AML: HMRC flexes enforcement muscle to the tune of £7.8 million
One of the questions following the Anti-Corruption Summit and the media furore over the Panama Papers was whether legislative proposals (and related law enforcement resources) would be delivered to underpin high level political commitments. Seeming to answer this the Queen’s Speech confirmed that a Criminal Finance Bill will be presented to tackle corruption, money laundering and tax evasion - key commitments from the Summit.
Tax evasion takes centre stage
In his closing remarks at the Summit the Prime Minister confirmed that “we want firms properly held to account for any criminal activity within them”. This Bill provides the legislative vehicle for measures already under consultation (until 10 July) relating to a new corporate criminal offence of failure to prevent the facilitation of tax evasion. It clearly marks HMRC’s intention to take criminal enforcement action against corporates as well as individuals. Already underway, the Finance Bill 2016 introduces a new criminal offence for individuals that removes the need to prove intent for the most serious cases of failing to declare offshore income and gains. See our related blog.
However, there are growing concerns from those who defend HMRC prosecutions that the governmental pressure to crack down on tax evasion is resulting in HMRC applying its criminal investigation policy in an inconsistent manner. Cases that would previously have been deemed ‘civil’ in nature are now being pursued as criminal investigations, despite the fact that they generally take longer, are more resource intensive and do not guarantee any financial return at their conclusion.
Are these investigations really going to assist in plugging the tax deficit reported by the Public Accounts Committee which recently set out a damning indictment of HMRC’s record in recouping the billions of pounds lost from "tax fraud" in the UK each year? Moreover the PAC reported a deficit of "£16bn of uncollected tax" with limited progress in reducing that level (purported to be around 3% of all tax liabilities per year) being made.
Whereas the introduction of the new corporate offence of failure to prevent tax evasion (at home and abroad) may have superficial attractions (e.g. holding a company to account for the actions of its "associated persons" abroad) it fails to recognise the complexities of tax regulations and legislation in other jurisdictions. Should the UK be spending significant resources in enforcing the laws of foreign jurisdictions with respect to the tax which is ultimately payable in that jurisdiction? Might not information sharing and greater law enforcement co-operation be the way forward instead?
What does it mean for corporates in the future?
Will UK companies be at a commercial disadvantage to those operating locally with the burden of additional layers of compliance? A complaint still being applied regarding the Bribery Act and set to grow under other measures to be introduced post-Summit on holding companies criminally liable if they fail to prevent financial crime by their representatives or employees. Collateral damage to shareholders, creditors, suppliers and innocent employees can be caused following a corporate prosecution. It is worth remembering that the US approach is firmly focused on individuals after decades of going after companies. Moreover, it is not clear how the general extension of s7 to economic crimes will relate to the specific Bribery Act provisions or those being introduced relating to tax evasion.
Anti-Money laundering reform and the recovery of assets
Additional measures under the Criminal Finance Bill address issues raised in the Home Office’s recent Action Plan on anti-money laundering and terrorist financing. Including reform of the Suspicious Activity Reports (SARs) regime to encourage better use of public and private sector resources against the highest threats and to target entities that carry out money laundering instead of individual transactions. Measures will also be introduced to improve the ability of law enforcement agencies and courts to recover criminal assets more effectively, particularly in cases such as those linked to grand corruption. The Summit announced the creation of the first-ever global forum to step up international efforts on asset recovery. As to practical instruments, the feasibility of introducing Unexplained Wealth Orders is now under consultation (until 2 June) along with consideration of the benefits of an illicit enrichment offence, targeting those who use their public position to enrich themselves.
There is no doubt that the new measures are going to cause significant compliance headaches for corporates and professional service firms alike. The pressure will also be on enforcement agencies to ensure that the raft of new powers result in an increased number of prosecutions and convictions. The political message is clear: companies must be held to account.
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