On September 30, 2017, Part 3 of the  UK Criminal Finances Act 2017 (the "CF Act") became effective, creating new corporate criminal offenses for failure to prevent the facilitation of domestic UK and foreign tax evasion. The CF Act will hold companies responsible for employees who facilitate tax evasion unless the companies are able to demonstrate that reasonable prevention measures were in place at the time of the offense.

As more fully described in a Cadwalader memorandum, Part 3 of the CF Act is notable in that it (i) removes the "identification doctrine," allowing organizations to be found liable regardless of whether senior management was aware of the misconduct, (ii) has global implications, allowing foreign entities to be charged for UK tax evasion, and (iii) allows companies to employ a "reasonable prevention" defense if appropriate policies and procedures were in place to prevent employees from facilitating tax evasion.

In addition to the Part 3 provisions, the CF Act institutes a process by which authorities can require individuals suspected of involvement in financial crimes to explain the origin of certain assets (by means of issuing an Unexplained Wealth Order ("UWO")). If an individual fails to respond to a UWO, authorities will consider the relevant assets to be "recoverable for the purpose of any proceedings taken in respect of the property."

Further, the CF Act introduces new anti-money laundering provisions, including increased disclosures of suspicious activity reports ("SARs") and other enhancements to the SAR process. These provisions are not yet effective.

The Cadwalader memorandum was authored by Joseph Moreno, Adam Blakemore, Elizabeth Clay and Janaki Tampi.

Commentary / Joseph V. Moreno



Banks, financial institutions, law and accounting firms, and other professional service firms may be most heavily impacted by the new law. A strict liability standard and unlimited fines means that the consequences for any non-compliance could be severe. Companies, both within and outside the UK, should review their compliance programs and extend their compliance policies to include agents, sub-contractors, and other third parties.

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