The Criminal Finances Bill received its second reading by the House of Lords on 9 March 2017, and the Committee stage, where there will be a line by line examination of the Bill, begins on 28 March 2017. There is therefore plenty of scope for changes to the Bill before it comes into force, which is expected to be later in the year.
When enacted, the Bill will introduce significant changes to the UK’s anti-money laundering regime. It will grant law enforcement agencies new investigatory powers and additional tools to help recover the proceeds of crime.
If the Bill is enacted in its current form it will introduce the following changes:
Changes to the Proceeds of Crime Act 2002 and anti-terrorism provisions;
Information sharing within the regulated sector;
Disclosure orders for money laundering investigations;
The introduction of Unexplained Wealth Orders;
Enhanced civil recovery measures;
New criminal offences of corporate facilitation of tax evasion.
Criminal offences of corporate facilitation
It is the creation of criminal offences of corporate failure to prevent facilitation of tax evasion that might cause organisations, and specifically in-house legal counsel, the most pressing concern.
There are two offences;
(i) Evasion of UK taxes by anyone, anywhere in the world
(ii) Evasion of foreign taxes by UK citizens anywhere in the world
These new corporate offences provide that a ‘relevant body’, being a corporate or partnership (whether incorporated or formed in the UK or not), will commit an offence if a person associated with the relevant body commits a UK tax evasion facilitation offence while acting in their capacity as an associated person of the company.
The new offences do not require proof of involvement of the “directing mind” (i.e. senior management) of the entity. Both offences are “strict liability” offences. It does not matter whether any benefit has been obtained from facilitating the tax evasion. The potential fines that might be imposed are unlimited.
It is anticipated that financial services, legal and accounting sectors are to be most affected, however, all companies and partnerships are potentially within the scope of the Bill, with both UK and international businesses potentially subject to it. Organisations that have overseas head office operations should note that, as currently drafted, will be brought within the scope of the Bill by a UK branch.
Defence – reasonable prevention procedures
There is a defence open to a relevant body where, at the time of the offence, the relevant body can show that it had reasonable ‘procedures’ in place designed to prevent the facilitation of the tax evasion offences, or, where the relevant body can show that it would not have been reasonable to expect it to have had any such procedures in place.
The Government has published draft guidance on what constitutes ‘reasonable prevention procedures’. This draft guidance puts organisations on notice that it must have looked at its own specific risks and have in place bespoke prevention measures. However, these prevention procedures are not required to be ‘fool-proof’ or ‘excessively burdensome’. The Government is to publish formal guidance once the Bill has received Royal Assent. This formal guidance will be supplemented by sector-specific guidance from industry bodies.
As a starting point organisations may wish to undertake risk assessments and consider putting in place reasonable prevention procedures, which might be based on the six principals set out in the Bribery Act 2010:
Proportionality - The action taken should be proportionate to the risk and the size of the organisation.
Top level commitment - Those in senior positions are best placed to ensure and reflect commitment to prevent engagement in the facilitation of tax evasion.
Risk Assessment – Organisations should conduct a risk assessment to identify the nature or extent of exposure to risk.
Due Diligence - This is about having a risk based approach to business relationships.
Communication - Organisations will need to communicate their policies and procedures regarding the prevention of facilitation of tax evasion to staff and others who perform services, additional training may help raise awareness, and this would be proportionate to the size and type of organisation.
Monitoring and Review - Risks to the organisation may change and, therefore, over time it may want to carry out regular reviews and re-assessments.
Organisations should however, be wary of relying on existing procedures to combat these new offences and should ensure that a review of prevention procedures is undertaken with the Bill specifically in mind.