The Criminal Finances Act 2017 received Royal Assent on 27 April 2017 and heralds the biggest shake up in the UK’s law on recovering the proceeds of crime and preventing the financing of terrorism since the Proceeds of Crime Act 2002 (POCA). The key aspects of the Act come into effect on 30 September 2017.

What’s in the Act?

The Act includes:

  • new criminal offences for corporations who fail to prevent ‘associated persons’, including their staff, from facilitating tax evasion in the UK or abroad
  • ‘unexplained wealth orders’, which can require those suspected of serious crime or corruption to provide a detailed explanation to the authorities on the sources of their wealth
  • the seizure and forfeiture of proceeds of crime and terrorist money stored in bank accounts and certain personal or moveable items
  • time period extensions granted to law enforcement agencies to investigate Suspicious Activity Reports (SARs)
  • legal protections for the sharing of information between regulated companies when deciding whether to file a SAR, as well as the ability to submit a ‘joint disclosure report’
  • disclosure orders to cover money laundering and terrorist finance investigations
  • extending the existing civil recovery regime in POCA to allow for the recovery of the proceeds of gross human rights abuses or violations overseas.

The Corporate Tax Evasion Offences

Part 3 of the Act introduces two new corporate offences, comprising the failure of a firm’s associated persons (including employees and other persons that provide services for or on behalf of the firm) to prevent the facilitation of UK tax evasion and the failure to prevent the facilitation of foreign tax evasion offences.

The Act has wide extraterritorial reach. It applies to all entities in the world where the underlying tax is owed to HMRC, but also applies to non-UK taxes where an entity is incorporated in the UK, has a place of business in the UK, or any aspect of the offences occur in the UK. This means companies may be committing an offence where a similar offence exists and has been committed in another jurisdiction.

Similar to the Bribery Act 2010, firms will have a defence against the corporate offence where they can demonstrate they have put in place ‘reasonable procedures’, or that it was reasonable not to establish additional procedures at the time the offence was committed.

HMRC guidance has indicated that reasonable prevention procedures should cover six key principles:

  1. Risk Assessment
  2. Proportionality of reasonable procedures
  3. Top level commitment
  4. Due diligence
  5. Communication (including training)
  6. Monitoring and review.

Where found guilty under the new offence, companies could face unlimited financial penalties and orders for confiscation of assets.

What should firms be doing?

Firms have little time left to look at the impacts the new Criminal Finances Act and the corporate offences will have on their existing financial crime framework. Firms should consider:

  • Is your risk assessment methodology suitable for applying a tax evasion ‘lens’?
  • Do you have sufficiently proportionate policy and procedures to prevent the facilitation of tax evasion?
  • How can you demonstrate that senior management is fully involved and has set the right tone?
  • How do you ensure that due diligence in relation to clients, suppliers, contractors and employees as well as transactions/payments identify and address the risks?
  • How do you make sure that training is effective?
  • How do you ensure effective compliance monitoring, especially monitoring overseas conduct with UK requirements?

If you require assistance in preparing for the Act, then please get in touch.

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