What HR needs to know now about the Criminal Finances Act

29 Sep 2017 By Hayley Kirton

Employers urged to get policies and procedures in order ahead of introduction of new corporate offence

HR is being advised to review compliance policies and procedures, particularly for background checks and staff training, as a new wide-reaching criminal offence for corporates is due to come into force tomorrow (30 September).

The Criminal Finances Act 2017 includes a new criminal offence of failing to prevent the facilitation of tax evasion. The new law can be used to hold UK companies to account if they have failed to prevent tax evasion anywhere in the world committed by an ‘associated person’ – which could include employees, workers or contractors – unless they can prove they took reasonable steps to prevent it from happening.

David Sleight, criminal litigation partner at Kingsley Napley, explained that the new offence carried a lower burden of proof for prosecutors than corporate offences have traditionally had, meaning businesses will need to be more diligent to show they have done enough to prevent tax evasion from taking place.

“In the past, HMRC has encountered difficulties in prosecuting corporates for facilitating tax evasion because of the problem of attributing criminal liability to a company,” Sleight said. “The new legislation has dispensed with the need to prove that the ‘controlling mind’ of a company (ie senior management) was aware that tax evasion had been facilitated. All that now needs to be demonstrated is that a tax evasion offence has been facilitated by a person associated with a company (eg an employee or agent) and that the company failed to prevent it.”

Sleight warned that the taxman may also want to show the new law “has teeth and will be looking for unsuspecting scalps”.

“Companies and partnerships should be urgently considering HMRC guidelines and critically assessing the adequacy of their existing systems and controls now,” Sleight added. “Failure to adopt appropriate safeguards could render the company liable to a criminal conviction, unlimited fines and confiscation of its assets.”

However, Gideon Sanitt, litigation partner at Macfarlanes, said that, while organisations “will have to consider carefully the policies and procedures that are needed to address these rules… it is one thing to write a policy and another to implement it”.

“The HR team will play an important part in ensuring that policies and procedures are carried out effectively, for example, in verifying the background of potential new joiners, assisting with training programmes or acting as a point of contact within the business,” Sanitt continued. “Given that the HR team will have ongoing contact with employees, contractors and other associated persons, they are likely to be in a prime position to spot red flags that could indicate an issue. They will also need to be wary that they are not being called upon to assist with any questionable conduct and to report any issues when they are.”

James Froud, partner at Bird & Bird, said: “It is recommended that employers refresh training for those involved in payment activities, update contracts and policies to highlight the need to be conscious of potential tax evasion and ensure that appropriate whistleblowing procedures are in place to allow suspicious behaviour or practices to be freely reported.

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