These two new offences apply to corporates (companies and partnerships) and cover the failure to prevent facilitation of tax evasion of either UK taxes or non-UK taxes by employees, agents or any other person performing services for or on behalf of the corporate (in each case acting in that capacity).
While the offences apply to all corporates, the associated guidance underlines that the offences will be a key risk for law firms, accountants and banks.
The offences do not change the activity that amounts to a crime, but rather focus on holding corporates to account.
The offences themselves are modelled on the strict liability corporate offence of failure to prevent bribery, contained within the UK’s Bribery Act 2010. That offence had originally been introduced because UK law regarding corporate criminal liability made it difficult for large corporates to be held to account; in order to establish corporate liability, a prosecutor generally needs to prove that the directing mind (that is, senior officers) of the corporate was complicit in the relevant criminality.
This has caused frustration for prosecutors. As a previous director of the Serious Fraud Office memorably put it: “The email trail has a strange habit of drying up at middle management level.”
Similar to the Bribery Act, there is a compliance defence available to such offences if the corporate had in place “reasonable” procedures designed to prevent the facilitation of tax evasion.
This defence provides a powerful incentive for corporates to put in place a compliance programme to combat tax evasion, and some commentators believe thevalue in the new offences isin incentivising the implementation of such a programme.
Others take the view that to incentivise compliance, it is necessary for there to be sufficient enforcement action that corporates take the offences seriously.
HMRC’s 2018 business plan states that HMRC wants to increase the number of criminal investigations it undertakes into serious and complex tax crime, focusing particularly on wealthy individuals and corporates, with the aim of increasing prosecutions in this area to100 a year.
Professionals involved in tax evasion and money laundering schemes have historically been investigated and prosecuted. The Criminal Finances Act will allow UK authorities to potentially pursue their employers in relation to the facilitation of tax evasion.
However, the Criminal Finances Act offences are not specifically referred to in HMRC’s business plan. Neither are deferred prosecution agreements, which allow the prosecution of a corporate to be suspended provided certain conditions are met.
Enforcement trends in the UK tend to follow the US. The US has been active in taking enforcement action in relation to tax evasion and has pursued accountancy firms and banks. For example, a big four accountancy firm has entered into a deferred prosecution agreement regarding tax fraud, and various banks have entered into non-prosecution agreements or deferred prosecution agreements.