure of their own misdemeanour in order to assist the prosecution of a corporate body and in return secure their personal immunity from prosecution. Training cannot be considered optional with this being a serious risk.
The Act requires 3 stages to be satisfied in order for the offence to be committed. These stages are set out:-
- Stage I - a tax payer criminally evades tax, whether in the UK or overseas; and
- Stage II - the evasion is criminally facilitated by an associated person of a relevant body, who is acting in the capacity of that association; this is defined within the Act and includes any person who perform services for or on behalf of the relevant body and could therefore be an employee, agent, representative or even a subcontractor.
- Stage III – the relevant body failed to prevent its associated person from criminally facilitating the evasion.
The UK offence will be investigated and enforced by HMRC and the foreign offence will be investigated by the Serious Fraud Office.
With unlimited fines, putting in place preventative measures now is vital.
The only defence available arises with the ability to show that the entity has “reasonable prevention procedures” in place to prevent tax evasion being facilitated.
HMRC have published draft guidance based upon 6 principles; namely,
- Risk assessment
- Proportionality of risk based to prevention procedures
- Director/Management commitment
- Due diligence
- Monitoring and review
What should you do now?
In preparation, it is important to begin the above steps and put in place your policy document as well as undertake training session with all relevant individuals.
This should immediately form part of your regular compliance audits.
The occasions when seeking to recommend a course of action which could assist avoiding tax will now need very careful management as indeed will clients or suppliers with the businesses that often deal with payments in cash or moving money off shore.
September will be quickly upon us – are you ready?