John Binns discusses the introduction of complex new offences in the Criminal Finances Act 2017, aimed at putting pressure on businesses to stop those who help others evade tax.
The Criminal Finances Act 2017 contains a number of provisions aimed at tackling financial crime, which are expected to come into force later this year. The government has now announced the timetable for implementing Part 3 of the Act, which is about the new ‘corporate’ offences of failure to prevent the facilitation of tax evasion.
The concept of the offences is undeniably complex, and is best understood when broken down into its three constituent parts.
The first of these is ‘failure to prevent’, a concept adapted from the Bribery Act 2010, which makes a ‘relevant body’ (which includes all partnerships, as well as corporations) liable for the actions of ‘associated’ persons (employees, agents, or others performing services on its behalf), when acting in that capacity. A defence is available if the body can prove that it had reasonable procedures to prevent such actions, or that it was reasonable for it not to have any such procedures.
The second part of the concept is ‘facilitation’, which here means an offence comprising (a) ‘being knowingly concerned in, or taking steps with a view to’ or (b) ‘aiding, abetting, counselling or procuring’ an offence of tax evasion, or (c) ‘being involved art and part’ in an offence falling within (a). (The phrase ‘art and part’ comes from Scots law, and is arguably a little obscure to be included in a UK statute. Merriam-Webster defines it as ‘indirect participation in a crime by instigating, counselling, or assisting the actual perpetrator’.) At the risk of oversimplifying, this part of the concept is essentially about people who do things that help others evade tax.
The third part of the concept is ‘tax evasion’ itself, which is at least reasonably self-explanatory, but also the reason why two offences were needed – one to cover UK tax evasion offences, and the other to cover foreign tax evasion. To be included in the second category, the conduct concerned would have to be ‘regarded by [UK] courts… as amounting to’ facilitation (as defined in (a) above).
Drawing the three strands together, the effect of the provisions in this part of the Act is to put pressure on businesses to prevent their people from doing things that help others to evade tax (whether UK tax or foreign tax). Unhelpfully perhaps, the Act applies that pressure across the broadest spectrum of business, rather than those that present the highest risk (chiefly, those whose job involves advising clients on their tax affairs – and note that sole practitioners, even those with employees or who outsource work, in this field will not be covered). But the key to how it will work in practice will largely be in the interpretation of what procedures are ‘reasonable’, the meaning of which will clearly vary from one business to another.
The Act requires the government to publish guidance about these procedures, which, assuming it follows the pattern of the draft guidance published previously, will stress some principles that will be familiar to some businesses from their experience of the Bribery Act: risk assessment; proportionality; top-level commitment; due diligence; communication; and monitoring and review.
In practice, any business that could involve helping others with their tax will need to review the guidance carefully and consider their particular risks, before putting procedures in place in time for the implementation of the offences on 30 September 2017. Given the complexity of the issues and the serious consequences should an offence occur, advice from specialist lawyers will in many cases be prudent, and in some cases practically essential.
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John Binns is a partner in BCL’s financial crime department, with particular experience in the Proceeds of Crime Act 2002 (‘POCA’) and tax fraud.