The Law Society has published a practice note to assist solicitors in England and Wales in understanding Part 3 of the Criminal Finances Act 2017, which comes into force on 30 September 2017.
The Law Society is submitting the practice note for the chancellor’s approval, as provided for in the act. HMRC has published draft guidance on this offence.
A brief overview, including what you need to have in place on day one:
The act creates a criminal offence for any entity that fails to prevent the criminal facilitation of tax evasion by associated persons. The offence brings a risk of criminal liability to solicitors’ firms not just for their employees’ actions, but for the actions of others with whom they are associated.
It is crucial for solicitors and their firms to understand this risk and ensure that their compliance systems are up to the challenge. In making a risk assessment, a firm might conclude that it has procedures already in place to prevent fraud by its own staff. However, those procedures may not be sufficient if they do not extend, using a risk-based approach, to preventing facilitation by associated persons.
An associated person can be an individual, corporate entity or an employee of a corporate associated person, carrying out services for or on behalf of the firm.
There are two facilitation offences:
The UK offence
This will apply to firms, wherever incorporated or located in the world, if they are involved in the criminal facilitation of UK tax evasion. There is no requirement for the tax evader, the associated person or the firm to be in the UK when the evasion or facilitation occurred: the legislation requires only that UK tax has been criminally evaded.
The foreign offence
This will apply to the criminal facilitation of foreign tax evasion by an associated person of any firm that is
- incorporated in the UK
- carries on business (or part of its business) in the UK; or
- any firm wherever located, if any aspect of the foreign tax evasion facilitation took place in the UK.
'Dual criminality' is required, meaning the evasion and facilitation must be criminal both in the foreign jurisdiction and (had the offences been committed in the UK) in the UK.
This is a strict liability offence. No knowledge or intention is required. There is also no requirement for the tax evader to have been prosecuted for evasion, or for the facilitator to have been prosecuted for facilitation.
Firms may face unlimited fines upon conviction and confiscation of assets.
There is one statutory defence, which is the firm having in place reasonable prevention procedures (or showing that it was reasonable not to have had such procedures in place).
Day one procedures
HMRC has indicated that it does not expect all reasonable prevention measures to be in place by 30 September 2017. However, HMRC does expect firms to have the following measures in place on day one:
- demonstration of a clear commitment to compliance, which might include initial implementation steps (possibly including either high level or detailed risk assessments)
- securing top-level commitment
- an initial communication plan
- an implementation plan for tackling the risk in a proportionate and timely manner
HMRC’s draft guidance says that government 'expects there to be rapid implementation, focusing on the major risks and priorities, with a clear timeframe and implementation plan on entry into force'.
We are very grateful to Louise Delahunty of Cooley (UK) LLP for chairing the drafting group and others for both the time and energy they have committed to the development of the Society’s practice note.