Criminal Finances Act 2017 – Are you prepared?

The Criminal Finances Act 2017 received Royal Assent on 27 April 2017 and is expected to come into force in September.

Together with changes to the laws governing money laundering and enforcement powers concerning terrorist property, one of the most important sections of the Act covers corporate criminal liability for tax evasion. The Act creates two new strict liability criminal offenses including the failure to prevent the facilitation of UK tax evasion offenses and the failure to prevent the facilitation of foreign tax evasion offenses.

There are three stages that apply to both the domestic and foreign tax evasion facilitation offences:

Stage 1: the criminal tax evasion by a taxpayer (either an individual or a legal entity) under existing law
Stage 2: the criminal facilitation of the tax evasion by an ‘associated person’ of the relevant body who is acting in that capacity
Stage 3: the relevant body failed to prevent its representative from committing the criminal facilitation act

The six guiding principles of the Criminal Finances Act are:

1. Risk assessment
The relevant body assesses the nature and extent of its exposure to the risk of those who act for or on its behalf engaging in activity during the course of business to criminally facilitate tax evasion.

2. Proportionality of risk based prevention procedures
Reasonable procedures will be proportionate to the risk a relevant body faces of persons associated with it committing tax evasion facilitation offences. This will depend on the nature, scale and complexity of the relevant body’s activities. We recognise that the reasonableness of prevention procedures should take account of the level of control and supervision the organisation is able to exercise over a particular person acting on its behalf, and the proximity of the person to the relevant body. The new offences do not require relevant bodies to undertake excessively burdensome procedures in order to eradicate all risk, but they do demand more than mere lip-service to preventing the criminal facilitation of tax evasion.

3. Top level commitment
The top-level management of a relevant body should be committed to preventing persons associated with it from engaging in criminal facilitation of tax evasion. They should foster a culture within the relevant body in which activity intended to facilitate tax evasion is never acceptable.

4. Due diligence
The organisation applies due diligence procedures, taking an appropriate and risk based approach, in respect of persons who perform or will perform services on behalf of the organisation, in order to mitigate identified risks.

5. Communication (including training)
The organisation seeks to ensure that its prevention policies and procedures are communicated, embedded and understood throughout the organisation, through internal and external communication, including training. This is proportionate to the risk to which the organisation assesses that it is exposed.

6. Monitoring and review
The organisation monitors and reviews its prevention procedures and makes improvements where necessary.

HMRC has published draft Guidance (Tackling tax evasion: Government guidance for the corporate offence of failure to prevent the criminal facilitation of tax evasion – HMRC draft Guidelines) which businesses might find useful when putting systems and prevention procedures in place (including enhancements to existing compliance policies and procedures) to mitigate business risk arising from the new offense. Business should act now, to ensure these procedures are in place by September!

If you would like to discuss this matter in further detail, please contact our tax specialist or your usual Beavis Morgan Partner.