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The recent Linklaters panel discussion on Corporate Criminal Offences (“CCO”) with HMRC’s CCO Lead, Samuel Dean, chaired by Dame Alison Saunders along with panellists Elly Proudlock and Sarah Lindley, provided useful insights into the two corporate offences of failure to prevent the facilitation of tax evasion under ss.45 and 46 of the Criminal Finances Act 2017 (“CFA”) (see our blog post here for commentary on these offences). Emerging from this discussion, which included HMRC’s perspective on enforcement of these offences, were four key themes: changing industry practice and attitudes, cross-border cooperation, the forward-looking nature of reasonable prevention procedures (“RPP”) and self-reporting. This article provides a snapshot of the panel discussion on each theme.
Whilst the strict liability “failure to prevent” model undoubtedly makes it easier to prosecute companies than is the case for most criminal offences (which generally require the involvement of a company’s “directing mind” in the offence), changing industry practice and attitudes was cited as the main objective behind the introduction of the CCOs. We have seen this before with the introduction of section 7 of the Bribery Act 2010 (failure of commercial organisations to prevent bribery). Although there have only been a handful of section 7 prosecutions and deferred prosecution agreements (“DPAs”) over the past 10 years, the Bribery Act has arguably transformed corporate anti-corruption compliance by introducing the concept of adequate procedures as a defence. It remains to be seen whether HMRC’s 13 ongoing investigations and 18 potential investigations, which are said to cover a broad range of sectors (not only those that are typically considered high risk from a tax evasion perspective), will have a similar effect.
The panel also discussed HMRC’s approach to investigations. HMRC has apparently not proactively sought to identify new corporate failure to prevent cases for investigation. Rather, it evaluated its existing caseload in respect of UK tax evasion and its facilitation to determine whether that facilitation was by an associated person of a company acting in that capacity such as to engage a CCO. Where there is foreign tax evasion with a UK connection (i.e. the company is incorporated in the UK, carries on a business or part of a business in the UK or part of the facilitation took place in the UK), HMRC will defer to the Serious Fraud Office or assist overseas authorities rather than conduct the investigation into the underlying tax evasion itself. It was clear from the discussion that HMRC has strong relationships with authorities in Australia, Canada, the United States and the Netherlands, making cross-border investigations with these jurisdictions more likely.
The panel were clear that RPP do not have retrospective effect, meaning that any RPP put in place now will only address future risk – they will not provide a defence to conduct that occurred before they existed. Any companies without RPP should therefore take steps to put them in place now, especially given HMRC is taking a broad approach to the type of conduct and companies it investigates. Without RPP, a company will have no defence if prosecuted for the CCOs. HMRC’s high-level guidance on the topic emphasises the importance of an initial risk assessment and suggests that RPP should be proportionate to the unique risks that each company faces.
HMRC encourages companies to self-report suspected breaches of the CCOs, in order to benefit from cooperation credit and maximise the chances of lenient treatment (for instance, being offered a DPA as an alternative to prosecution). However, it should be noted that, unlike the Serious Fraud Office which has investigation and prosecution powers, HMRC is solely an investigating authority and does not have the power to offer a DPA. That power rests with the Crown Prosecution Service, and it remains to be seen how the two agencies will work together to ensure a consistency of approach when it comes to self-reporting and the availability of DPAs.
For more detail and to hear the whole discussion, please access the recording of the webinar, here.