Criminal Finances Act 2017

A guide to the Criminal Finances Act 2017.

The Criminal Finances Act makes companies and partnerships criminally liable for failing to prevent tax evasion. At AVASK, we can provide guidance on the key aspects of the Act and the implications for your business.

Under the Criminal Finances Act 2017 (CFA) companies and partnerships may be criminally liable for failing to prevent their employees from criminally facilitating tax evasion. A potential defence can be utilised, in cases where the business has put into place a system of reasonable prevention measures. Here, we take a look at the key aspects of the Act and the implications for your business.

Outlining the Act

Under the CFA, two criminal offences were introduced:

Three stages to the facilitation of tax evasion

Under the CFA, there are three stages that apply to both the domestic and the foreign tax evasion facilitation offences. Only the UK offence is considered here, additional requirements apply for the foreign offence:

Under the CFA, only ‘relevant bodies’ and legal entities, such as incorporated bodies and partnerships, can commit the new offences. Natural persons, as opposed to legal persons, cannot commit the offences.

Relevant body’ refers to body corporates (including LLPs), and partnerships (whether incorporated or formed). Meanwhile, a person acts in the capacity of an ‘associated person’ if they are:

  • an employee of a relevant body, acting in the capacity of an employee;
  • an agent of a relevant body, acting in the capacity of an agent;
  • any other person who performs or intends to perform services for or on behalf of a relevant body, who is acting in the capacity of an individual performing such services (for instance, a subcontractor).

Where stages one and two have been committed, the relevant body is deemed to have committed a corporate offence (subject to a reasonable defence being claimed).

Stage three does not essentially alter what is considered to be a criminal act, but focuses on who is held accountable.

Making use of a ‘reasonable defence’

Under the CFA, the onus is on the relevant body in question to demonstrate that it has implemented adequate procedures within the business to protect against the criminal facilitation of tax evasion. If the organisation can prove that it implemented stringent procedures, prosecution will be ‘unlikely’.

A relevant body may utilise a defence whereby they can prove that, when the tax evasion facilitation offence was committed, it had appropriate prevention procedures in place.

‘Prevention procedures’ here refers to procedures designed to prevent persons acting in the capacity of someone associated with a relevant body from committing UK tax evasion facilitation offences. The new Act does not require relevant bodies to have ‘excessively burdensome’ procedures, but it does require more than ‘mere lip service’.

High risk

The government advises organisations within ‘high risk’ sectors, such as banks and financial services companies, carry out thorough risk assessments to establish the likelihood of their associated persons committing the criminal act of facilitation of tax evasion. It is recommended that such organisations follow government advice on the matter.

What does my business need to do?

HMRC has published guidance on the procedures that relevant bodies (ie. your organisation) should have in place in order to help prevent their associated persons from committing the criminal offence of the facilitation of tax evasion. This can be accessed here.

The HMRC guidance is designed to help you understand the types of processes available.

The six ‘guiding principles’

The government has outlined six ‘guiding principles’ that can be used to help inform preventative processes. Each of the principles aim to advise organisations in respect of assessing the risk of their associated persons criminally facilitating tax evasion:

Non-compliance: what are the penalties?

HMRC states: ‘The legislation aims to tackle crimes committed by those who act for or on behalf of a relevant body.’ Under the CFA, relevant bodies who fail to prevent their associated persons from committing the criminal act of facilitation of tax evasion are subject to unlimited fines and ancillary orders, such as serious crime prevention orders or confiscation orders.

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