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Corporate Criminal Offence: Top 10 FAQs

16 June 2017

Corporate Criminal Offences: FAQ’s

We have been working hard with our clients to understand the repercussions of the new legislation, and we set out below the top 10 FAQs and learnings based on our work with other companies. We have also produced a Corporate Criminal Offences guide that looks at the two offences in detail providing examples of how they might arise and outlines the six key principles of defence as set out in HMRC guidance.

1) What is the Corporate Criminal Offence?

Essentially, the new legislation creates two specific corporate offences, one relating to the evasion of UK tax and one relating to the evasion of foreign tax. The legislation is very widely drawn and can apply to the evasion of any tax, including indirect taxes, anywhere in the world. Any UK business, be it a UK corporate or a foreign corporate doing business in the UK, will be within the scope of both offences. The corporate or partnership will have a strict liability under criminal law for failing to prevent the facilitation of tax evasion by one of its associates (employee, contractor or any other person providing services for or on behalf of the corporate). A defence exists of having ‘reasonable prevention procedures’ in place.

2) Who does this affect?

All companies and partnerships - there is no de minimis. 

3) What happens if we don’t do anything? Are we at risk of penalties?

Yes, you are. A successful prosecution could lead to:

  1. An unlimited fine
  2. Public record of the conviction
  3. Significant reputational damage and adverse publicity.

4) Can you give me some case studies of what this legislation covers?

WE have set out two examples in our Corporate Criminal Offence guide for the domestic and overseas offence. In addition, here are some others:

  1. A member of your HR or payroll team deliberatively falsifying information relating to a worker, so that the worker is treated as a contractor rather deducting PAYE at source
  2. An employee deliberately and dishonestly collaborates with one of your suppliers to falsify the amount paid on an invoice eg, by reducing the true amount paid so that the supplier evades income/corporate taxes
  3. An employee deliberately conspires with a supplier to conceal the true source country of goods to evade Customs duties
  4. A US bank has a branch in London and a branch in Singapore. An employee of the Singaporean branch deliberately facilitates Russian tax evasion. The US bank would be culpable.

5) Who needs to take the lead on CCO within the business?

What we are seeing from our conversations with other clients (from FTSE100 to smaller inbounds) is that typically the head of legal and/or the head of risk and compliance is accountable to the Board for ensuring compliance with the legislation (and specifically ensuring the right policies/procedures are in place). However, responsibility for ensuring the risks are identified and that policies/procedures are drawn up which reflect these risks will fall on the tax or finance function.

 6) What does HMRC expect?

Firstly, it is clear that the risk assessment plays a fundamental role in evidencing that you have reasonable prevention procedures in place. According to HMRC “everything hangs off this. You need an assessment of how your associated persons could criminally facilitate tax evasion.” In addition, we were informed that you “must document your risk assessment - I cannot tell you how many businesses fail to do this in respect of the Bribery Act”.

All procedures must be proportionate to those risks. We were told “how can you prove that your procedures are reasonable if you have never formally identified your risks? The key point is that if you are ever prosecuted how can you prove anything if it is not written down!”

7) We already have AML/KYC procedures in place. What more do we need to do?

You may already have AML/KYC procedures in place (as well as any other financial crime procedures). These existing procedures are relevant but it is essential that a risk assessment which is specific to the facilitation of tax evasion is carried out and then mapped to the existing procedures. You need to bridge any gaps.

8) What should the message be from the Board?

You need top level commitment. The Board is typically best placed to champion this. From here, your staff will need training so that they know what they need to do. It is imperative that there are no blocks to compliance (ie middle management blocking whistle-blowing from more junior staff).

To be compliant with the legislation, the clear message needs to be zero tolerance for tax evasion, and specifically, the facilitation of it.

9) What are the immediate next steps before September?

Based on our conversations with our clients, we are being asked to:

  • Facilitate workshops/interview questionnaires to enable the risk assessment. This typically includes stakeholders such as heads of legal, tax, supply chain, procurement etc.
  • Share our training materials to incorporate within our clients’ online training procedures
  • Support in the development of a ‘tone at the top’ policy document on CCO
  • Prioritise next steps (if any) in terms of enhancing prevention procedures such as due diligence, monitoring and contractual terms. 

10) What does a Risk Assessment workshop look like?

The purpose of the risk assessment workshop is to “put yourselves in the seat of the tax evader” – using the words of HMRC.

We facilitate workshops to:

  • Set the scene and provide background to the legislation
  • Run through example scenarios and case studies relevant to your business
  • Determine who are your associated persons
  • Identify potential areas of the business where there is a higher risk of associated persons facilitating tax evasion
  • Determine where in the business decisions are made in overseeing the terms of work for associated persons
  • Document and prioritise key risk areas
  • Determine prioritised risk areas and develop a roadmap.

For help and advice on any tax risk issue please contact James Egert, Ed Dwan or Martin Callaghan.