Within a couple of months the Criminal Finances Bill will be enacted. AIMA has been doing some work on the corporate criminal offence of failure to prevent the criminal facilitation of tax evasion which will be introduced. Businesses need to be careful not to fall foul of this new measure. It has similarities to other financial crime offences but businesses cannot rely solely on their existing internal procedures to address it. Even those not based in the UK need to be aware of it and take some actions in preparation.

The offence is committed by a company or partnership if someone such as an employee or contractor in the course of working for the business criminally facilitates a tax evasion criminal offence by another person and the business failed to prevent this happening. It is a strict liability offence punishable by an unlimited fine, but there is a statutory defence available that requires the business to show it had reasonable procedures in place to prevent the facilitation occurring (or that it was reasonable in the circumstances not to have such procedures).

The offence has extraterritorial effect in several ways. It applies where the tax evaded is UK tax, regardless of where the facilitation occurs; it applies where non-UK tax is evaded, if the facilitation occurs in the UK; and it applies to all taxes wherever the facilitation occurs if the business has a presence in the UK.

These two examples illustrate how this offence may arise:

• An employee of a fund management business learns that a UK resident investor wishes to conceal from HM Revenue & Customs (HMRC) the interest the investor is acquiring in a fund. The employee with the help of a contractor working for the fund’s administrator arranges for false information about the investor’s tax status to be recorded, which will result in an incorrect Common Reporting Standard report being made by the fund to its tax authorities. Wherever they are established, the fund management business, the administrator and possibly the fund can have committed the offence;
   
• A wealth management business in Utopia acts for an individual resident in Erewhon. At a meeting in a hotel suite, the client relationship manager helps the individual to evade tax in Erewhon. The offence can be committed if either the hotel is in the UK or the wealth management business has a branch or representative office in the UK (even though the employee and the client have no link to it).

Unless it is shown that reasonable procedures to prevent the facilitation of tax evasion are in place and are being properly operated with the support and involvement of senior management, no defence is available. The new offence is expected to apply from September 2017, but businesses should be starting to carry out risk assessments and putting procedures in place now, as HMRC expects them to be largely prepared by the commencement date.

While the name of the offence doesn’t exactly trip off the tongue, it should be on everybody’s lips.