The ostrich effect of tax evasion facilitation

The UK Government believes that businesses should be criminally liable where they fail to prevent those who act for them, or act on their behalf, from criminally facilitating the evasion of tax.

The Criminal Finances Act 2017 came into force on 30 September 2017 and introduced Part 3 Corporate Offences of failure to prevent facilitation of tax evasion (“FoTE”) which applied from that date to all companies and partnerships (wherever incorporated or formed), making them criminally liable and subject to an unlimited fine where they fail to have a system of procedures in place to prevent the facilitation by others of tax evasion.

The only defence against a criminal conviction is if the company or partnership (not just LLPs) can evidence and demonstrate that it had put in place reasonable procedures to prevent the facilitation of tax evasion by others.

For wide reaching legislation it is perhaps surprising that most businesses have their heads in the sand when it comes to the Criminal Finances Act 2017 (“CFA 2017”) and the facilitation of tax evasion offence (“FoTE”), particularly when it came into force in September 2017.

Having helped clients through this process I can appreciate that probably the majority of businesses fall into the category of not knowing what to do in order to mitigate their risk.

Practical Examples

A sales person agrees to alter the description of goods on an invoice to enable the customer to obtain a more favorable tax treatment

An online trading platform continues to enable persons to trade with the knowledge that they should have registered to pay VAT or import duty

Someone in payroll under declares the travel plans of a mobile executive to reduce the level of income tax paid

Someone in the distribution department colludes with a customer to misrepresent the true nature of goods in order to reduce the amount of import duty paid

Following a risk assessment, it may be reasonable for a medium risk business to:

  • internally audit systems and controls to identify current processes and possible tax evasion facilitation risks
  • update staff handbooks and employment contracts to include the intolerance of the facilitation of tax evasion by the business
  • amend customer and supplier agreements to include a statement that there is an expectation that all stakeholders of the business adopt a similar stance on the facilitation of tax evasion
  • demonstrate a commitment to prevention of tax evasion facilitation by issuing a prominent anti-facilitation of tax evasion message or policy from the board of directors against all forms of tax evasion
  • provide regular training for staff on financial crime detection and prevention
  • have terms in contracts (with employees and contractors) requiring them not to engage in facilitating tax evasion and to report any concerns immediately
  • communicate clear and defined whistleblowing procedures and protection
  • periodically review these preventative procedures

Every organisation is different in terms of nature, size, and complexity of the business it does.  Proportionality underpins the defence against the facilitation of tax evasion offence, with large multinational and domestic SME’s having a significantly different risk profiles and therefore having different approaches to preventative procedures.

If more businesses start addressing and taking the Criminal Finances Act 2017 seriously the lack of its awareness should hopefully become as much of a myth as ostriches burying their heads in the sand.

What businesses need to do however, is to look internally at themselves and assess their risk, now.

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