The Bribery Act has laid the foundation for a new criminal offence, which will require corporates to conduct ever greater levels of due diligence, says Jason Collins (Pinsent Masons)
Before we entered the pre-election period, we were given tantalising details of a proposed new offence of ‘corporate failure to prevent tax evasion or the facilitation of tax evasion’. This was announced in a rather bizarre ‘Yellow Budget’ given by former chief secretary to the Treasury, Danny Alexander, on 19 March, and was followed up in HMRC’s publication Tackling tax evasion and avoidance. Although it was announced after the recent press coverage of the HSBC Swiss bank data leak, the new offence appears to be intended to apply to all businesses and not just to the obvious targets of banks, fiduciaries and professional services firms.
The background to these proposals was a call by David Green CB QC, the head of the Serious Fraud office, for an extension of the Bribery Act 2010 to all forms of economic crime. Under the Bribery Act, corporates commit a strict liability offence if they fail to prevent bribery by any ‘associated person’, even if they are unaware of the conduct. As well as employees, associated persons can include contractors, agents and subsidiary companies.
Tax has always been intended to be one of the types of economic crime to which the Act would be extended, but the tax proposals have gone further by including the failure to prevent the facilitation of tax evasion. This suggests that we may have a standalone tax offence. Facilitation may cover any situation where the corporate or associated person is merely a link or participant in another person’s crime. This might catch a bank’s relationship with its customers, but may also include those businesses which operate in markets where fraud is known to take place, such as payroll/status fraud, MTIC fraud and duty fraud.
The defence to a charge of failure to prevent bribery is to show that there were ‘adequate procedures’ in place to try to prevent bribery. If the tax offence applies in a similar way, businesses will need to have robust procedures in place to try to prevent associated persons from engaging in or facilitating tax evasion. Some have said that these offences are not needed, as anti-money laundering (AML) rules cover most of this. But AML rules are engaged where there is a suspicion of wrongdoing; whereas this offence is agnostic to the corporate’s awareness. It is simply a matter of being able to show that adequate procedures are in place.
The Bribery Act applies to corporates incorporated or with significant activity in the UK. However, the associated person can be anywhere. It would be interesting to see if this offence would catch, for example, a UK bank with a Swiss subsidiary, where the Swiss employees are facilitating tax evasion. The subsidiary, but not its employees, would be an associated person of the UK bank – so it may be necessary to prove some involvement of employees of the UK bank. Alternatively, the mere fact that the subsidiary was willing to accept UK customers without strict controls around tax reporting may be enough to show that the UK bank failed to prevent the subsidiary from facilitating evasion.
If these proposals are introduced, all corporates can look forward to the prospect of conducting ever greater levels of due diligence. We may move to a world where corporates are expected to demand assurances about tax compliance from all those with whom they deal – and be unpaid inspectors of the tax system.
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Corporate failure to prevent evasion
The Bribery Act has laid the foundation for a new criminal offence, which will require corporates to conduct ever greater levels of due diligence, says Jason Collins (Pinsent Masons)
Before we entered the pre-election period, we were given tantalising details of a proposed new offence of ‘corporate failure to prevent tax evasion or the facilitation of tax evasion’. This was announced in a rather bizarre ‘Yellow Budget’ given by former chief secretary to the Treasury, Danny Alexander, on 19 March, and was followed up in HMRC’s publication Tackling tax evasion and avoidance. Although it was announced after the recent press coverage of the HSBC Swiss bank data leak, the new offence appears to be intended to apply to all businesses and not just to the obvious targets of banks, fiduciaries and professional services firms.
The background to these proposals was a call by David Green CB QC, the head of the Serious Fraud office, for an extension of the Bribery Act 2010 to all forms of economic crime. Under the Bribery Act, corporates commit a strict liability offence if they fail to prevent bribery by any ‘associated person’, even if they are unaware of the conduct. As well as employees, associated persons can include contractors, agents and subsidiary companies.
Tax has always been intended to be one of the types of economic crime to which the Act would be extended, but the tax proposals have gone further by including the failure to prevent the facilitation of tax evasion. This suggests that we may have a standalone tax offence. Facilitation may cover any situation where the corporate or associated person is merely a link or participant in another person’s crime. This might catch a bank’s relationship with its customers, but may also include those businesses which operate in markets where fraud is known to take place, such as payroll/status fraud, MTIC fraud and duty fraud.
The defence to a charge of failure to prevent bribery is to show that there were ‘adequate procedures’ in place to try to prevent bribery. If the tax offence applies in a similar way, businesses will need to have robust procedures in place to try to prevent associated persons from engaging in or facilitating tax evasion. Some have said that these offences are not needed, as anti-money laundering (AML) rules cover most of this. But AML rules are engaged where there is a suspicion of wrongdoing; whereas this offence is agnostic to the corporate’s awareness. It is simply a matter of being able to show that adequate procedures are in place.
The Bribery Act applies to corporates incorporated or with significant activity in the UK. However, the associated person can be anywhere. It would be interesting to see if this offence would catch, for example, a UK bank with a Swiss subsidiary, where the Swiss employees are facilitating tax evasion. The subsidiary, but not its employees, would be an associated person of the UK bank – so it may be necessary to prove some involvement of employees of the UK bank. Alternatively, the mere fact that the subsidiary was willing to accept UK customers without strict controls around tax reporting may be enough to show that the UK bank failed to prevent the subsidiary from facilitating evasion.
If these proposals are introduced, all corporates can look forward to the prospect of conducting ever greater levels of due diligence. We may move to a world where corporates are expected to demand assurances about tax compliance from all those with whom they deal – and be unpaid inspectors of the tax system.
