Companies are liable for criminal acts committed by employees who encourage or assist tax evasion by other individuals, even in cases where senior management were either uninvolved or unware of the acts. The only defence that an organisation can have against being criminally liable, is that it had “reasonable procedures” in place to prevent such matters occurring. The consequences of failing to do so have the potential to lead to criminal prosecution and unlimited financial penalties.
There are three stages to the offences
- Tax evasion by a taxpayer (either UK or non UK)
- Criminal facilitation of this offence by an associated person of the organisation
- The organisation failed to prevent an associated person from “facilitating”
An organisation is, in effect presumed guilty, unless it can show that it had in place prevention procedures “reasonable in all the circumstances” to prevent the facilitation from occurring.
The provisions draw heavily for inspiration on section 7 of the Bribery Act 2010 and many of the “adequate procedures“ that the company has in place for those matters will need to be considered for the new offence. HMRC have already produced draft guidance which includes examples and suggestions of such reasonable procedures with principles of
- Risk assessment
- Top Level Commitment
- Due Diligence
- Monitoring and Review
These principles reflect the Ministry of Justice Guidance on Adequate Procedures in Bribery matters.
What steps do companies need to take now to prepare for legislation coming into force?
Companies need to have their “prevention procedures” in place as soon as possible. They should be conducting an immediate risk assessment, ensuring Board buy-in and leadership and that a communication programme is adopted so that employees are aware of the impending changes.
How do companies monitor for incidences of tax evasion in their own company and of contractors (accountants/law firms) facilitating tax evasion on their behalf?
High risk activities such as dealing in cash will no doubt attract greater scrutiny (if not banned entirely). Companies will need to show audit trails that show both how financial issues are dealt with and how the procedures themselves are implemented and monitored. Contracts will need to be rewritten or amended to ensure compliance with these mandatory requirements.
What are the other legal risks associated with this?
A criminal conviction can be devastating for the reputation of a business. It and can lead to direct financial loss vis share price, customer dissatisfaction or even barring a company from public sector contracts. Prevention is far better than cure, as there may be no way back from a criminal conviction for some businesses.
Raj Chada is also quoted on this issue in Compliance Week dated 20th June 2017.