The Criminal Finances Act 2017 came into force in late September, overhauling the Proceeds of Crime Act 2002 (POCA) anti-money laundering and confiscation regime.

Under the new rules, companies and partnerships are now criminally liable for failing to prevent tax evasion by an associated person – something which increases the need for robust risk management policies and procedures and knowledge of your business partners.

An ‘associated person’ is defined as an employee, agent or other individual who performs services for, or on behalf of, the company and can be a person or incorporated body.

Tax evasion takes place when an individual or business dishonestly omits, conceals or misrepresents information in order to reduce their tax liability. This is not to be confused with tax avoidance, which is not a criminal offence and involves exploiting tax rules by using transactions that are designed to gain a tax advantage.

The new offences

The Criminal Finances Act 2017 introduced a new strict liability offence of failing to prevent the facilitation of tax evasion either in the UK or overseas.

For a UK evasion event to be committed there must be:

  • A criminal offence at the taxpayer’s level
  • A criminal facilitation of this offence by an associated person
  • A failure by the company to prevent its associated person from committing the criminal facilitation

Facilitation includes aiding, abetting, counselling or procuring tax evasion, as well as being knowingly concerned in, or taking steps with a view to, the fraudulent evasion of tax by another person.

By contrast,a foreign offence only applies to organisations that have a UK nexus and where there is dual criminality, both at the taxpayer and facilitator level. UK nexus occurs when the relevant body is either:

  • Incorporated or formed in the UK
  • Operates in the UK through a branch
  • When an associated person is in the UK at the time the criminal act facilitating the evasion of foreign tax takes place

Reasonable prevention procedures

A business must prove that it has reasonable prevention procedures to prevent the facilitation of tax evasion, or that it wasn’t reasonable in the circumstances to expect these procedures to be in place.

HMRC has published draft guidance on the offences where it explains the six guiding principles that businesses should take into account in establishing reasonable prevention procedures:

  • Risk Assessment
  • Proportionality of Risk-based Prevention Procedures
  • Top Level Commitment
  • Due Diligence
  • Communication (including training)

Monitoring and Review
All businesses must now complete a risk assessment to identify the tax evasion facilitation risks within the organisation and potential gaps in the existing control environment. The assessment should be documented to provide an audit trail in order support any policy decisions regarding implementation of a new regime.

The new Criminal Finances Act 2017 also means that many businesses will need to conduct more due diligence upon suppliers, contractors and employees, and examine where and how payments are made for goods and services, especially those involving offshore accounts or cash payments.

Aside from the threat of a large fine, a successful prosecution could bring serious reputational damage.

Implementation doesn’t need to be time consuming but it’s crucial that you understand how the changes in the law impact your business.

For more information and advice around the new offences, contact Ged Cosgrove on