The new corporate offence for failure to prevent the criminal facilitation of tax evasion:

What employers need to know

As of 30 September 2017, corporate entities may now be held criminally liable for failing to prevent the facilitation of tax evasion. Under the old regime, a corporate body could only be held liable under this offence if it could be demonstrated that senior members of that body were involved in and aware of the illegal activity. The government recognised that the loopholes in this regime enabled the avoidance of liability. This article seeks to provide an overview of the new offence, including the penalties that may be imposed and the ways in which corporate bodies, or in other words, employers, can protect themselves from liability.

The new offence, which was brought into force by the Criminal Finances Act 2017 (“CFA 2017”), provides that an employer will be guilty of an offence if “a person commits a UK tax evasion facilitation offence when acting in the capacity of a person associated with” the employer (S45(1) CFA 2017). A person will be regarded as “associated” if that person is an employee, agent or other person who performs services for or on behalf of the body (S44(4) CFA 2017). For the purpose of this offence, only a ‘relevant body’ (being a company or a partnership) can commit the same; it cannot be committed by a natural person (an individual). One must also be aware of the difference between tax evasion and tax avoidance – the latter is not regarded as an illegal act, but rather a lawful method of minimising tax payable or maximising tax reliefs. The former is the deliberate and dishonest non-payment or underpayment of tax.

There are two separate offences under SS45 and 46 of the Act, which are both strict liability offences. These provisions allow for the imposition of liability whether the employer failed to prevent either a UK or a foreign tax evasion. The employer does not have to have either deliberately or dishonestly facilitated the tax evasion itself; the fact that an associated person has committed the same will suffice to impose liability on the employer. It is also immaterial whether the corporate body is UK-based or established under the law of another country or whether the person performing the criminal act is in the UK or overseas. The Courts in the United Kingdom will have jurisdiction to try all such cases.

The penalties for these offences can include unlimited financial penalties or ancillary orders, such as Confiscation Orders or Serious Crime Prevention Orders. Employers should be mindful of the adverse effects that a criminal conviction can, and most likely will, have on a corporate body.

Fortunately, there is some let-up. Employers will have a defence against liability if they can prove that at the time the alleged offence was committed, it had in place reasonable prevention procedures or that it was not reasonable in the circumstances to expect such procedures to be in place. It is, in many cases, advisable that such procedures are enforced. Employers must be aware that merely adopting an anti-facilitation of tax evasion policy will often not suffice. Adequate procedures should aim to incorporate the following key principles: risk assessment, proportionality of risk-based prevention procedures, top level commitment, due diligence, communication, training, monitoring and review.

The new offence is aimed at developing an environment that enhances corporate monitoring of criminal activity and reduces the ignorance of criminality within corporate entities. It is now of paramount importance that employers are aware of their obligations under the new regime and scope of their potential liability for non-compliance.

Article written by Sophie Wahba.