What is the Criminal Finances Act 2017?
From the 30th of September the Criminal Finances Act 2017 (also known as “the Act”) will come into play. This new legislation means that organisations will become criminally liable if they facilitate, or fail to prevent tax evasion by an employee, contractor, supplier or other external agent, and can have dramatic consequences for businesses.
As a money service company, this will affect how PPS Pay do business and will mean that certain procedures will need to be put in place by our company. This will also affect all associates of PPS Pay including recruitment agencies, those using our umbrella services and other external contractors. The following are the details of the Act, and how your company can safeguard itself.
The aim of the act is to target deliberately dishonest behaviour at a corporate level. Individual offences will be treated as criminal under current tax laws and are not affected by this act.
For a company to be criminally liable under the Act, they must have met one of the following three criteria (referred to as stages):
- Stage One – Complicity in fraudulent tax evasion by a taxpayer (either an individual or a legal entity) under existing law.
- Stage Two – Facilitation of tax evasion by a person representing a corporation, as defined by the Accessories and Abettors Act 1861.
- Stage Three – Failure by a relevant body to prevent the person associated with the offence from committing the Criminal Facilitation Act.
The Act will cover both UK and foreign tax evasion with separate offences for the facilitation of each. The ‘foreign offence’ works in much the same way as is outlined above, although the scope for prosecution is narrower.
Only certain relevant bodies with a UK connection can commit the foreign revenue offence. These are:
- Companies incorporated under UK law.
- Companies conducting business from a permanent address within the UK, even if registered abroad.
- Associated persons who commit the criminal act and who are located in the UK at the time of the facilitation of overseas tax evasion.
Penalties & Consequences
The penalties and consequences for offences can include:
- Unlimited financial fines
- Withdrawal of licenses by regulators
- Reputational damage
- Confiscation orders or serious crime prevention orders
- Prison sentences (in the most extreme cases)
Prosecutions will be meted out on a case by case basis by either the Crown Prosecution Service (CPS) or the Serious Fraud Office (SFO).
Safeguarding Your Company
A business can avoid liability by demonstrating that it has implemented “reasonable prevention procedures”.
- Carrying out a risk assessment to identify the specific risks of facilitating tax evasion.
- Implementing procedures to mitigate risks, which can be shown to be proportional to the risks identified.
- Conducting due diligence on employees, contractors, suppliers or other external agents, proportional to the risks they pose.
- Demonstrating a commitment to the prevention of the facilitation of tax evasion from the highest level of the organisation.
- Ensuring that employees and external agents understand the procedures that are put in place, and are aware of how they may be affected.
- Ongoing monitoring and assessment of risks and the procedures that have been put in place.
Your organisation can also defend itself on the grounds that it would have been unreasonable or unrealistic to have put the procedures in place, though reliance upon this defence is best avoided.
Conducting a Risk Assessment
In order to properly conduct a risk assessment for the Criminal Finances Act, companies are advised to refer the following guidelines:
- The Financial Conduct Authority’s (FCA) guide for firms on preventing Financial Crime.
- The Law Society’s Anti Money Laundering Guidance, particularly Chapter 2.
- Joint Money Steering Group (JMLSG) guidance.
Businesses operating in the legal, financial and accounting sectors are also urged to consider guidance published by their regulator, as well as guidance published by the HMRC, including:
- Money Laundering Regulations
- Anti money laundering guidance for money service businesses
- Money laundering supervision for estate agency businesses
If you wish to know more about the Criminal Finances Act and how it may affect you, please contact one of PPS Pay’s team, and we will be happy to help however we can. Either call us on 0207 048 0166 or email us at firstname.lastname@example.org.
This document is a high level outline created to inform associates of PPS Pay of the Criminal Finances Act and how it may affect them, and is not considered legal advice. For full guidance on the Act and what you must do, refer to the HMRC’s document here.