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The Criminal Finances Act 2017: is your business ready?

View profile for Robert Taylor
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Cast your mind back to April 2016. It might be difficult to remember a time pre-Brexit negotiations and the Trump administration, but perhaps harder not to recall the blockbuster scandal that was the Panama Papers leak: the largest data leak in history (and probably the third most famous thing to come from Panama - losing solely to the hat and the canal, of course.)

Approximately 11.5 million files were leaked from the world’s fourth largest offshore law firm, Mossack Fonseca, by an anonymous source linked to a German newspaper. These documents exposed the various ways in which some of the world's wealthiest and most powerful people have exploited offshore tax regimes over the last four decades; calling into question the financial activities of 12 national leaders among 143 politicians as well as over 200,000 companies, trusts, and foundations.

However, this wasn’t just a lesson in cyber-security for Mossack Fonseca (though I must admit; a firm facilitating tax evasion with a poor cyber-security strategy and vulnerable network is a recipe for disaster.) This was a lesson to the UK government to impose stricter liability on companies to prevent further facilitation. This was the catalyst that sparked a radical overhaul of the legislative framework that surrounded corporate tax evasion.

A year later, a little piece of legislation called the Criminal Finances Act 2017 was passed by Parliament to tackle the growing issue.

What is the Criminal Finances Act 2017?

From the 30th September 2017, the Criminal Finances Act 2017 will come into force; seeing companies and partnerships criminally liable for failing to prevent tax evasion, even if the business was not involved or even aware of the tax evasion.

If it sounds intimidating, it’s because it really is: the penalties for failing to prevent tax evasion include unlimited fines, ancillary sanctions such as confiscation and serious crime prevention orders - not to mention the heavy reputational damage caused to your business and the potential loss of licence.  However, there are two crucial elements to this:

•    evasion must have actually taken place, and

•    an ‘associated person’ person (employee, external agent e.g. a supplier) must have facilitated.

Really, this shouldn’t come as too much of a surprise. Despite the likes of some celebrities  regularly dipping their toes in the offshore waters, tax evasion is and has always has always been a crime. Taking action to prevent it is a logical step; this new legislation simply enforces it.

The Criminal Finances Act 2017 is targeted at deliberate and dishonest behaviour, with the intention to clamp down not only on those who have directly committed the offence of tax evasion itself, but to those who have passively allowed the offence to happen. When legislation comes into force at the end of the month, all businesses will be expected to comply; so if you haven’t already - the time to act is now.

How can firms prepare for the Criminal Finances Act 2017?

To ensure your firm is protected, it’s essential that you take steps in identifying the risks of corporate tax evasion and facilitation of this offence for your business and implement effective procedures to prevent it.

Unsure of where to start? Don’t worry, you are not alone. Back in May, research revealed 76% of UK businesses were unaware of the new measures and hadn’t taken the time to consider a plan of action. So, with a little help from the Tax Man, we’ve set out the six key principles that your business should focus on:

1. Risk assessment

Your first step should be to perform a risk assessment to identify the specific risks of facilitation for your business. If you work in the financial or legal sector, chances are you are already performing regular risk assessments relating to your business activities. If not, seeking the advice of a specialist business lawyer could be particularly beneficial in providing focus and insight to your assessment.

2. Proportionality of risk-based prevention procedures

The risk assessment should allow you to determine the nature of the procedures or policies that you implement to prevent tax evasion or facilitation. Your chosen prevention procedure should reflect and be proportionate with the risk your business faces.

3. Top level commitment

Change can only happen in a business when those leading the way set an example. Firms should ensure there is a top-level commitment within the organisation to preventing the facilitation of tax evasion and promote this culture at every level of the business, sending a clear message regarding the firm’s stance on tax evasion.

4. Due diligence

Since the Act holds a business responsible for the criminal financial activity of any associated persons; due diligence of staff, clients and suppliers is highly recommended. Depending on your industry, you may already undertake mandatory due diligence on clients and suppliers. If this isn’t the case and you are not sure on the best approach to due diligence, gaining legal assistance should once again aid in building an accurate risk profile and defining the best way forward.

5. Communication (including training)

In order to appreciate the importance of compliance procedures, employees must be provided with engaging training solutions that provide context, allowing the workforce to understand the importance of compliance and the severity of the penalties linked with non-compliance. Once embedded, a clear articulation of an organisation’s policy against the facilitation of tax fraud will deter those providing services on behalf of the relevant body from engaging in such activities.

6. Monitoring and review

Under the Criminal Finances Act 2017, businesses will be expected to regularly review the effectiveness of the organisation’s prevention procedures and make amends where necessary. Remember, compliance is one of those tasks that can’t be ticked off the To Do list: it’s a culture you should nurture in your business to ensure policies are adhered to as a result of understanding and appreciation rather than fear.

How 360 Business Law can help you

At 360 Business Law, we believe that the Criminal Finances Act 2017 is a great leap forward for the UK in tackling corporate tax evasion.

While this blog provides a guide to the necessary steps involved in complying with new legislation, it is by no means exhaustive. The procedures you put in place to prevent financial crime or the facilitation of these offences will depend solely on the nature of the risks identified through assessment, and each firm will have a unique approach.

That’s why our business lawyers are available around the clock to help you implement a compliance programme that reduces your overall risk profile in the face the new law.

By subscribing to our service, you will receive a thorough legal audit from one of our globally recognised lawyers who will dedicate their time in assessing the probable impact of the Act on your business to determine areas of exposure and vulnerability.

From here, we will provide expert legal guidance through the implementation of your prevention procedures. When it’s time for your policies to be reviewed and refreshed, you can rely on 360 Business Law to help you reach the right way forward.

For specialist legal advice on how to prepare for the Criminal Finances Act, get in touch with one of our business lawyers today on 01276 804432 to make an appointment.

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