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Analysing the Criminal Finances Act 2017

The Criminal Finances Act 2017 came into effect on 30 September 2017, and makes companies and partnerships criminally liable for failing to prevent their employees or associates from facilitating tax evasion. Here, we provide a brief overview of the new Act.

Understanding the Act

The Criminal Finances Act 2017 introduces two new criminal offences for failing to prevent the facilitation of tax evasion. The new offences are committed where a company or partnership fails to prevent their associated persons from criminally facilitating tax evasion. The new Act makes it easier to prosecute those companies which do not comply with the regulations.

The three stages to the offence

Under the Act, there are three stages to the offence of criminal facilitation of tax evasion:

Stage one: A criminal act of tax evasion is committed by a taxpayer (whether they are a legal entity or an individual).

Stage two: An employee or agent of the company in question has criminally facilitated tax evasion.

Stage three: The company in question has failed to implement adequate measures to prevent their employee from criminally facilitating tax evasion.

The first two stages are already offences under existing criminal law. If stages one and two have been committed, the company is deemed to have committed the new offence. In this instance, the onus is on the company to demonstrate that it has implemented reasonable prevention procedures to protect against the facilitation of tax evasion.

Under the Criminal Finances Act, only ‘relevant bodies’, such as companies and partnerships, can commit the offences. Natural persons (as opposed to legal persons) cannot commit the offences, so sole traders are not subject to the change.

How can I protect my company?

The government has outlined six ‘guiding principles’ that companies should use to inform their preventative processes. However, HMRC makes it clear that it is up to companies and partnerships to create their own bespoke prevention measures based on particular circumstances, rather than rely purely on these principles. Employers are also encouraged to use guidance from relevant professional associations where possible.

1. Risk assessment

Companies, partnerships and relevant bodies are advised to assess the nature and the extent to which they are exposed to the risk of their employees or agents committing the criminal act of facilitation of tax evasion.

2. Proportionality of risk-based prevention procedures

A company’s reasonable procedures must take into account the nature, scale and complexity of its activities.

3. Top level commitment

The senior management of the company should ensure that they are committed to preventing their associates from criminally facilitating tax evasion. Companies are urged to support a mindset in which the facilitation of tax evasion is never acceptable.

4. Due diligence

The organisation must apply due diligence procedures in regard to persons who perform or intend to perform services on its behalf.

5. Communication

Thorough, detailed training must be provided to all employees of a company, and its prevention policies should be well communicated, understood and implemented throughout the workforce.

6. Monitoring and review

Regular reviews of preventative measures must be performed, and the company must make changes where necessary.

What are the penalties for non-compliance?

The penalties for non-compliance with the Criminal Finances Act include unlimited fines and ancillary orders, such as serious crime prevention orders and confiscation orders. Relevant bodies may also be prevented from being awarded public contracts. UK companies who fail to comply with the Act will be investigated by HMRC.

Where can I find out more?

A comprehensive factsheet is available from the government: this covers the specifics of the new Act in particular detail. The factsheet can be accessed at HMRC has also issued detailed guidance on its website.

Please note that this article is intended as guidance only. For more information, please get in touch.