Criminal Finances Act


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New corporate criminal offences relating to a failure to prevent facilitation of tax evasion (in the UK or abroad) were introduced on 30 September 2017 by the Criminal Finances Act 2017 (the Act).

These offences involve strict liability (meaning that an organisation can be liable even if there is no fault or negligence) but the Act offers a defence where "reasonable prevention procedures" were in place. HMRC has published guidance which will help housing providers consider how to put in place appropriate procedures.

What are the offences?

The new offences are:

  • failure to prevent facilitation of UK tax evasion; and
  • failure to prevent facilitation of foreign tax evasion.

Any corporate body or partnership (wherever incorporated or formed) can commit either offence. This therefore includes Community Benefit Societies.


For an offence to be committed there needs to be:

  • fraudulent tax evasion by a taxpayer (either an individual or an entity);
  • criminal facilitation of  that tax evasion by someone who is "associated" with the organisation; and
  • failure by the organisation to prevent its associate from committing the criminal facilitation of tax evasion.

 

Who is "associated" with the organisation?

The Act defines a person who is associated with the relevant body as:

  • an employee;
  • an agent (other than an employee); or
  • any other person who performs services for or on behalf of the relevant body including, for example, a sub-contractor.

 

The above parties must be acting in their role within the organisation. Assessing whether they are doing so will involve consideration of the organisation’s proximity to, control over, and/or benefit from the associated person. HMRC's guidance looks at subsidiaries and joint venture companies. It concludes that subsidiaries are not automatically "associated"; it will depend on the facts in each case. Joint venture companies will also not be automatically "associated" but it will depend on whether or not they are acting for and behalf of the participants.


What are "reasonable prevention procedures"?

If the organisation has put in place "reasonable prevention procedures" (or it was not reasonable to have in place any such procedures), there is a defence to both offences. The approach is similar to that in the Bribery Act 2010.

The measures put in place should take account of the size, nature and complexity of the organisation. HMRC's guidance sets out six guiding principles (similar to the Ministry of Justice's principles for defending Bribery Act offences) for consideration when creating procedures.

These are:

  • Risk assessment: You will need to carry out an organisation wide assessment of the risks that the organisation could facilitate tax evasion, whether in the UK or abroad.
  • Proportionality of risk-based prevention procedures: With regard to the levels and types of risk identified in your assessment put procedures in place.
  • Top level commitment: The top level management should show commitment to the prevention of facilitating tax evasion and the processes necessary to do so.
  • Due diligence: This should be undertaken in relation to staff and customers to the extent necessary with regard to the identified risks.
  • Communication (including training): Staff should be trained to ensure they understand the relevant obligations.
  • Monitoring and review: This should be undertaken to ensure that policies and procedures in place respond to the changing risks.


In the housing sector, higher risk areas are likely to include:

  • Cash rent and rental arrears payments: Accepting these may facilitate tenants avoiding tax on earnings;
  • Sub-letting of flats: Failing to enforce restrictions on sub-lettings may facilitate tenants avoiding tax on their own rental income; and
  • Property transactions: Real estate is a higher risk area generally and it will be important to ensure that prices are properly set so as not to facilitate avoidance of stamp duty land tax and to check the source of funds with which purchasers pay for properties.


It is important for housing providers to reduce the risk of prosecution by putting procedures in place and monitoring compliance regularly as part of ongoing governance activities. Failures to do so could result in criminal conviction, unlimited fines, regulatory penalties and reputational damage.


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