Corporate Criminal Offences: the failure to prevent facilitation of tax evasion

Key takeaways

• In a time of increased scrutiny into tax avoidance and evasion, our recent compliance consulting work indicates that many organisations have not adequately updated their compliance regimes to mitigate risk arising from the corporate criminal offences of failing to prevent the facilitation of tax evasion (“CCOs”).
• A growing tide of Government and HMRC efforts in targeting tax avoidance and evasion has culminated in an increasing focus on enforcing these offences. CCOs are an attractive option for HMRC as they provide for strict liability for corporate offenders and unlimited fines.
• Under the CCOs, businesses are criminally liable if their associated persons facilitate tax evasion by a taxpayer, either in the UK (the “UK CCO”) or overseas (the “Foreign CCO”). A defence is available if the company had Reasonable Prevention Procedures (“RPPs”) in place to prevent its associated persons from facilitating tax evasion (the “RPP Defence”).
• No sectors or size of business are immune: recent HMRC figures reveal that current investigations and cases under review span 10 business sectors (including construction, oils and software development). Unsurprisingly, the financial services industry faces particular scrutiny.
• Concerned businesses will therefore need to consider carefully whether they have RPPs in place. In order to avail themselves of the RPP Defence, businesses should develop clear policies and procedures on anti-facilitation of tax evasion which are “risk-based and appropriate”.
• A 2019 Ipsos Mori report suggested that, at that point, only 25% of businesses (or 58% of large businesses) were even aware of CCOs.¹

The offences 

The CCOs, established under Part 3 of the Criminal Finances Act 2017, render businesses criminally liable if their associated persons facilitate tax evasion by a taxpayer, either in the UK or overseas. These offences substantially derive from the similar corporate offence under section 7 of the Bribery Act 2010 (failure to prevent bribery).

The only defence is to have RPPs in place regarding the prevention of the facilitation of tax evasion. These need to be proportionate to the risks to the business.

HMRC’s approach going forward

Together, the Spring Budget (March 2020), draft Finance Bill 2019-21 (March 2020) and new All Party Parliamentary Group on Anti-Corruption and Responsible Tax (commenced June 2020), have foreshadowed an increasing focus on preventing tax avoidance and evasion.

HMRC’s October 2020 update also reinforces this focus, with 13 live investigations and a further 18 cases under review (notably, HMRC’s efforts appear to have ramped up since 31 July 2020, as three new investigations have opened since then). The agency has been keen to emphasise that no sector or scale of business is exempt from investigation, although there is a particular focus on the financial sector.

How does this affect you?

Due to the strict liability nature of the offences, an organisation can be found guilty regardless of whether it had knowledge of the associated person’s criminal conduct. Ensuring appropriate RPPs are in place should therefore be an immediate focus:

Helpfully, the RPPs concept is not a novel one. It was modelled on the adequate procedures defence to the failure to prevent bribery offence in section 7 of the Bribery Act 2010 (the “Adequate Procedures Defence”) and shares commonalities. However, HMRC guidance suggests that measures sufficient to invoke the Adequate Procedures Defence will not necessarily have the same effect for the RPP Defence. Therefore, Bribery Act compliance reviews by themselves are unlikely to be sufficient.

A more rigorous framework of RPPs will be required to establish the RPP Defence for businesses which operate in higher risk areas (such as the financial services or tax advisory sector) or higher risk jurisdictions (such as tax havens) than for smaller, less sophisticated entities.

HMRC guidance suggests that all businesses should at a minimum be able to demonstrate top-level buy-in, a plan for the communication and implementation of its procedures, and a clear commitment to compliance. If you are uncertain whether your current policies would also constitute RPPs so as to establish the RPP Defence, you should consider seeking legal advice on the measures you can take to mitigate your risk. 

1: Evaluation of corporate behaviour change in response to the corporate criminal offences (Dec 2018)