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Nine companies being investigated under 'failure to prevent' legislation

Thursday, 13 February, 2020

Nine companies are being investigated by HMRC for the new offence of failing to prevent the facilitation of tax evasion, under Part 3 of the Criminal Finances Act 2017.

Creation of the new offence was announced in the March 2015 budget, with the stated aim of requiring corporations to put in place 'reasonable procedures' to prevent persons associated with them facilitating tax evasion. Organisations convicted of the offence can be fined potentially unlimited amounts. An offence can be committed even where the board is not aware of the conduct undertaken by their employees or subcontractors.

There are in fact two separate offences, one relating to UK tax evasion (s.45) and the other to foreign tax evasion (s.46). HMRC has jurisdiction over s.45 offences only, with the overseas offence being under the remit of the National Crime Agency and Serious Fraud Office. Both offences came into effect on 30 September 2017, applying to conduct after that date only, but there have not yet been any convictions.

However, HMRC said the number and spread of its investigations 'clearly demonstrate that HMRC is actively enforcing the legislation across all tax and duty regimes and across organisations of all shapes and sizes'. As well as the nine live investigations, it also has a further 21 prosecution opportunities under review across ten different business sectors, it said.

'HMRC has been quick out of the blocks, making extremely rapid progress in using these powers', commented Andrew Sackey, Head of Tax Fraud Investigations at law firm Pinsent Masons. 'In terms of detection and intervention rates, the corporate criminal offence is already a far bigger risk to businesses than the Bribery Act.'

'The immediate point for most businesses is that the reasonable procedures that were put in place in 2017 cannot be allowed to sit in a drawer', added law firm Osborne Clarke. 'Our experience over the last two years has been that most businesses have taken the hint and brought in the “reasonable procedures” that constitute a defence to the new offences. However, the risk is that, having put in place the new procedures, a degree of complacency can set in and businesses might not have reviewed their processes or checked that [sic] are working.'

Sources