The Criminal Finances Act 2017

This article is not the place to consider the distinction between tax avoidance and tax evasion, other than to mention that the former is legal while the latter is a criminal offence. Indeed, there are a number of possible criminal offences relating to tax evasion. Some of these are statutory and others are covered by the common law, such as offence of cheating the public revenue, which applies to where someone engages in fraudulent conduct that tends to divert funds from the public revenue.

Such offences apply to the individual who actually engages in tax evasion, but third parties can also be held liable for deliberately facilitating, another person’s tax evasion and, as with other criminal activity, a third party can be charged with aiding and abetting the crime of tax evasion. Thus, if accountants deliberately assist in their client’s tax evasion they will be potentially liable to a criminal charge. However, previously the criminal law did not extend to the accountant’s employer – be that a firm (a partnership of whatever kind), or company – even in circumstances where the employer organisation benefited from, or actually encouraged, the criminal action of the individual accountant. Such loopholes have been closed by the Criminal Finances Act (CFA) 2017.

CFA 2017, s45(1), creates the new offence of corporate failure to prevent the facilitation of tax evasion in relation to UK taxes. This offence is committed by ‘a relevant body’ where ‘a person acting in the capacity of a person associated with it’ commits a tax evasion facilitation offence – that is, criminally facilitates another’s offence of tax evasion. CFA 2017 s46 creates the related offence of corporate failure to prevent the facilitation of foreign tax evasion offences.

CFA 2017, s44, defines the terms used in s45. Thus, a ‘relevant body’ is defined in sub-section (2) as any corporation or partnership whether formed in the UK or elsewhere.  Subsection (4) provides that a person ‘acts in the capacity of a person associated with a relevant body’ if they are:

  1. an employee acting in that capacity
  2. an agent acting in that capacity, or
  3. any other person who performs services for or on behalf of that relevant body and acts in the capacity of a person performing such services.

It should be noted that it is only the relevant body that can commit the new offence, although the individual concerned may well be liable for the other offences mentioned above. Indeed, the associated person’s action must be criminal under the existing law in order to trigger the new corporate offence. The width of application of s44(4)(c) should also be emphasised; it will apply to any person providing a service for the relevant body, be that a contractor, subcontractor or consultant. Thus, the organisations and corporations covered by the provision are to be held to account for the actions of those who act on its part.

It is essential to note the precise nature of the new offence: it is not related to the positive action of the relevant body, nor is the criminal action of the other parties imputed to it; rather the relevant body is potentially made liable for a separate and distinct negative infringement, its failure to exercise the necessary degree of supervision and control to prevent the occurrence of tax evasion. Thus, the new offence criminalises the relevant body’s failure to prevent those who act on its behalf from criminally facilitating tax evasion.

Given the wise scope of the new offence it is open to the relevant body to defend its actions by showing that they took the necessary steps to prevent the action of the person performing underlying criminal activity. Thus, CFA 2017 s45(2) provides ground for the relevant body to avoid liability by proving that, when the tax evasion facilitation offence was committed:

(a) it had in place such prevention procedures as it was reasonable in all the circumstances to expect it to have in place, or

(b) it was not reasonable in all the circumstances to expect the relevant body to have any prevention procedures in place.

The stated aim of the provision is not to be excessively burdensome and consequently procedures to be adopted by relevant bodies are only required to be reasonable – ie not excessively restrictive, but proportionate to the danger of the criminal tax evasion taking place. Section 47 requires the Chancellor of the Exchequer to publish guidance about the procedures that relevant bodies might put in place to ensure compliance with the ‘reasonable’ procedures. The Chancellor may also endorse guidance prepared and published by others, thus allowing for the particular needs and/or risks arising within particular sectors of industry to be addressed appropriately.

One other important provision of the CFA 2107 that requires consideration relates to the legal form of the relevant body. As stated, the new s45 offence applies to corporations and partnerships no matter their form (ie with or without separate legal personality), but that provision raises procedural issues relating to ordinary – ie non-corporate, partnerships.

CFA s50 deals with the matter by providing for the prosecutions of such partnerships by applying to them the same rules that apply to corporations. Section 50(1) states that: proceedings for an offence under sections 45 or 46 alleged to have been committed by a partnership must be brought in the name of the partnership (and not in the name of any of the partners) and ss(3) provides that: a fine imposed on a partnership on its conviction for an offence under section 45 or 46 is to be paid out of the partnership assets. Thus, an ordinary partnership is to be treated ‘as if the partnership were a body corporate.’ (s50 2(a) and (b).

Written by a member of the Corporate and Business Law examining team