The Corporate Offence of Failure to Prevent the Facilitation of Tax Evasion: Two years on
The CCO, enacted as part of the Criminal Finance Act 2017, allows for the first time, a company or partnership to be prosecuted for failing to prevent its employees and other ‘associated persons’ (such as subcontractors or agents) from facilitating tax evasion in the UK and abroad. The company has a defence if it is able to show that it has “reasonable procedures” in place to prevent its associated persons from facilitating tax evasion. The legislation which was announced with much fanfare was accompanied by detailed guidelines setting out the kind of reasonable prevention procedures that companies would need to implement to protect themselves.
It may come as a surprise, therefore, that three years since its enactment a Freedom of Information (FOI) request from my firm has revealed there have been zero prosecutions under this legislation to date. The 2015 – 2020 business plan has been withdrawn and HMRC has since announced that it does not have a numerical target for these offences. According to HMRC as of 31 July 2020 there are currently 10 “live investigations” ongoing and 22 “live opportunities” under review. Ignoring the question of what a “live opportunity” actually means (and whether such an opportunity is ever likely to lead to HMRC taking any kind of enforcement action), the figures for the number of investigations and potential investigations are extremely low.
Why the slow progress?
HMRC are quick to point out the effect the on-going pandemic has had on the progression of CCO investigations and prosecutions: “COVID-19 has impacted all aspects of society in many different ways, and HMRC and its development of CCO investigations and opportunities is no exception.” In April 2020 HMRC announced that it had suspended some investigations into individual and business tax payers, so that it could focus on administering the government’s COVID-19 support schemes, and more recently HMRC has suggested that its compliance activity will focus on the £3.5 billion in furlough money paid out on fraudulent or mistaken claims, as my colleague Nicola Finnerty discussed in a recent blog.
Last year the excuse for the low numbers of CCO investigations and Prosecutions was Brexit. The 2018-19 Annual report confirmed that 5,400 full time employees were working on Brexit preparations including “building the customs, VAT and excise systems the UK will need and preparing our customers for leaving the EU…..”, whilst conceding that “This important work has affected our ability to meet some of our broader targets.”
There is no doubt that world events have stretched HMRC and impacted on its ability to focus on its key investigation and compliance strategies. The trouble is that without any prosecutions or convictions under the CCO, the deterrent effect caused by the implementation of the “new” offence will be short lived. There is little chance of persuading corporates, partnerships and other institutions to invest year on year in extensive compliance programmes aimed at preventing the facilitation of tax evasion, if there is no concern that they could ever be prosecuted for it.
Indeed a recent Ipsos Mori poll commissioned by HMRC reported that only a quarter of all businesses surveyed were even aware of the Criminal Finance Act 2017 and only 24% had assessed the potential risk of being exposed to the facilitation of tax evasion by their business. The reality is that until some successful prosecutions take place, many businesses will remain blissfully ignorant of this offence and a failure to prosecute will become a failure to prevent.
This blog has been published in full by Lexis®PSL on 15 October 2020 which you can read by clicking here. This blog has also been published by Tax Journal on 22 October 2020 which you can read by clicking here.
David Sleight is a Partner in the criminal litigation team who regularly acts for individuals and companies in high profile cases. He specialises in defending tax evasion and fraud allegations brought by HMRC and has developed a specialist expertise in advising in cross border tax litigation involving Mutual Legal Assistance requests between Member States.
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