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Failure to prevent the facilitation of tax evasion – Criminal Finances Act 2017

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4 October 2017

A new criminal offence applies with effect from 30 September 2017 for the failure of businesses to prevent criminal facilitation of tax evasion.

The rules apply to companies, partnerships and LLPs but not individuals. There are two separate offences. The first is for the failure to prevent facilitation of UK tax evasion and a similar offence in respect of foreign tax evasion.

Although the offences relating to tax evasion remain unchanged, the new legislation will enable the government to prosecute and convict the business itself. As a result a company or partnership could face criminal conviction even if they were not directly involved in the facilitation of tax evasion and/or unaware that their staff had involvement.

The penalties are uncapped and so a company could face an unlimited fine along with a criminal conviction.

The offences

To be prosecuted under the new rules, three circumstances must apply:

  1. criminal tax evasion must be committed by a client or customer of your business;
  2. the tax evasion must have been intentionally aided by someone representing the business e.g. an employee or agent; and
  3. the senior management of the business must have failed to prevent that person from enabling the crime, for example by not having reasonable prevention procedures in place.

The business will have a defence against the above if:

  • it has ‘reasonable prevention procedures’ in place to prevent the facilitation of tax evasion; or
  • it is unreasonable to expect the business to have had such procedures in place.

‘Reasonable prevention procedures’ will depend on the size and complexity of the firm as well as the business it undertakes.

Action to take

Responsibility lies with senior management of the firm, who must prevent, as far as possible, their staff, consultants and agents from committing tax evasion.

A risk assessment should be carried out and a plan put in place to take account of these new rules. HMRC guidance gives details of areas that the firm way wish to review including, products, services, client data and internal systems and controls. Some areas of risk highlighted by HMRC include:

  • Country risk – where the firm deals with overseas countries with perceived high levels of secrecy.
  • Sector risk – sectors which traditionally are more likely to facilitate tax evasion e.g. financial services, tax advisory and legal sectors.
  • Customer risks – overseas customers, cash intensive businesses, complex ownership structures etc.
  • Product risks – anonymous transactions, payments from unassociated third parties, transactions/relationships without face to face contact.

Following the risk assessment, policies and procedures should be developed and implemented to manage the risk. This could include;

  • implementation of procedures proportionate to the risks identified;
  • enhanced due diligence procedures for those acting on, or behalf of, the business;
  • firm wide communications on the firms standpoint on the facilitation of tax evasion (e.g. zero tolerance policy);
  • training for staff, agents and consultants; and
  • ongoing monitoring of the procedures and updating as appropriate.

How we can help

We can provide assistance to enable you to build a suitable defence tailored specifically based on the size and risk profile of your business.

This could involve training for senior management, facilitating a risk assessment workshop, design of suitable enhancements based on the risks identified and training and communications for existing staff and associated persons.

For lower risk small to medium size businesses, HMRC guidance sets out more of a ‘light touch’ approach which we can also assist with.

For further details and guidance, please see our flyer attached