Criminal Finances Act 2017:

The Criminal Finances Act entered into effect on 30th September 2017 and will impact any business operating in the UK. We asked our Global Payroll & Compliance Manager, Lorna Ferrie, to give us the key facts on the Act and what it means for your organisation:

The aim of the new legislation is to dramatically increase the standards for compliance within global corporations.

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.

One noticeable measure makes companies liable for failing to prevent their employees from engaging in or facilitating tax evasion. Furthermore, the stipulations are activated where individuals are found guilty of not just evading UK taxes, but also foreign taxes.

If a corporation 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 licenses and may be prohibited from bidding for public contracts.

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”.

HMRC and other bodies have published draft guidance to help corporations understand what may constitute “reasonable prevention procedures”. The relevant guidance encourages relevant bodies to focus on six guiding principles:

1. Carrying out a risk assessment to identify the specific risks of facilitation.
2. Implementing procedures which are proportionate to the specific risks identified in the risk assessment.
3. Performing due diligence of staff, third parties and clients in proportion to the risks that they post to the business.
4. Ensuring that there is a top-level commitment within the organisation to preventing the facilitation of tax evasion.
5. Communication (including training) to employees and third parties to ensure procedures are embedded and understood.
6. 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 will demonstrate top level commitment to the prevention of tax evasion and evidence that it 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.”

Mauve Group offers risk assessment and tax consultancy around the world to clients in any industry. If you want to take advantage of Mauve’s twenty years of experience and expert knowledge to ensure your business is operating compliantly, we’d love to help – get in touch via the Contact form.