Paul Marshall, who leads the corporate crime and investigations team at Scottish law firm Brodies explores the implications of the Criminal Finances Act 2017 for businesses in tax evasion cases.
In September, the UK Government is expected to bring into force a new tax offence in the Criminal Finances Act 2017.
What is remarkable about the new offence is that it will make a business guilty as a result of the criminal conduct of its employees and others who act on its behalf. Where an individual facilitates tax evasion the business will be guilty of failing to prevent that facilitation unless it can demonstrate that, at the time of the employee’s conduct, it had procedures in place to prevent facilitation.
The new offence will have an immediate impact for many businesses. It also shows the UK Government’s preferred direction of travel for corporate liability – to criminalise business for the actions of connected individuals. What is the immediate impact? This new tax offence is of concern to banks, accountants, IFAS and all who provide tax advice. The question many businesses are asking right now is: what should we have in place to make sure that employees and others who act on our behalf are not facilitating tax evasion by clients and customers? Or put another way, they want to know how they can show that they have taken every reasonable step to prevent employees facilitating tax evasion.
There are three easy steps to strengthen your position: Review the policies and procedures you have in place at present which explain to your people what is and is not acceptable.
Update these if it is necessary to clarify your message. Communicate the new and improved position to all employees and others providing tax services on your behalf.
So, what does this new offence tell us about the wider direction of travel for corporate criminal liability? To understand where we are going next we need to understand the need for change. The traditional approach was that to successfully prosecute a company you would need to identify a person in the business who possessed a “directing mind and will” and who condoned or was aware of the crime. This is also referred to as “the identification doctrine”. There are a number of difficulties with this approach. It may not be difficult to identify the directing mind in a family-owned and run business where all of the major decisions are taken by a small group. It is quite another thing for a Scottish prosecutor to identify the directing mind within a global business that has a complex structure and therefore a more sophisticated approach to decision-making.
As we have seen above, the new tax offence follows the same approach as the Bribery Act.
The UK Government has also been consulting on wider reform of corporate crime. One of the options being considered is a wider roll-out of the “failure to prevent” approach across the spectrum of economic crime. This, and the other options that the Government appears to favour, will place an onus on a business not only to show that it has done no wrong, but also to demonstrate that it is policing its employees and others acting on its behalf. Not quite the end of innocent until proven guilty, but if you are a business and an employee or connected person breaks the law then you had better have a good story to tell…