Criminal Finances Act 2017 – implications for employers

Posted by Simon Stokes on
On 30 September 2017, two criminal offences under the Criminal Finances Act 2017 came into force (see our previous article with some further details which all organisations (corporate bodies –including charities which are incorporated – or partnerships) need to be aware of and take steps to address, including, as appropriate, changing contracts, policies and procedures. The two offences are:
  • Failure to prevent facilitation of UK tax evasion, and
  • Failure to prevent facilitation of tax evasion overseas.

The offences are "strict liability" at corporate level, meaning that no criminal intent on the part of the organisation or knowledge on the part of senior managers is required. Fines on conviction are unlimited.

There are 2 main elements to the offence:

  • Criminal tax evasion by a tax payer, whether that is an individual or an organisation (there does not have to be a conviction of the tax payer, but it must be shown the offence was committed); and
  • Criminal facilitation of the taxpayer's offence by a person acting on behalf of or otherwise associated with an organisation, such as an employee, agent or independent contractor performing services for the organisation.

However, there is a defence for an organisation if it can prove that at the time of the offence it had "reasonable prevention procedures" in place designed to prevent persons associated with the organisation from criminally facilitating tax evasion or it was not reasonable in the circumstances to expect the organisation to have any prevention procedures in place. These procedures do not need to eradicate all risk of criminal facilitation, but need to be risk-based and proportionate, following a risk assessment of where and how an organisation could be exposed.

In order to show that it has "reasonable prevention procedures" an organisation will need to show it took reasonable steps, and put in place adequate systems, controls, policies and procedures to prevent facilitation of tax evasion. In order to do this, the organisation must look across its operating procedures and consider where the risks might lie and address them. This is very similar to the requirements under the Bribery Act 2010 where organisations have to show they have "adequate procedures" in place to prevent bribery offences taking place.  

HMRC has produced Guidance on the offences and on the "proportionate procedures" defence – see our previous article for a summary of some of the prevention procedures suggested.

Importantly, an organisation is not required to prevent customers from committing tax evasion, and will not be liable for the misuse of products and services provided to customers in good faith and where the individual/organisation did not know its products/services were intended to be used for tax evasion purposes.

It is vital to understand that these issues are not just to be addressed by one part of the business, such as HR, sales or risk/compliance teams. It is business-wide, and its impact and any action taken must be based on the risks both internally and externally across all aspects of the business. For this reason, the first step to be taken by any organisation is a business-wide risk assessment. Simply finding a precedent Anti-corruption/anti-tax evasion facilitation policy and adopting it will not be enough for the proportionate procedures defence.

Businesses must be able to show that they have thought through the risks in all areas of their particular organisation and addressed each of those areas according to the level of risk. This includes taking into account the size, nature and complexity of the organisation when deciding what is appropriate. It also means, where appropriate, training staff and regular monitoring and review of processes. Blake Morgan has expertise both in conducting risk assessments (or guiding you so you can conduct your own) and in drafting a policy based on that assessment as well as clauses to be used in employment and other relevant contracts.

What does this mean for HR?

The HMRC guidance suggests that organisations need to "sit at the desk" of their employees, agents and those who provide services for them or on their behalf and ask whether they have a motive, the opportunity and means to criminally facilitate tax evasion, and if so, how this risk might be managed". Where such risks could exist, proportionate procedures to manage risk could include:

  • Review of vetting procedures for employees and contractors;
  • Due diligence on suppliers and supply chains and including appropriate contract clauses;
  • Due diligence on use of agents in the UK or abroad and including appropriate contract clauses;
  • Due diligence relating to new parts of the business, business purchases or mergers;
  • Reviewing reward, remuneration and commission structures for employees, as well as corporate culture and making sure it discourages the pursuit of profit which may condone tax evasion. It is no good getting senior managers' buy-in if middle managers actively ignore this and encourage junior members to circumvent the organisation's prevention procedures; and
  • Tying in with Anti-bribery policies and being alert to any gifts/benefits and hospitality which may be connected to the facilitation of tax evasion.

Once proportionate procedures have been identified from a risk assessment, these will of course need to be implemented and publicised internally (and potentially externally). For HR, this is likely to mean:

  • Reviewing any anti-corruption clauses or adding relevant clauses to contracts of employments and consultancy/contractor agreements both to prevent tax evasion facilitation and to report concerns immediately;
  • Reviewing or helping to produce a relevant anti-corruption or anti-tax evasion facilitation policy;
  • Communication of any changes from the top and ensuring that relevant employees are trained on what this actually means in their day to day work, e.g. what to look out for;
  • Ensuring backing from board level down so that whistleblowers are encouraged to come forward, and potentially referring to it in whistleblowing policies; and 
  • Backing up breaches of policies and procedures by staff with disciplinary action or termination of contracts with consultants and other independent contractors. 

For further information and advice please contact Simon Stokes, Oliver Weiss or Chris Williams.

About the Authors

Simon is experienced in data protection including compliance, trans-border data flows, privacy policies, cookie laws, cloud services and international issues. His experience includes advising clients in the financial services sector on trans-border privacy issues including relating to the cloud and advising clients on processing data for marketing purposes. He also advises on the IP protection and licensing of data and databases.

Simon Stokes
Email Simon
020 7814 5482

View Profile

Oliver heads up the London Employment, Pensions & Benefits and Immigration Team.

Oliver Weiss
Email Oliver
020 7814 5494

View Profile