You may be aware the Criminal Finances Act 2017 came into force on 30 September 2017. You may also be aware that it applies to your oversight of risks of criminal facilitation of tax avoidance as far as your employees are concerned. But did you know that this responsibility extends to many third parties that you deal with who may be classified as an ‘associated person’?

‘Associated persons’ means an employee, agent or other person who performs services for or on behalf of the relevant body. The associated person can be an individual or an incorporated body. For example, if you appoint anyone to provide certain services to your employees and clients, they may be in scope. Also, if you use contractors from third party agencies, these may also be in scope.

So what did the Act require you to do before 30 September? All firms that have any operations in the UK were required to carry out a risk assessment prior to this date. If you have failed to do so, it’s still not too late. Completion of this assessment after the deadline still provides your firm a defence that you had taken reasonable steps, in the event of a subsequent enquiry by the HMRC or the Serious Fraud Office.

Summary of the Criminal Finances Act

Failure to prevent the criminal facilitation of tax evasion is an offence per the Criminal Finances Act 2017 (the Act) that came into force on 30 September 2017. A prosecution could lead to both a conviction and unlimited penalties.

In summary the Corporate Criminal Offences cover both UK and foreign tax evasion and there are separate offences for each. Three elements are required in order for the offences to apply:

  • Fraudulent tax evasion by a taxpayer (either an individual or a legal entity) under existing law
  • The criminal facilitation of the tax evasion by a person associated with the corporate, acting in that capacity (referred to as a ‘relevant body’)
  • The relevant body failed to prevent the person associated with it from committing the criminal facilitation act

The ‘relevant body’ (which means incorporated bodies and partnerships, i.e. not individuals) has a defence if:

  • It has put in place ‘reasonable prevention procedures’ to prevent its associated persons from committing tax evasion facilitation offences; or
  • It is unreasonable to expect the relevant body to have such procedures in place

Performing a thorough risk assessment is the first step towards implementing reasonable prevention procedures.

How can we help?

Adept Advisory has significant expertise in reviewing Financial Crime (including Anti-Money Laundering and Counter Terrorist Financing) and tax compliance frameworks. We have reviewed the compliance strategies, identifying strengths and areas of improvement against known best practice and implementing risk based frameworks. We have specific recent experience of performing a detailed Criminal Finances Act risk assessment using the latest HMRC and financial services industry guidelines.

The assessment of your firm’s financial crime and operational risks relating to the Criminal Finances Act will allow for a risk based mitigation strategy to be embedded, to ensure compliance with existing regulations and the new law. HMRC recognizes that full compliance by 30th September is unlikely. However, as soon as a risk assessment has been performed and reasonable steps taken to mitigate the most significant risks, you have a clear defence against potential prosecution for non-compliance.

In addition to assisting clients with risk assessment and mitigation, we work in partnership with specialist training firms who can offer e-learning training to satisfy the HMRC requirements in respect of the Criminal Finances Act.

Author: Ayaz Siddiqui
Adept Advisory – London