Facilitation of Tax Evasion (New Offences of Failure to Prevent)

The Criminal Finances Act 2017 creates two new offences of corporate failure to prevent the facilitation of tax evasion (the offences).

The offences comprise a UK offence and a foreign offence. Either offence is committed where a relevant body fails to prevent a person associated with it from facilitating tax evasion. A person is associated with the relevant body if they are: an employee, acting in the course of their work; an agent, acting in their capacity as an agent; or, any person who performs services for or on behalf of a company in their capacity of performing that service.

The offences are comprised of a UK offence and a foreign offence. Either offence is committed where a relevant body, meaning any body corporate, partnership or not for profit, fails to prevent a person associated with it from facilitating tax evasion.  The two offences follow the same three stages:

• Stage one: a natural or legal person commits tax evasion.
• Stage two: somebody, either a natural or legal person, associated with the relevant body, and while acting in that capacity, criminally facilitates the tax evasion at stage one.
• Stage three: the relevant body may choose to put forward the defence that it had in place reasonable procedures to prevent the facilitation of the tax evasion by the associated person at stage two.

As well as facing an unlimited fine, organisations found guilty of one of the offences could find themselves subject to ancillary orders such as confiscation orders and serious crime prevention orders.

In addition, a public conviction would carry obvious reputational implications, and may require disclosure to professional regulators both in the UK and overseas. Organisations that bid for public contracts could find themselves barred from future bidding.

An organisation may be able to avoid conviction by entering into a deferred prosecution agreement (DPA) with the prosecutor. A DPA allows the prosecution to be suspended for a set period provided that certain conditions are met

The statutory defence available to a relevant body charged with either of the offences is that it had in place such prevention procedures as it was reasonable in all the circumstances to expect it to have, or that it was not reasonable in all the circumstances to expect it to have any prevention procedures in place.

The government has published guidance about the procedures that organisations can put in place to prevent associated persons from facilitating tax evasion (see below). The guidance bears a number of similarities to the government guidance published under the Bribery Act 2010 (2010 Act guidance) and the guidance adopts the same six guiding principles as the 2010 Act guidance (the principles). However, the application of the principles in the context of tax evasion and its facilitation will be very different to their application to bribery risks. The approach will need to be calibrated to ensure that the precise risks posed by tax evasion, and its facilitation by associated persons, are addressed directly.

On 1 September 2017, the government published its guidance under section 47(1) (the guidance).

The guidance gives organisations a high-level steer in terms of what they are expected to do in order to put in place reasonable preventive procedures. However, the principles are not prescriptive. Organisations will need to conduct a work programme to design and implement their reasonable preventative procedures. Particularly for larger and more complex organisations, project planning is essential. Among other things, an organisation will need to: identify and define the organisation’s risk appetite; agree the overall scope; secure management buy-in, budget and approval; assemble a steering committee; and agree internal requirements. Once the work programme has been mapped out, the next stage will be to undertake an impact analysis to understand how the organisation is affected by the offences.

The next step is to undertake a risk assessment, which will comprise an assessment of inherent risk; that is, a risk which exists irrespective of the mitigating effects of any existing controls. Once the inherent risk assessment has been agreed, the organisation’s existing control framework will need to be mapped onto the identified inherent risks, in order to identify the organisation’s residual risks. The extent to which the organisation’s existing controls do not address the residual risks represents the gaps in the control framework that will need to be plugged through enhancements. Once the required enhancements have been identified, they can then be incorporated into a programme of remediation that mitigates the risk in a proportionate manner. The final element is the design of a programme to review and maintain the new enhanced standards.