The Criminal Finances Act 2017: What UK Enterprises Engaging Independent Professionals Need to Know Now

By Mark Stringer | September 22, 2017

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Of late, MBO Partners enterprises with UK clients have been asking many questions about the new Criminal Finances Act 2017, which takes effect on September 30th of this year.

In an effort to clarify questions, MBO Partners has taken this opportunity to offer some background on the CFA, as well as to answer commonly-asked questions about the Act.

The CFA makes it easier for the government to convict enterprises which facilitate tax evasion occurring in their supply chain, even where an enterprise is not directly involved in, and is unaware of, the occurrence.

The CFA (among other things) provides the government with a useful tool in the battle against tax evasion and, as a result, makes it is even more essential for enterprises to assess and scrutinise the compliance of its supply chain and that of any relevant third parties, including independent professionals.

Criminal Finances Act in Brief

  • This is a new corporate “failure to prevent” offence much like provisions in Section 7 of the Bribery Act
  • The CFA could make enterprises and partnerships criminally liable and potentially exposed to unlimited fines
  • In order to establish a defence, enterprises must have reasonable procedures in place to prevent the facilitation of tax evasion.
  • The CFA is aimed at helping government act on such schemes as offshore payment schemes, aggressive onshore schemes as well some aspects of false self-employment.

The CFA creates two new corporate criminal offences in respect of the facilitation of tax evasion:

  • Failure of an enterprise to prevent the facilitation of UK tax evasion by an associated person; and
  • Failure of an enterprise to prevent the facilitation of non-UK tax evasion by an associated person.

What can Enterprises do to Protect Themselves?

To avoid criminal liability, an enterprise would need to demonstrate that it has implemented reasonable procedures for the prevention of tax evasion. Without this proof, it would be very difficult for an enterprise to even establish a defence.

HMRC has issued 45 pages of draft guidance notes, but we’ve summarized those into six simple “guiding principles”:

  1. Risk assessment;
  2. Proportionality of risk-based prevention procedures;
  3. Top-level commitment;
  4. Due diligence;
  5. Communication (including training);
  6. Monitoring and review.

Enterprises will need to implement bespoke compliance procedures, based on an assessment of the particular risks and on the complexity of their activities.  Once a risk assessment has been carried out and an appropriate compliance regime is agreed, these must be acted upon and documented.  The risk and procedures must be monitored and reviewed regularly, with improvements being made as necessary.

The compliance procedures, and the commitment thereto, must be clearly articulated throughout the business, via all internal and external communications, down the supply chain and to relevant third parties. The involvement of senior stakeholders is required at all stages of the process, demonstrating top level commitment.

MBO Partners is uniquely equipped to provide the contractor compliance and engagement solutions mandated by the CFA, and already offers similar services to more than 30 Fortune 100 companies.

Programmes currently in place for our UK clients incorporate forming part of their “reasonable procedures” for when the Criminal Finances Act comes into effect.  MBO Partners UK is a member firm, and not all services provided in the US are available in the United Kingdom.

If you are interested in speaking directly with a member of our UK team, we’d love to discuss how the CFA might impact your business in 2017 and beyond. Please reach us at info@cp.mbopartners.com.

Please note that blog posts and materials from MBO Partners, MBO Partners UK, MBO Partners Ireland and other related entities do not constitute legal or financial advice

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