On 27th April 2017, the Criminal Finances Act came into action inciting drastic changes to the law concerning money laundering, corruption, tax evasion and terrorist financing.
The new Act provides powers to help both law enforcement agencies and the private sector investigate and tackle money laundering.
The Act also introduces a new corporate offence whereby corporations, companies and businesses will be criminally liable if they fail to prevent tax evasion committed by employees or associated business links.
Even in cases where the senior management was uninvolved or unaware of the acts, they can and will still be seen as liable if actions were not taken to prevent it.
Up until now, it has not been possible in a lot of cases to charge the firm where tax evasion occurred with criminal liability.
This new Act means that corporations, companies and businesses will be criminally liable where they fail to prevent those who act for, or on their behalf, from facilitating tax evasion. This will be the case whether the crime was committed in the UK or a foreign country.
The new Act will focus on who is held to account for acts contrary to the current criminal laws. It looks at the failure to prevent the crimes committed rather than to attribute criminal acts to the overall corporation.
Is my business at risk?
Sectors that are particularly at risk are:
- Accountancy and financial services
- Real estate
- Transportation and distribution
Any businesses that handle goods and services, conduct cross-border business, engage in casual labour or pay large amounts to consultants are all at a risk of falling foul of the new legislation.
How can I prevent it from happening
If you can prove that your business has put in place reasonable prevention procedures to prevent the facilitation of tax evasion or where it was not reasonable or realistic circumstances to expect there to be procedures in place, you should not be deemed liable under this offence.
Ultimately only the courts can determine whether or not reasonable preventation procedures were in place in the context of a particular case.
What are reasonable prevention procedures?
HMRC have provided 45 pages of draft guidance that they suggest corporations, companies and business can use to minimise any risk of being liable.
HMRC state that the guidance is designed to be of general application.
It has six main guiding principles:
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.
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.
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.
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.
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.
Monitoring and review
The organisation monitors and reviews its prevention procedures and makes improvements where necessary.
I run an SME, am I at risk?
The Act effectively makes all owners and managers responsible for preventing their staff, external agents and consultants from committing tax evasion.
The larger and more complex the business, the greater the risk that an activity may occur that could be caught.
However, an SME should also review any risks and upgrade its procedures to comply with the guidance provided to prevent any risk of being seen to facilitate tax evasion.
Taking into account the 6 six guiding principles laid out by HMRC, you should consider:
- Running a risk assessment of the products and services it offers, as well as internal systems and client data that might be used to facilitate tax evasion.
- Be committed to preventing any involvement of those acting on your business’s behalf, in the criminal facilitation of tax evasion. Which can be done by issuing a message from the highest level of the business.
- Including terms in contracts with employees and external contractors requiring them not to engage in facilitating tax evasion and to report any concerns.
- Providing regular staff training on detection and prevention of crime in the workplace
- Ensure there is a safe way to report crimes or ‘whistle-blow’
- Monitor and enforce compliance with these prevention procedures
- Have regular reviews of the effectiveness of the prevention procedures and change them where necessary.
What else is in the new Criminal Finances Act 2017?
The Act also covers a number of other provisions, including further powers to investigate suspected money laundering or terrorist financing and new orders which require someone to disclose information they may have on money laundering.
HMRC provide some detailed and thorough information and guidance on the new Criminal Finances Act below.
- HMRC draft detailed guidance (download PDF)
- Criminal Finances Act factsheets
- Criminal Finances Act 2017
- Explanatory notes to the Bill (download PDF)
If you are concerned or would like to discuss these issues and the new Act further, please contact us here. Or call us on 0131 322 1002