Getting to grips with the Criminal Finances Act

The Criminal Finances Act, which became UK law on September 30 2017, places new obligations on UK companies and partnerships to prevent tax evasion offences. Harrison Drury’s regulatory team, headed up by David Edwards, looks at the offences in more detail and how to prevent such offences from being committed.

As businesses develop and expand, so to does the requirement for more rigorous and structured due diligence and compliance.

That said, even with reasonable levels of due diligence and compliance in place, some of the most successful businesses can still fall foul of certain legal and regulatory obligations, whether that be due to a lack of education within the corporate structure, or otherwise.

Significant and new regulatory risks for UK businesses, have been set out in the Criminal Finances Act 2017 (CFA 2017) which on 30^th September 2017 created two new strict liability offences which may be committed by a corporate entity or partnership. The offences are:

• Failure to prevent facilitation of UK tax evasion – Section 45 CFA 2017
• Failure to prevent facilitation of overseas tax evasion – Section 46 CFA 2017

UK tax evasion

What constitutes tax evasion in the UK?

Under the CFA 2017 tax evasion is defined as:

(a)        An offence of cheating the public revenue, or

(b)        An offence under the law of any part of the United Kingdom consisting of being knowingly concerned in, or in taking steps with a view to, the fraudulent evasion of a tax

What does a UK tax evasion facilitation offence mean?

This is defined as:

(a)        Being knowingly concerned in, or in taking steps with a view to, the fraudulent evasion of a tax by another person,

(b)        Aiding, abetting, counselling or procuring the commission of a UK tax evasion offence, or

(c)        Being involved art and part in the commission of an offence consisting of being knowingly concerned in, or in taking steps with a view to, the fraudulent evasion of a tax.

Who commits the offence?

A partnership or corporate entity, referred to within the CFA 2017 as a “Relevant Body,” is regarded as being guilty of an offence if a person commits a UK tax evasion facilitation offence when acting in the capacity of a person associated with the Relevant Body.

Are there any defences which a Relevant Body could seek to rely on?

It is a defence for the Relevant Body to prove that, when the UK tax evasion facilitation offence was committed the Relevant Body had in place such prevention procedures as it was reasonable in all the circumstances to expect the Relevant Body to have in place. It is also a defence if it was not reasonable in all the circumstances to expect B the Relevant Body to have any prevention procedures in place.

Overseas tax evasion

What is a foreign tax evasion offence under the CFA 2017?

A “foreign tax evasion offence” means conduct which:

(a)        Amounts to an offence under the law of a foreign country,

(b)        Relates to a breach of a duty relating to a tax imposed under the law of that country, and

(c)        Would be regarded by the courts of any part of the United Kingdom as amounting to being knowingly concerned in, or in taking steps with a view to, the fraudulent evasion of that tax.

What does a foreign tax evasion facilitation offence mean?

(a)        Amounts to an offence under the law of a foreign country,

(b)        Relates to the commission by another person of a foreign tax evasion offence under that law, and

(c)        Would, if the foreign tax evasion offence were a UK tax evasion offence, amount to a UK tax evasion facilitation offence.

Who commits the offence?

A Relevant Body is guilty of an offence if at any time if a person commits a foreign tax evasion facilitation offence when acting in the capacity of a person associated with a Relevant Body, and if any of the following conditions are satisfied:

• That the Relevant Body is a body incorporated, or a partnership formed, under the law of any part of the United Kingdom;
• That the Relevant Body carries on business or part of a business in the United Kingdom
• That any conduct constituting part of the foreign tax evasion facilitation offence takes place in the United Kingdom.

Reasonable prevention procedures – what are they and what do they mean?

These are procedures, designed to prevent people from acting in the capacity of a person associated with the Relevant Body from committing tax evasion facilitation offences.

In any event, following the implementation of these two new offences, it is essential that business take the time to understand the potential risks imposed to their operations, along with the limitations that could be adopted in order to appropriately manage and monitor such risks.

Government guidance was published in September 2017 to assist businesses with the interpretation of the new offences, and focuses on the following five principles:

1. Risk assessment – risk management and risk prevention procedures and policies cannot be successfully implemented unless they have been effectively measured against the risks a business faces.
2. Top level commitment – there has to be an overall corporate commitment to any such procedure – leadership and governance starts at the top.
3. Due diligence – an imperative part of each commercial exercise.
4. Communication (inclusive of training) – in every business, communication is one of the vital elements to success
5. Monitoring and review – over time, things change, and business pressures change, and that can result in certain procedures no longer being fit for purpose. Once something has been implemented, it’s essential that ongoing monitoring and review continues so that you can be certain that your business is benefiting.

What are the penalties for non-compliance?

A Relevant Body guilty of an offence under Section 45 or Section 46 of the CFA 2017 is liable:

• On conviction on indictment, to a fine;
• On summary conviction in England and Wales, to a fine
• On summary conviction in Scotland or Northern Ireland, to a fine not exceeding the statutory maximum

Needless to say, any of the above can be particularly damaging to a business, and that’s without negative publicity from the media. So, take the time to ensure that there is a general corporate understanding as to the significance of these new offences.

Disclaimer: Harrison Drury is not authorised or regulated to provide tax and / or financial services advice. 

For further information on how the Criminal Finance Act affects your business, contact the Regulatory Team on 01772 258321.