The Impact of the Criminal Finances Act 2017
July 14, 2017
By Keily Blair, Polly Miles and Oliver Brooks
Following the introduction to Parliament of Regulations on 12 July, it has been confirmed that the Criminal Finances Act 2017 (the "Act") will come into force on 30 September. Among other things, the Act creates two new corporate criminal offences in respect of the facilitation of tax evasion (collectively referred to as the ‘Corporate Criminal Offences’):
- Failure of a relevant corporate body to prevent the facilitation of UK tax evasion by an associated person; and
- Failure of a relevant corporate body to prevent the facilitation of non-UK tax evasion by an associated person.
There will be some circumstances in which the Corporate Criminal Offences will have extra-territorial application – where the offence relates to UK tax or in the case of non-UK tax where there is a demonstrable nexus with the UK and dual criminality.
If a relevant body is successfully prosecuted they will face an unlimited fine and possible ancillary sanctions, such as confiscation or serious crime prevention orders in addition to suffering serious reputational damage. They also risk losing their licences and may be prohibited from bidding for public contracts.
So what can organisations do to protect themselves?
Although the Corporate Criminal Offences impose strict liability, they resemble the failure to prevent bribery provisions contained in the Bribery Act 2010 to the extent that they provide relevant corporate bodies with a “reasonable procedures defence” (similar to the “adequate procedures defence” contained under Section 7 of the 2010 Act).
HMRC and other bodies have already published draft guidance to help corporates understand what may constitute “reasonable prevention procedures” and the official government guidance will be effective from 17 July, in accordance with the Act's Commencement Regulations.
What are “Reasonable Prevention Procedures”?
The relevant guidance encourages relevant bodies to focus on six guiding principles:
- Carrying out a risk assessment to identify the specific risks of facilitation.
- Implementing procedures which are proportionate to the specific risks identified in the risk assessment.
- Performing due diligence of staff, third parties and clients in proportion to the risks that they pose to the business.
- Ensuring that there is a top level commitment within the organisation to preventing the facilitation of tax evasion.
- Communication (including training) to employees and third parties to ensure procedures are embedded and understood.
- Carrying out ongoing monitoring and review of procedures and risk assessment.
Of these guiding principles, to date the primary focus has been on conducting a risk assessment. A methodical and thorough assessment of the nature and extent to which a relevant body is exposed to a risk that those who act for or on its behalf are criminally facilitating tax evasion will be the cornerstone of any “reasonable prevention procedures” defence.
When conducting the risk assessment it will be critical to engage senior stakeholders. This is will demonstrate top level commitment to the prevention of tax evasion and evidence that is being led from the highest echelons of a company and fostered within its culture.
Following the risk assessment, it will be important to ensure that any identified risks and procedures to mitigate against the same are communicated down the business chain and to relevant third parties to ensure that they are embedded and understood. Once again, top level commitment to this learning process will be expected.
Across our Legal, Tax and Compliance Teams, we can help you prepare for the Act coming into force. As part of a three stage approach, we:
- assess the probable impact of the new corporate criminal offences on the client’s business;
- Conduct a risk assessment of the client’s business to determine areas of exposure and vulnerability; and
- assist the client with the implementation of a remediating and enhancing compliance programme.
If you have concerns about your company’s exposure to risk under the Corporate Criminal Offences, please contact the PwC Team for advice.