Monthly Archives: November 2017

Criminal Finances Act 2017: How employers can protect themselves?

SUMMARY: On 30 September 2017, the Criminal Finances Act 2017 (“CFA”) came into force.

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Corporate bodies and partnerships can now be convicted for tax evasion offences committed by their employees or agents, when they had no involvement or knowledge of these offences.
The Act has created an ongoing obligation for bodies to implement and maintain effective prevention procedures against tax evasion, and has seemingly opened the door for employers to be at the mercy of the actions of their employees and agents, without the protections they previously enjoyed.

However, it is important to note that businesses that successfully take steps to comply with the CFA have not been left without a defence, and can rely on their own internal procedures and policies to demonstrate an active awareness and commitment to prevention.

Key Facts

Part 3 of the CFA creates the new offence of corporate failure to prevent the facilitation of domestic and overseas tax evasion.

The new rules do not create any new offences at an individual level, they simply ascribe liability for existing tax evasion offences to the corporate bodies.

There are three elements to the offence:

1. Criminal tax evasion under the existing law, by a tax payer who is either an individual or an organisation;

2. Criminal facilitation of the tax payer’s offence by an individual associated with a corporate body or partnership; and

3. A failure by a corporate body or partnership to prevent the representative from committing the criminal act through proportionate procedures.

If a corporate body or partnership is convicted under the CFA, it can be subject to a fine and will be obliged to disclose the conviction to those they commercially engage with, which could have reputational and financial consequences.

Defence of Proportionate Procedures

The new offences under the CFA are ones of strict liability, which means that it is no longer a defence for a corporate body to deny knowledge or involvement of an offence that an associated person commits.

An associated person is defined broadly and includes employees, workers, agents acting on behalf of the company and any person who performs services for or on behalf of the body.

The aim of the CFA is to ensure that all corporate bodies become actively responsible in preventing tax evasion. In the spirit of this, the Act creates a defence in element 3, for those who have successfully implemented recommended proportionate procedures.

HMRC have issued guidance on what prevention procedures should look like. This has been split in to six main guiding principles: risk assessment; top level commitment from management; due diligence; communication across the business including training; and monitoring and review.

It is worth noting that proportionate procedures can include taking no action where appropriate, however this approach should be managed through risk assessment.

So what does this mean for Employers in Practical Terms?

Employers will need to be switched on and take steps now to implement procedures that   will offer protection. The Government has indicated that it expects initial implementation to be rapid.

It is also clear that implementation alone will not be enough, the Government expects a rolling update of prevention procedures to be in place to ensure that employers are keeping up with the development of tax evasion offences.

Employers will need to demonstrate commitment to preventing tax evasion offences through communicated awareness and ongoing review and compliance. The natural first step for an employer is to update employment contracts and policies to ensure compliance.

HMRC guidance states that a reasonable prevention procedure could include having terms in employment contracts and other contracts for services requiring employees and others providing their services not to engage in the facilitation of tax evasion and to report any concerns immediately.

It will also be important to consider whether training will be needed for those employees in managerial positions, in order to assist them to identify how tax evasion offences in their industry could be committed, monitored and prevented.

For further guidance on this topic, or for general employment law queries, contact a member of our team: +44 (0) 1604 871143

This update is for general guidance only and does not constitute definitive advice.