Strict liability law for corporate tax evasion under Criminal Finances Act
The Criminal Finances Bill has been given Royal Asset, ushering in controversial new ‘strict liability’ corporate criminal offences for companies failing to prevent facilitation of UK and foreign tax evasion, which will come into force later this year
28 Apr 2017
The new legislation makes businesses liable for the criminal acts of employees who encourage or assist tax evasion by others, such as customers or suppliers, even if senior management was uninvolved or unaware of these acts. The new laws are expected to be introduced by September 2017 and apply to UK and non-UK tax.
At present, if an individual evades tax and this is facilitated by the advice or actions of those in a corporation, although the individual will have committed a crime and those directly facilitating it could be prosecuted, the corporate entity does not hold any liability.
The new legislation does not require proof of involvement of the ‘directing mind’ (effectively senior management) of the entity, and nor does it matter whether any benefit has been obtained from facilitating the tax evasion. Potential fines are unlimited.
The Criminal Finances Act 2017 also creates unexplained wealth orders (UWOs) which can require those suspected of serious crime or corruption to explain the sources of their wealth, and enables the seizure and forfeiture of proceeds of crime and terrorist money stored in bank accounts and certain personal or moveable items.
It provides legal protections for the sharing of information between regulated companies and extends the time period granted to law enforcement agencies to investigate suspicious transactions.
Jonathan Grimes, criminal litigation partner at Kingsley Napley LLP, said: ‘The most significant elements are failure to prevent tax evasion and the creation of Unexplained Wealth Orders. The former is important because it creates a corporate offence of failing to prevent tax evasion, which is very similar to the Bribery Act 2010 offence of failing to prevent bribery.
‘This should be seen as part of the wider context of increased pressure being placed on business to prevent criminal wrongdoing.
‘The new tax offence also has extra-jurisdictional effect which is controversial. This means that tax evasion in a foreign jurisdiction could give rise to a prosecution in the UK. Some have questioned if HMRC really has the resourcing to police that effectively, and whether, in principle, it should have that power.’
The government is also currently consulting on a further development of corporate criminal liability and the idea of creating a corporate offence of failure to prevent economic crime in similar vein.
Research by law firm Pinsent Masons has found that 76% of UK businesses are unaware of the introduction of the new laws, including over half (58%) of those in the financial services and accountancy sector.
Large businesses are more likely to be caught out under the new legislation due to their complex operating structures and the number of people they employ, the firm says. Despite this, the YouGov poll of over 1,000 senior decision makers revealed that 67% of large businesses are unaware of the impending introduction of the offence.
Pinsent Masons says that this lack of knowledge is a concern as it could take time for businesses to implement any necessary changes ahead of the new laws and that preparation is key to avoid potential criminal prosecution in the future. It will be a defence if a company can show it has 'reasonable prevention procedures' in place.
Jason Collins, head of tax at Pinsent Masons, said: ‘The financial services, accounting and legal sectors are likely to be the most affected by the new legislation. These sectors will face the biggest challenges when it comes to carrying out risk assessments, and ensuring that adequate procedures are in place to prevent any potential facilitation of tax evasion.’