The long-awaited new corporate offences of failure to prevent the facilitation of UK and foreign tax evasion (the "Offences") came into force on 30 September 2017.
The Offences, which are set out in Part 3 of the Criminal Finances Act 2017 ("the Act"), are part of the UK Government's drive to combat tax evasion and to "foster and promote economic crime prevention as part of corporate good governance".
Under the Act, it is an offence for a corporate body or partnership (referred to in the Act as a "relevant body"), wherever incorporated or formed: (i) to fail to prevent the facilitation of UK tax evasion offences ("UK Offence"); and (ii) to fail to prevent the facilitation of foreign tax evasion offences ("Foreign Offence"), in either case by a person with whom the relevant body is associated, provided that the person commits the relevant Offence in their capacity as the relevant body's associated person.
The Act's definition of "associated person" is deliberately wide-reaching and includes not only the relevant body's employees, but also agents or any other person or entity who performs services for or on behalf of the relevant body (such as prime and sub-contractors), and, in each case, who is acting in such a capacity at the time they commit the relevant facilitation Offence.
The UK Offence
Three conditions must be met for a relevant body to commit the UK Offence; these are:
- there must be criminal (i.e., fraudulent) UK tax evasion by a taxpayer under existing law;
- there must be deliberate and dishonest criminal facilitation of that tax evasion by an associated person of the relevant body acting in that capacity; and
- the relevant body must have failed to prevent the associated person from criminally facilitating the fraudulent tax evasion.
A relevant body can commit the UK Offence regardless of: (i) where they are incorporated or formed; and (ii) whether the facilitation offence was committed in the UK or overseas, provided that the facilitation offence concerns the fraudulent evasion of UK tax.
The Foreign Offence
The same three conditions applicable to the UK Offence apply in relation to the Foreign Offence (although condition one will relate to the fraudulent evasion of the applicable foreign tax). However, two additional conditions also must be met for a relevant body to commit the Foreign Offence:
- there must be a UK nexus, meaning that either: (i) the relevant body is incorporated/formed under UK law or carries on business or part of a business in the UK; or (ii) the associated person is located in the UK at the time that they committed some part of the facilitation offence; and
- there must be "dual criminality" of conditions 1 and 2, i.e., both the fraudulent evasion of foreign tax and the criminal facilitation of that evasion must be a criminal offence both in the relevant foreign jurisdiction and under UK law (i.e., it would constitute a crime if it were committed in the UK).
Accordingly, the Foreign Offence is slightly narrower in scope than the UK Offence.
Both of the new Offences are strict liability offences – there is no need to prove that the relevant body had any knowledge of the criminal conduct.
Defences and Penalties
In addition to any reputational damage, a relevant body found to have committed either Offence will be liable to unlimited financial penalties and may become subject to confiscation orders or "Serious Crime Prevention Orders".
However, it is a defence to both Offences if the relevant body can prove that, at the time that the relevant facilitation offence was committed, either: (a) the relevant body had in place such prevention procedures as were reasonable in all the circumstances; or (b) it was not reasonable in all the circumstances to expect the relevant body to have any prevention procedures in place.
The Government has published Guidance on the types of policies and procedures that relevant bodies should implement to prevent associated persons from committing facilitation Offences. These are not prescriptive or one-size-fits-all; rather, bespoke policies and procedures must be implemented by each relevant body. However, the guidance does set out six principles that a relevant body should follow when forming its procedures. These are:
- risk assessment: relevant bodies should carry out, document and keep under review a risk assessment to determine the nature and extent of their exposure to the risk of those acting in the capacity of an associated person committing a facilitation Offence;
- proportionality of risk-based prevention procedures: reasonable procedures should be proportionate to the risk of an associated person committing a facilitation Offence – this will depend on the nature, scale and complexity of each relevant body's activities;
- top level management commitment: the Government expects senior management to lead from the front and foster a culture within the relevant body that conduct intended to facilitate tax evasion is unacceptable. Among other things, senior management should be actively involved with the development and review of the necessary policies and preventative procedures;
- due diligence: the relevant body should apply due diligence procedures, which take an appropriate and risk-based approach, to all of its current and new contractual relationships (e.g., which agents, suppliers, contracts and customers);
- communication: the relevant body should look to ensure that its policies and procedures are communicated, accessible, understood and embedded throughout the organisation by internal and external communications (including training). The nature of the internal and external communications will likely vary according to the nature and type of risk being addressed and the size, organisation and business of the relevant body; and
- monitoring and review: relevant bodies must ensure that they monitor, review and (where appropriate) modify their policies and procedures on a regular basis.
The new Offences have significantly extended the scope of corporate criminal liability in the UK and it is important for – and HMRC actively expects and requires – businesses to take "rapid implementation" steps to ensure that they have reasonable, bespoke policies and preventative procedures in place.
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