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Criminal Finances Act establishes new ‘facilitation’ offences

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The Criminal Finances Act, which contains legislation for the new corporate offences of failure to prevent facilitation of tax evasion, received royal assent on 27 April 2017.

Part 3 of the Act creates the two new offences, one in relation to UK taxes and the other for foreign tax evasion offences. No substantive amendments were made to Part 3 during the passage of the Bill. Businesses will be liable for the criminal acts of employees who encourage or assist tax evasion by others ‘acting in the capacity of an associated person’, which could include customers or suppliers, even if senior management was uninvolved or unaware of these acts.

The new offences in will come into force from a date to be appointed in regulations, expected to be by the end of September 2017.

The legislation requires the government to publish guidance about procedures that corporate bodies and partnerships within scope of the legislation might put in place to prevent those acting in the capacity of an associated person from committing tax evasion facilitation offences. It will be a defence if a company can show it has ‘reasonable prevention procedures’ in place. The latest version of draft guidance on the new offences was updated in October 2016.

According to Pinsent Masons, the results of a YouGov survey of 1,189 senior decision makers shows 76% of UK businesses are unaware of the new legislation. Among large businesses, which are the most likely to be caught out, some 67% are unaware that these offences are soon to be introduced. This percentage includes businesses in sectors particularly at risk, such as financial services and accountancy, legal, construction, transportation and distribution, manufacturing, and real estate. In this regard, Jason Collins, head of tax at Pinsent Masons, pointed out that: ‘businesses which pay large sums to consultants, do cross-border business, engage casual or itinerant labour and contractors, or handle goods and services where organised fraud is a risk are at high risk of falling foul of the new legislation’. Financial services, accounting and legal sectors, he added: ‘will face the biggest challenges when it comes to carrying out risk assessments, and ensuring that adequate procedures are in place to prevent any potential facilitation of tax evasion’.

The Act also introduces unexplained wealth orders (UWOs), requiring individuals to explain the origin of assets that appear to be disproportionate to their known income. A key requirement is that the value of the property subject to an order is greater than £50,000 (reduced from £100,000 in the Bill as originally introduced). A person could be convicted of a criminal offence if they make false or misleading statements in response to a UWO.

Among the amendments made during the passage of the Bill is a new section 9 in Part 1, which concerns arrangements for sharing of beneficial ownership information between the UK and the Crown dependencies and overseas territories, requiring the relevant minister to present a report to Parliament by 1 July 2019 covering arrangements in place for the period from 1 July 2017 to 31 December 2018. This clause will be the new Proceeds of Crime Act 2002 s 445A.