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The Criminal Finances Act of 2017: New Compliance Requirements for UK Businesses

White Collar Watch (December 2017 • Vol. 1, Issue 3) Article

On April 27, 2017, the United Kingdom enacted the Criminal Finances Act 2017 (the "Act"), which provides that companies and partnerships ("relevant bodies") are criminally liable if they fail to implement adequate procedures to prevent economic crime and fraud (e.g., tax evasion) by employees or agents, even when the company was not aware of the crime.1

Background

In April 2016, the British government published an Action Plan for anti-money laundering and counter-terrorist financing2 that established procedures to reduce risks of money laundering and terrorist financing that were identified by the government in October 2015.3

Goal

The Act strengthens the government’s ability to confiscate the proceeds of crime, to improve the international reach of enforcement and to enforce the Terrorism Act 2000.

Corporate Criminal Offenses

The Act is the most significant change to the anti-money laundering and terrorist finance regime in the United Kingdom since the enactment of the Proceeds of Crime Act in 2012, and will significantly affect the investigation and enforcement of corporate crime. The Act creates two new corporate criminal offenses for the failure to prevent the facilitation of tax evasion.

The government’s draft guidance for these new corporate offenses for the failure to prevent tax evasion demonstrates that the aim of the legislation is to hold a "relevant body" criminally liable when it fails to prevent its employees and agents from committing or facilitating tax evasion.4 The new law does not radically alter what is criminal; it focuses on who is held to account for the criminal conduct.5 The draft guidance defines a "relevant body" as an incorporated body (typically a company) or partnership that does not include natural persons.6 The guidance further explains that the previous structure required prosecutors to prove that senior members of the organization participated in the illegal activity, which had the perverse effect of making prosecutions more difficult and rewarded companies that failed to implement effective corporate governance and preventative procedures.

The guidance lists six principles that organizations should adopt:

1) risk assessment,

2) proportionality of risk-based prevention procedures,

3) top level commitment,

4) due diligence,

5) communication (including training), and

6) monitoring and review.

Defenses

A business can avoid criminal liability by implementing procedures to prevent someone acting on its behalf from facilitating tax evasion in the United Kingdom or in a foreign country. For a relevant body to benefit from the "prevention procedures" defense under the Act, it must prove that it had "such prevention procedures as it was reasonable in all the circumstances to expect … or [that] it was not reasonable in all the circumstances to expect [the company] to have any."

What UK Businesses Should Do

Businesses need to review their current procedures, minimize risks, and establish appropriate monitoring and training. Effective measures will depend on the size of the business and its complexity. At the least, smaller business acting in low-risk industries should prohibit the illegal activities, train staff, and implement clear reporting and whistleblowing procedures. It’s important to note, however, that compliance with the guidance will NOT automatically immunize the company from prosecution. 

  1. Criminal Finances Act 2017 (Commencement No. 1) Regulations 2017. http://services.parliament.uk/bills/2016-17/criminalfinances.html
  2. www.gov.uk/government/uploads/system/uploads/attachment_data/file/517992/6-2118-Action_Plan_for_Anti-Money_Laundering_web_.pdf
  3. www.gov.uk/government/uploads/system/uploads/attachment_data/file/468210/UK_NRA_October_2015_final_web.pdf
  4. www.gov.uk/government/uploads/system/uploads/attachment_data/file/560120/Tackling_tax_evasion_-_Draft_government_guidance_for_the_
    corporate_offence_of_failure_to_prevent_the_criminal_facilitation_of_tax_evasion.pdf
  5. UK Nexus: The foreign tax offense can only be committed by a relevant body incorporated under UK law (e.g., a limited company incorporated under UK law or carrying on a business or part of a business in the UK; a company incorporated in France, but operating in Manchester; or a company-associated person located within the UK who facilitates the evasion of the overseas tax—for example, a company incorporated under German law whose employee helps another person commit a foreign tax evasion offence in London). Id.
  6. www.gov.uk/government/uploads/system/uploads/attachment_data/file/560120/Tackling_tax_evasion_-_Draft_government_guidance_for_the_
    corporate_offence_of_failure_to_prevent_the_criminal_facilitation_of_tax_evasion.pdf
  7. www.gov.uk/government/uploads/system/uploads/attachment_data/file/560120/Tackling_tax_evasion_-_Draft_government_guidance_for_the_
    corporate_offence_of_failure_to_prevent_the_criminal_facilitation_of_tax_evasion.pdf

© 2017, Blank Rome LLP. All rights reserved. Please contact Blank Rome for permission to reprint. Notice: The purpose of this update is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. This update should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.