UK authorities seek facilitator link in corporate criminal tax investigations

Out-Law News | 15 Oct 2019 | 1:36 pm | 3 min. read

UK authorities HM Revenue and Customs (HMRC) and the Serious Fraud Office (SFO) have been reviewing all existing tax fraud cases to see whether there is a facilitator linked to a corporate body to pursue and a number of cases are under investigation.

Speakers from HMRC and the SFO revealed the review at a recent event organised by Pinsent Masons, the law firm behind Out-law.

It is a criminal offence in the UK if a business fails to prevent its employees or any person associated with it from facilitating tax evasion. Two corporate criminal offences (the CCOs) apply from 30 September 2017 and were introduced by the Criminal Finances Act 2017.

The first offence applies to all businesses, wherever located, in respect of the facilitation of UK tax evasion. The second offence applies to businesses with a UK connection in respect of the facilitation of non-UK tax evasion.

The CCOs apply to both companies and partnerships. They effectively make a business vicariously liable for the criminal acts of its employees and other persons 'associated' with it, even if the senior management of the business was not involved or aware of what was going on.

A business will have a defence if it can prove that it had put in place reasonable prevention procedures to prevent the facilitation of tax evasion taking place, or that it was not reasonable in the circumstances to expect there to be procedures in place.

The HMRC and SFO speakers said there is naturally a long 'lead time' for investigations under the Criminal Finances Act given it only applies to conduct taking place after 30 September 2017. They discussed the steps a business should take should it discover that an offence may have been committed. Timely self-reporting using HMRC's online facility will be seen as an indicator of reasonable prevention measures.

The SFO is responsible for investigating offences in respect of overseas tax evasion. Both agencies have been collaborating to share best practice, intelligence and technical acumen. In relevant cases the SFO considers liability issues regarding facilitation of overseas tax evasion in its assessment of cases to accept for investigation.

The speakers confirmed that the SFO will take into account genuine cooperation when determining whether it is in the public interest to prosecute a corporate. Cooperation or its absence will also determine whether the SFO offers a company a deferred prosecution agreement.

However, the speakers said that cooperation is one factor among many, and will not guarantee any particular outcome. They gave some examples of what they regard as cooperation, which will mean going beyond the bare minimum of what the law requires.

Positive indicators of cooperation mentioned by the speakers included reporting misconduct to the SFO within a reasonable time of the suspicions coming to light, retaining and preserving evidence at an early stage, providing the SFO with relevant industry or sector background and consulting with the SFO before taking overt steps such as interviewing suspects or taking disciplinary actions.

Reporting minor wrongdoing in one jurisdiction but omitting significant wrongdoing elsewhere, protecting specific individuals, particularly based on seniority, and unjustifiably blaming others would be regarded as negative factors, they said. As would tactical delays, data 'dumps' without structure or context and failing to maintain an adequate audit trail of relevant evidence.

The speakers stressed that the CCOs have meant HMRC and SFO are working far more closely than before, with greater information and intelligence sharing.

They are also cooperating internationally. In 2018 the UK joined forces with Canada, the Netherlands, the US and Australia to launch the Joint Chiefs of Global Tax Enforcement (J5) – a new alliance dedicated to tackling international tax crime and money laundering. According to the speakers at the conference, the J5 has been involved in more than 50 investigations involving sophisticated international enablers of tax crime.