Corporate Criminal Offence - How do you plead?

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The Criminal Finance Act 2017 came into force in September 2017 and with it saw the introduction of the Corporate Criminal Offence (“CCO”). This legislation provides HMRC with new powers to criminally prosecute and hold corporates accountable for the activities of persons acting on their behalf where they facilitate tax evasion and where they have failed to implement relevant preventative measures.

 

How does an offence occur?
In order for an offence to occur there are three stages:
1. Criminal tax evasion must have taken place by a taxpayer (which could be in respect of UK or foreign taxes);
2. An associated person (e.g. an employee or agent acting on behalf of the organisation), whilst acting in that capacity has criminally facilitated the tax evasion; and
3. The organisation failed to prevent the associated person from committing the facilitation.
 
Who is caught by this legislation?
The legislation is aimed at organisations that have been established as companies, partnerships including LLPs. This also includes charities that have been set up as companies limited by guarantee including community interest companies, charities established either by royal charter or as a charitable incorporated organisations.
 
Associated Persons
This has a deliberately wide definition which captures any individual that provides services for or on behalf of the organisation. It therefore could include:
Staff
Sub-contractors
Group companies
Agents
JV partners
Corporate trustees
 
What is the impact of this legislation?
If an organisation is found guilty, under these new powers there would be a public record of the conviction and potential reputational damage. Additionally, they could be subject to any or all of the following:
unlimited financial penalties;
confiscation orders or serious crime prevention orders;
exclusion from public procurement processes; and
disclosure to professional regulators.
 
Prevention
For HMRC to bring criminal charges against an organisation; the organisation must have failed to prevent the associated person from facilitating the tax evasion. Implementing suitable prevention measures will become an essential aspect of an organisation’s defence against prosecution under these rules.
 
HMRC in their guidance have outlined the steps organisations need to implement in order to remain compliant with this legislation. The steps include
Undertake a Risk Assessment of the organisation to understand where the exposures to tax evasion could occur;
Introduce controls that are Proportional to the risks identified;
Ensure Top Level Commitment from the management to flow throughout the organisation instilling a culture that emphasises that tax evasion is not acceptable;
Conduct Due Diligence procedures as required on persons acting on behalf of the organisation;
Once policies and procedures are implemented there should Communication and Training to ensure full understanding of the new rules; and
Organisations should continue to Monitor and Review the risks they face and update their policies and procedures as required.
 
HMRC guidance
HMRC have made it clear that relying on existing anti-money laundering processes does not constitute reasonable procedures and that tax evasion facilitation must be considered separately.
 
HMRC have also said that that the risk assessment is a critical document when considering whether a corporate has reasonable prevention procedures in place.
 
HMRC will look to understand whether a corporate’s prevention procedures have properly calibrated the risks identified in conjunction with the prevention procedures in place. Careful documentation by the business is key.
 
What do I need to do?
Businesses need to undertake a risk assessment to identify where there are risks of the business being involved in or exposed to the facilitation of tax evasion directly or indirectly.
 
Employees, contractors and customer and supplier chains need to be considered.
 
Documentation is key to support any changes required and to evidence reasonable procedures are in place to prevent employees, service providers, agents, suppliers and customers from engaging in or facilitating tax evasion.
 
How we can help
Undertaking and documenting a comprehensive risk assessment will form the basis of your defence against prosecution. This should be complimented with the implementation of policies and procedures which demonstrate an organisation’s commitment to preventing the facilitation of tax evasion. At PEM we are able to undertake the risk assessment and provide clear written policy documentation to ensure compliance with this legislation.
 
If you have any further questions regarding any of the issues raised above, please do not hesitate to contact Anil Arora (aarora@pem.co.uk).
 

 

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Anil Arora

Assistant Director, Business Tax
I am an Assistant Director in the Business Tax department. My role is split between tax compliance, tax advisory work and assisting the team where required. As well as compliance work, my tax focus has been in mergers and acquisitions, undertaking the tax structuring of transactions and also advising on property related transactions.

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