Understanding Criminal Finances Act 2017

  • By Mercia Group
  • 18 October 2017 00:00

The Criminal Finances Act 2017, which received Royal Assent in April 2017, took effect on 30 September 2017. It makes companies and partnerships criminally liable if they fail to prevent tax evasion being carried out (in the UK or potentially abroad) by a member of their staff, anyone acting on their behalf or an external agent.

If found guilty, the business could face unlimited fines and potentially further consequential sanctions within their industry or profession.

This Act effectively creates an offence at corporate level which does not require the directors/partners to have had any knowledge of the offence in question. It does not do so by creating a new criminal act, rather it turns the tables by focussing on the failure to prevent the crimes of those who act for or on behalf of the corporate body instead of the need to attribute criminal acts to that body.

For a firm to be criminally liable under the new Act, there are three elements of the offence:

  • There must be the execution of a criminal act of tax evasion;
  • The crime must have been facilitated or carried out by a person 'associated' with a 'relevant body'. A relevant body is a legal entity only i.e. a limited company, a partnership. A person is 'associated' with that body if they are an employee, agent or other person who acts for or on behalf of that body.
  • The relevant body failed to initiate adequate prevention procedures in relation to the act carried out by the associated person.
  • A defence is available when it can be shown by the relevant body that 'reasonable prevention procedures' were in place to prevent the associated person from committing or facilitating the crime; or that it would have been unreasonable or disproportionate to expect such procedures to be in place.

    It is important to note that this Act does not create a new crime of tax evasion - it is to punish the corporate body for failing to prevent the commission of an act which is already a crime. The associated person may commit tax evasion themselves, but they may also be guilty of aiding and abetting another person to commit a crime. However it is not a requirement that the person is convicted of the crime - for example if the person comes forward to police and makes a full confession and cooperates fully with the authorities, there may be no criminal prosecution. In that instance all that is necessary for the satisfaction of first element of the offence is to prove beyond reasonable doubt that the crime took place.

    So what can companies and partnerships do to protect themselves from the risks of prosecution under this new Act? The first thing is to remind such businesses that any such precautions need only be reasonable and proportionate. A small retail shop on the high street with half a dozen employees need not put the same procedures in place as a multinational PLC with thousands of employees and agents. The Government advises that any procedures should be based on six guiding principles:

  • Risk assessment - the relevant body should assess the nature and extent of its exposure to the risk of an associated person committing a criminal act;
  • Proportionality - the procedures should take into account the nature, scale and complexity of the relevant body's activities;
  • Top level commitment - the management of the relevant body should be committed to preventing illegal acts and should foster a culture that tax evasion and its facilitation is never acceptable;
  • Due Diligence - with appropriate procedures put in place with respect to all people who perform services for the relevant body;
  • Communication - training staff and ensuring the message effectively gets across to all employees and agents;
  • Monitoring and reviewing - ensuring that whatever procedures are put into place are regularly reviewed and updated and amended where necessary.
  • Further guidance

    HMRC have issued detailed statutory guidance on how the new law will work in practice. A number of factsheets are also available detailing the Criminal Finances Bill.

    How can we help

    We have produced a free video offering more information. The Criminal Finances Act 2017 has introduced a new corporate offence of failure to prevent the facilitation of tax evasion. Companies and partnerships can be subject to prosecution if employees, agents or other persons providing services to the business are involved in tax evasion. A defence against prosecution is available for such entities if they have assessed the risks involved and installed prevention measures. Accountants are in a prime position to help clients to assess the risks involved and install prevention measures. We are offering a client letter which you can send to your clients. For more details, visit our website.

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