Blog: 10 Things you should know about the new corporate offence of failure to prevent tax evasion
Ronnie Brown is a partner at Burness Paull
The UK is well known for having one of the toughest anti-bribery laws in the world, and extending the corporate offence of failure to prevent bribery to other areas of corporate crime seemed like a logical step for the UK Government to take. However, last year the Government appeared to shelve its plans to do just that. Its reasons were at the time unclear but it was thought to be because the Bribery Act had not been as successful as anticipated, there being at the time no prosecution of a company for the offence of failure to prevent bribery under the Bribery Act.
The release of the Panama Papers in April 2016 and the recent increase in UK Bribery Act enforcement (see our blog here) appear to have prompted a re-think, with the Government fast-tracking its plans to introduce a new corporate offence of failure to prevent the facilitation of tax evasion. This, coupled with the announcement by Prime Minister David Cameron that a consultation will also be launched on new corporate offences of failure to prevent fraud and money laundering, places the tackling of corporate tax evasion and money laundering firmly on the Government’s agenda and signals its intention to bring these areas of corporate crime into line with the Bribery Act’s corporate offence of failure to prevent bribery.
The new failure to prevent the facilitation of tax evasion law is expected to come into force in early 2017; at present the legislation is in draft form and a public consultation on its terms is underway. Even though it is still in draft form, businesses operating globally (whether incorporated in the UK or elsewhere) need to be aware of and get ready for these changes.
Here are 10 things you ought to know about the proposed offences:
- Two new corporate criminal offences
Two new criminal offences are proposed which both apply to corporations:
- Failure to prevent facilitation of UK tax evasion, and
- Failure to prevent facilitation of overseas tax evasion.
(“Facilitation” means criminal behaviour such as aiding and abetting.)
Interestingly there is no offence relating to senior managers or directors who consent or connive in the facilitation offence, such as the Bribery Act’s s.14 offence.
- Broad application to diverse forms of both UK and foreign corporations
The proposed offences will apply to a “relevant body” which is broadly defined as corporations (such as companies, partnerships, LLPs etc) wherever incorporated or formed. This means that even foreign incorporated companies should consider compliance measures to prepare for this new law.
- Underlying criminal tax evasion offence required
The proposed offences would only arise if a person associated with a relevant body successfully facilitates (as opposed to attempts to facilitate) the criminal evasion of tax by a taxpayer, such as cheating the public revenue, or fraudulently evading the liability to pay VAT. It is worth noting that for a person to be found guilty of committing a UK tax evasion offence it is not necessary that any tax is actually evaded, only that the taxpayer attempted to evade it.
- Prosecution of tax evader not necessary In order to prosecute the corporation for either of the new proposed offences, it is not necessary for the tax evader to have been convicted in relation to the tax evasion. In these circumstances the non-compliance by the tax payer should still meet the standards of criminal conduct. Corporations should take note of this important point because, where it is not in the public interest to prosecute the tax evader, the regulator may agree to impose a civil fine on the tax evader in exchange for the names of those who assisted them in evading tax, directly implicating the corporation and their associated person.
- Corporation need not obtain any benefit from facilitation
It does not matter that the corporation gained no benefit from the facilitation of tax evasion; the corporation can still be liable for either offence. Again the approach is different in the Bribery Act – there the bribe must be intended to obtain or retain some business advantage.
- Broad jurisdictional reach
The proposed new offences have extremely broad jurisdictional reach:
- In terms of the offence of facilitation of UK tax evasion, if the offence has been committed, it does not matter whether the offender is a foreign person or even that the associated person’s facilitation took place abroad.
- In terms of the offence of foreign tax evasion facilitation, a relevant body can be liable for conduct anywhere in the world if it is a UK incorporated entity, or if it does business (or part of a business) in the UK. An entity without link to the UK can be liable if the act or omission which forms part of the facilitation takes place in the UK.
- In either case, it does not matter whether the undeclared funds are in or outside the UK.
- Equivalent UK tax evasion offence required for overseas tax evasion offence
For a corporation to be prosecuted for failing to prevent foreign tax evasion facilitation, there must be a tax evasion offence equivalent to one under UK law meaning that the conduct would be an offence if committed in the UK.
- Familiar “associated persons” concept
A relevant body commits the new offences if associated persons criminally facilitate tax evasion. The definition of “associated person” mirrors the Bribery Act’s approach - a person performing services for or on behalf of the relevant body. The name or label given to this relationship is irrelevant; what matters is that services are performed for the relevant body. This is likely to include (not exhaustive) employees, contractors, agents and subsidiaries.
- Statutory defence available
It will be a defence if the relevant body can show: (i) that it had reasonable prevention procedures in place designed to prevent the facilitation of UK or overseas tax evasion; or (ii) that it was not reasonable in all the circumstances for it to have in place any such prevention procedures. Interestingly the latter was not part of the Bribery Act’s statutory defence of “adequate procedures”. Like the Bribery Act’s adequate procedures, there is no obligation on corporations to implement reasonable prevention procedures.
The UK Government has published proposed guidance on what constitutes “reasonable procedures”. This largely follows its guidance on the Bribery Act and is formulated around the same 6 guiding principles, which are: (i) proportionate procedures; (ii) top-level commitment; (iii) risk assessment; (iv) due diligence; (v) communication (including training); (vi) monitoring and review. As such, once these new offences have been finalised, corporations may wish to develop reasonable procedures alongside their existing Bribery Act adequate procedures.
- No cap on potential fine
The penalty on conviction on indictment for either offence is an unlimited fine.
The Government’s consultation on the terms of draft legislation and guidance is open until 10th July 2016 and can be accessed here.
Following the UK’s vote to leave the European Union and David Cameron’s resignation as Prime Minister the Government’s plans for these new corporate offences may be thrown into doubt. Nevertheless businesses should keep up to date with any proposed changes - look out for our future blogs on the Government’s progress as well as updates on its plans to introduce similar offences for failure to prevent fraud and money laundering.