Tax facilitation in the UK and overseas (including Jersey and Guernsey)

Following the news about HMRC confirms probe into 153 people suspected of aiding tax evasion,

• READ HERE - https://www.comsuregroup.com/news/hmrc-confirms-probe-into-153-people-suspected-of-aiding-tax-evasion/

Comsure thought it should revisit the Criminal Finances Act 2017 (the 2017 act) – please read on…….

The 2017 ACT

The 2017 ACT contained the most significant expansion of UK corporate criminal liability since the Bribery Act 2010 and one of the most significant overhauls of money laundering and proceeds of crime legislation in the last decade.

Of particular note for financial services is:

• The new strict liability criminal offence of failing to prevent the facilitation of tax evasion by 'associated persons'.
• The offence has an extra-territorial effect and will catch foreign firms and foreign tax evasion (as well as UK firms and UK tax evasion). 
• Firms (e.g. regulated Banks) need to undertake thorough risk assessments to inform the creation of prevention policies and procedures to benefit from the only defence – that of having 'reasonable prevention procedures in place.

Corporate facilitation of tax evasion

The Criminal Finances Act 2017 incorporates two' failure to prevent facilitation offences:

• One for domestic tax evasion and
• One for evading foreign taxes. 

A company commits an offence if it fails to prevent an 'associated person' from committing the UK or foreign tax evasion facilitation offence (a TEFO). 

Facilitating in this context broadly means criminally assisting others (e.g. clients) in evading taxes. The associated person must be acting in their capacity as an associated person of the company (so the offence would not be committed, for example, if the associated person was acting in a personal capacity). 

There is already a criminal offence of facilitating UK tax evasion, but it is difficult to hold companies liable for this offence under the existing rules for attributing individuals' criminal conduct to a company. 

The Act makes it much simpler to attach criminal liability to a company by focusing on the controls that the company has in place to prevent associated persons from facilitating tax evasion. 

Another big change is the creation of the offence for failing to prevent the facilitation of foreign tax evasion.

There is, however, a dual criminality requirement – both the tax evasion and the facilitation must be offences under both the relevant foreign law and English law. 

Accordingly, the offence will not apply in relation to foreign tax crimes committed in jurisdictions with more onerous tax criminal laws than the UK's if the conduct would have fallen short of being criminal in the UK.

Meaning of 'associated person' very wide

The definition of an 'associated person' is wide.

The new offence envisages firms (e.g. regulated Banks) potentially being held criminally responsible for the acts not just of employees but also agents, or any entity providing a service for it or on its behalf in the UK or overseas e.g.

• A foreign tax adviser,
• Offshore accounting firm,
• Broker,
• Trustee or company director service provider,
• Nominee service provider and
• Notary

Dishonesty required by evader and facilitator

There must be both criminal tax evasion (by a third party) and criminal facilitation (by the 'associated person'), i.e. deliberate and dishonest action or omissions. If the associated person is only proved to have accidentally, ignorantly or even negligently facilitated tax evasion then the failure to prevent offence is not committed by the company. H

however, it is not necessary for the tax evasion and facilitation offences to have been prosecuted in order for the company to be liable for 'failure to prevent'.

The UK and foreign companies in the frame

The UK tax offences will catch the UK and foreign firms.  The foreign tax offence will catch UK firms, and also foreign firms if:

(a) the foreign firm carries on business in the UK; or 

(b) some or all of the facilitation happens in the UK.

This means that banks with UK branches will be caught by these new rules to the same extent as UK banks, even if there is no other nexus with the UK:

• So a US bank will be caught by these rules if its Singaporean employee working in Hong Kong commits a tax evasion facilitation offence for an Australian client simply because it has a London branch.

Strict liability – subject to one defence

For a company, the new offence is one of strict liability, subject only to the defence of having "such prevention procedures as it was reasonable in all the circumstances to expect [it] to have in place"  or it was not reasonable to expect the firm to have such procedures in place.

In reality all financial institutions will need to have reasonable prevention procedures in place. 

This concept will be familiar to those involved with implementing 'adequate procedures' in the context of the Bribery Act 2010. The UK government has stated that it expects 'rapid implementation' with companies expected to have a clear timeframe and implementation plan on entry into force of this new offence (currently estimated to be this Autumn).

Firms (e.g. regulated Banks), at a senior level, will need to:

• Conduct a full risk assessment of their global businesses;
• Identify their 'associated persons' and the attendant risk of such persons facilitating tax evasion;
• Consider introducing or revising current 'prevention procedures';
• Consider training needs for both staff and associated persons and devise a suitable programme;
• Review contracts with third party service providers; and
• Seek legal advice should any current practices by associated persons come to light during the risk assessment process which are a cause for concern.

Draft HMRC Guidance provides some worked examples and six guiding principles for designing prevention procedures.

Source - https://www.allenovery.com/en-gb/global/news-and-insights/publications/corporate-criminal-liability-risk-increases-for-financial-services