Newsletter:

Corporate Criminal Offences: Are you prepared for the implications?

20 September 2017


Introduction

The Corporate Criminal Offence (CCO) of failure to prevent the facilitation of tax evasion is part of the continued global focus on the prevention of tax evasion and other financial crimes. It is one of a raft of measures in the UK that was introduced in the Criminal Finances Act. It is expected to take effect from 30 September 2017. Under the draft legislation, businesses will become subject to action without the need for prosecution of any individual if they are thought to be participating in, or facilitating, Tax Evasion or other Financial Crimes.

A successful prosecution could lead to sanctions such as:

  • An unlimited fine
  • Public record of the conviction
  • Significant reputational damage and adverse publicity.

Similar to the Bribery Act, defences do apply. One of particular importance is the defence of having reasonable prevention procedures in place. This article looks at how you can go about implementing reasonable procedures, and ensure you are protected from any liability.


Offences

There are two offences under the act – a domestic offence and an overseas offence. The law sets out three stages to each offence:

  • Criminal tax evasion by a taxpayer
  • Criminal facilitation of this offence by an “associated person” – i.e. a person acting on behalf of the corporation is guilty of knowingly aiding, abetting, counselling or procuring the tax evasion by a taxpayer
  • The corporation failed to prevent its representative from committing the criminal act at Stage 2.

For the overseas offence, there must be dual criminality at both the tax evasion and facilitation offences stages (1 and 2), i.e. the acts must be criminal offences both in the UK and the overseas jurisdiction. Importantly, there does not need to be a conviction for either Stage 1 or Stage 2 for the third stage to be present.

Financial institutions with branches in the UK and other jurisdictions also need to be aware of the wide geographic scope of the legislation. For example, a US bank with a branch in the UK and a branch in the Far East may well be liable for prosecution if a facilitation offence takes place in the Far East branch, even without the knowledge or involvement of anyone in the US or UK.
 

Quick fixes

A corporate which fails to prevent the deliberate facilitation of tax evasion by one of its associates has prima facie strict liability under the offences. However, the below defences can protect you:

  • The corporate had in place reasonable prevention procedures, or
  • It was not reasonable in all the circumstances to expect the corporate to have any prevention procedures in place.
     

Implementation of reasonable prevention procedures

We recommend, to ensure you are compliant, you develop and implement reasonable prevention procedures in the six key defence areas. These are:

  1. Risk assessment (BDO has developed a robust methodology and approach to this)
  2. Top level commitment
  3. Due diligence
  4. Proportionality of reasonable procedures
  5. Communication and training
  6. Monitoring and review

Organisations should be taking immediate steps to:

  1. Undertake a risk assessment to determine the extent of potential exposure
  2. Implement some ‘quick wins’ especially in relation to demonstrating top level commitment
  3. Put in place a plan to implement further prevention procedures on a prioritised basis including due diligence procedures, introducing monitoring and review processes etc.

Given the potential consequences of getting this wrong, internal audit teams should have this new legislation on their radars, and in their internal audit plans.

Get in touch with us if you have any questions, or wish to talk through the implications of the new bill.