The Criminal Finances Act 2017 includes measures that mean, with effect from 30 September, incorporated bodies and partnerships must have procedures in place to prevent criminal facilitation of tax evasion by persons ‘associated with’ them.
Failure to prevent such facilitation activity is a criminal offence under these rules, unless it can be demonstrated that ‘reasonable prevention procedures’ are in place.
The term ‘associated with’ includes anyone who provides services for, or on behalf of, the corporate or partnership. It includes employees, suppliers, advisers, agents, intermediaries and contractors.
The rules apply to both UK and foreign tax evasion offences. A UK tax evasion offence may arise wherever the facilitation takes place. An offence of foreign tax evasion may arise if at least part of the facilitation activity is in the UK, the tax evasion activity would amount to a UK criminal offence if it occurred in the UK and the overseas jurisdiction has an equivalent facilitation offence.
The offence of ‘failing to prevent’ attracts strict liability. The corporate doesn’t need to be guilty of deliberate dishonesty, only being ‘asleep at the wheel’. The offence carries an unlimited fine, but the reputational damage may be worse.
What should you do?
You will likely have considered similar legislation, eg the Bribery Act 2010, and have an existing due diligence programme for risks like corruption and money laundering.
Ideally, your response to the new offence can sit within existing governance, risk and due diligence frameworks, with amendments made where necessary for the new requirements. If you don’t already have an existing and sufficiently robust risk management framework, one
needs to be developed.
The key principles are as follows.
This requires that you identify:
- potential risks of tax evasion facilitated by an associated person;
- areas of the business which pose the greatest risks;
- the extent to which existing procedures mitigate those risks; and
- where the gaps are.
Organisations need to demonstrate a high-level understanding of the offence and what is needed for reasonable prevention procedures, including:
- business functions exposed to risk;
- types of transaction that could create risk;
- categories of associates and counterparties (and their location) which could put the organisation at risk;
- what business practices could contribute to risk;
- what existing controls limit risk; and
- any gaps.
Suitability and proportionality of risk-based prevention procedures
This involves adapting/developing a governance framework and procedures to address specific risks, including geographic locations.
Top level commitment
Board level commitment to the principles and a policy statement affirming their commitment is essential.
An appropriate risk-tiered due diligence system is needed to ensure proportionate checks on ‘associated persons’ whose functions could pose potential risks regarding the failure to prevent the facilitation of tax evasion offences.
Communication (including training)
The company’s policy should be communicated internally and staff and ‘associated persons’ trained appropriately.
Monitoring and reviewing
You need to embed the company’s policies and processes, have a monitoring programme and regularly update checks on relevant ‘associated persons’.
We have a developed methodology to help you address this new legislation, supported by a multi-disciplinary team of legal, tax, risk management, governance, fraud prevention and due diligence specialists.