The U.K.'s Criminal Finances Act 2017 (the
"Act"), which went into effect on Sept. 30, 2017,
significantly expands the U.K.'s ability to prosecute the
criminal facilitation of tax evasion.
Under the Act, a "relevant body" — which is
defined to include fund managers — may be held criminally
liable for failing to prevent the criminal facilitation of certain
U.K. and non-U.K. tax evasion offenses where the criminal
facilitation was undertaken by a person or entity "associated
with" the fund manager in his or her capacity as an associated
person. The definition of "associated person" under the
law is purposefully wide and designed to be fact-dependent. It
includes employees and third parties to the extent that the fund
manager exercises a degree of direction or control over the third
party's conduct.
The Act creates a strict liability corporate offense.
Accordingly, criminal liability may be imposed regardless of
whether the fund manager had knowledge of the criminal facilitation
or the intention to criminally facilitate tax evasion. The only
available defense is a showing that, at the time the facilitation
offense was committed (i) the fund manager had in place such
prevention procedures as were reasonable in all the circumstances;
or (ii) it was not reasonable in all the circumstances to expect
that such prevention procedures would have been put into effect.
The U.K.'s tax authority has issued guidance regarding
prevention practices and procedures that, if implemented, would
potentially qualify as a defense.
The Act has a wide geographic reach, with potential
application to fund managers regardless of whether they are located
or doing business in the U.K. Potential penalties for the offense
include fines, the confiscation of assets and reputational
damage.
Before the Act, prosecutors in the U.K. could not charge a
corporation or partnership with criminal liability unless they
could prove that senior members of the relevant body were involved
in and aware of the illegal activity. This requirement was often
difficult to establish and was seen as an incentive for senior
management to turn a blind eye to potential criminal activity. The
new legislation encourages senior management to ensure that
appropriate proactive steps are taken to discourage and prevent
unlawful activity.
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