SRA to undertake AML audits as enforcers keep focus on “professional enablers”
New provisions introduced in September 2017 (under the Criminal Finances Act 2017 (ss45-46) to allow the prosecution of a company or partnership for failing to prevent its employees and other “associated persons” from facilitating tax evasion in the UK and abroad, were heralded as a game-changer in terms of reducing tax fraud and closing the tax gap (see our related blog: Will the new corporate offence of failure to prevent tax evasion and enhanced international tax transparency change the landscape for tax investigations?).
However, as far as such information has been made public, few prosecutions have been brought. It was reported recently (City AM: HMRC launches first investigations using new corporate money laundering powers) that an FOI request produced the admission that:
“HMRC currently has less than five criminal investigations into behaviours occurring since 30 September 2017 for an offence under Article 45. These investigations have been commenced since November 2018 and are the first in a pipeline of cases HMRC has under development that may have Article 45 implications.”
The paucity of prosecutions seems to run counter to the claim of HMRC’s compliance “success” made by the Financial Secretary to the Treasury, Mel Stride, as part of the 2019 Spring Statement. While Mr Stride sought to underline the government’s on-going commitment to tackle tax avoidance and evasion cited, the statistics tell a different story.
Guidance issued alongside the new provisions suggests that HMRC is now turning to companies themselves to help with the drive to ramp up scrutiny in this area, by the use of self-reporting: a tool that is already familiar to its fellow law enforcement agency, the Serious Fraud Office.
The guidance seeks to explain the policy behind the new offences and “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”. The adoption of reasonable prevention procedures can provide an organisation with a defence, though the guidance expressly states that there is no “one-size-fits-all approach.”
The guidance also sets out that in order to encourage relevant bodies to disclose wrongdoing, timely self-reporting will be viewed as “an indicator that a relevant body has reasonable procedures in place”.
HMRC has run a dedicated self-reporting process to allow companies and partnerships to self-report their own failure to prevent the criminal facilitation of tax evasion. However given that HMRC felt it necessary to announce in February that it has “redesigned the self-reporting route” to offer a more “robust and user friendly process” we can only presume that there were few, if any, self-reports.
That there is considerable work to be done is well illustrated by a recent poll of senior individuals in 1,000 UK companies and partnerships conducted for HMRC by Ipsos found that only a third of respondents were aware that businesses could now be held criminally liable for failing to prevent the facilitation of tax evasion (Accountancy Daily).
An online form has been launched to allow companies and partnerships to provide details to HMRC of any failure to prevent the facilitation of UK tax evasion. The announcement sets out who can report and how and what information to set out. It underlines that self-reporting is voluntary but that a criminal offence may be committed if false information, or information not believed to be true, is included.
It also describes the “benefits” of self-reporting. Such information can be:
The form confirms that self-reporting does not guarantee that a company or partnership will not be prosecuted but it may be taken into account by HMRC, prosecutors and the courts.
Whether or not to self-report is a critical decision with significant implications for the company (and individuals) involved. As with any proposed approach to law enforcement, seeking professional legal advice is essential. Decisions need to be made about the scope of any internal investigation that may precede a self-report, the management of such an investigation, the impact on personnel and the maintenance of a clear line between the investigation and on-going business activities.
The Serious Fraud Office (SFO) guidance on self-reporting states that prosecutors will assess whether a self-reporting corporate has been genuinely proactive. Critical to such an assessment is whether the corporate has provided sufficient information about its operations, including making witnesses available and disclosing the details of any internal investigation. The SFO has long trumpeted the mantra of “co-operation is king” and perhaps HMRC is due to follow suit.
Where HMRC is keen to show that it can take on the corporates, the reality is that it relies on those bodies engaging proactively with the new regime if it is going to reduce tax fraud effectively and achieve what parliament and the public clamour for: holding corporates – in particular big multinationals - to account.
If you have any concern as to the issue raised in this blog or if you require any assistance in reviewing specific issues or practices and procedures more generally, please contact Ed Smyth or a member of our tax investigations team.
We have acted over many years for a variety of individuals and businesses who have found themselves subject to an HMRC criminal investigation.
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