Civil Fraud Quarterly Round-Up: Q1 2021
On September 30th 2017, a new corporate offence of failing to prevent the facilitation of tax evasion in the UK and overseas comes into force. Companies or partnerships who fail to have reasonable prevention procedures in place could find themselves subject to criminal prosecution.
Enforcement activity by Her Majesty’s Revenue and Customs (HMRC) is at its highest for several years as successive governments have pledged to ‘clamp down’ on tax evasion and avoidance. New civil and criminal powers have emboldened HMRC, with record numbers of tax investigations and prosecutions being brought. It is the turn now of companies to be in the spotlight. HMRC has set ambitious targets to prosecute 100 corporates and high net worth individuals per year by 2020.
What are the new tax evasion offences?
Part 3 of the Criminal Finances Act 2017 establishes the new regime, introducing two new offences.
These offences are corporate offences - they can only be committed by “relevant bodies”, that is, companies and partnerships. The offences are only committed where an “associated person” acting for or on behalf of that body criminally facilitates a tax evasion offence committed by another person. An associated person is an employee, agent or other person who performs services for or on the company's behalf.
A three-stage process
There is a three stage process which must be met for an organisation to become liable under the legislation:
Is there a defence?
The Act provides defences where the relevant body has in force reasonable prevention procedures (i.e procedures designed to prevent persons associated with it from committing tax evasion facilitation offences) or that it would be unreasonable “in all the circumstances” to expect a company to have such procedures. Guidance was published by HMRC on 7 September 2017 (dated 1 September) intended to help relevant bodies understand the types of processes and procedures that can be put in place to prevent associated persons from criminally facilitating tax evasion. It will inform the conduct of a risk assessment and the creation of procedures proportionate to that risk.
The guidance outlines six key principles that a company should consider when devising appropriate procedures: risk assessment, proportionate risk-based procedures, top-level commitment, due diligence, communication and training, and monitoring and review.
Who will investigate?
HMRC will investigate the UK tax offence with prosecutions brought in England and Wales by the Crown Prosecution Service (CPS). The foreign tax offence will be investigated by the Serious Fraud Office (SFO) or National Crime Agency (NCA) and prosecutions will be brought by either the SFO or CPS.
What penalties would a company face?
A conviction for the failure to prevent offence could have serious implications for a business. Organisations could face unlimited fines and additional orders such as a confiscation order or serious crime prevention order, as well as being debarred from entering public contracts. The legislation does allow a company to enter into a Deferred Prosecution Agreement in appropriate cases.
HMRC will undoubtedly be eager to implement its new powers as soon as possible. Whilst multinationals will clearly be in its sights, initial prosecutions are likely to target smaller entities who have not applied the guidance at all. HMRC has a history of going after such “low-hanging fruit” and will be keen to get a few easy wins under its belt before tackling bigger corporates. Suffice to say no company should rest on its laurels and implementing appropriate safeguards in line with the guidelines should be an urgent priority.
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