The expected creep of corporate criminal liability across the economic crime landscape which began with the Bribery Act 2010 continues apace. Companies need to keep on top of their systems and controls in anticipation of ever greater interest from the authorities in their control and oversight of employees and others under their control.

TAX EVASION

1. In February last year it was reported that the UK government planned to expand the scope of corporate liability for economic crime to include a failure to prevent tax evasion.

2. The government has now confirmed that it intends to proceed with this measure.

3. The government has published draft legislation which details the new offence. In the short term it will be seeking responses to the wording of that legislation. It has also published a summary of responses to its initial consultation which gives a real steer as to how the government will be approaching this offence

1. “Tackling Offshore Tax Evasion: a new corporate criminal offence of failure to prevent the facilitation of tax evasion”

THE SCOPE OF THE CRIMINAL OFFENCE

1. The proposed criminal offence bears a striking resemblance to the section 7 offence under the Bribery Act.
   1. Under the current wording a company will be guilty of a crime where a person who performs services for or on behalf of the company during the course of business criminally facilitates tax evasion by others.
   2. The only defence will be for the company to show that it has implemented “reasonable” procedures to prevent its representatives from committing the offence of tax facilitation.

2. The use of “reasonable” procedures to act as a defence to any prosecution is similar to the use of an “adequate procedures” defence under the Bribery Act.
   1. Although there has been some comment in the media to say that “reasonable” is in some way a lesser standard than “adequate”, in reality we believe the approach will be the same given the government’s report on the initial consultation.
   2. This stressed the need for the procedures to be proportionate to the risks of tax evasion by the representatives of the particular company.

3. Just as is the case under the Bribery Act, there will be no need for the company or other legal entity (in the traditional sense of its managing director or board) to have had any criminal knowledge or intent for it to be guilty of this offence.

THE KEY ISSUE – WHAT AMOUNTS TO “REASONABLE” PROCEDURES

1. Prior to the coming into force of the Bribery Act there was much agitation amongst businesses about what might amount to “adequate” procedures.
   1. Understandably companies were keen to obtain comfort that the steps they were proposing to take to prevent bribery amongst those acting for the benefit of the company would stand them in good stead if any rogue employee (for example) made a corrupt payment.

2. The same concerns clearly arise here. In response to the first consultation the government has recognised this.
   1. It has indicated its willingness to “explore with interested parties the creation of overarching government produced guidance and sector specific supplementary guidance” on what would likely amount to “reasonable” procedures.
   2. It will be interesting to see if the government does follow-through on its suggestion that sector specific guidance be prepared; this was not done in relation to the Bribery Act.

3. Whilst the guidance published by the Department of Justice on the Bribery Act is helpful, companies also had (and continue to have) considerable assistance and guidance available from publicly available sources.
   1. The same cannot be said in relation to the new offence.
   2. A large amount of practical guidance has built up over many years ever since the USA implemented the Foreign Corrupt Practices Act 1977. The same cannot be said of tax evasion.
   3. The new offence of failing to prevent tax evasion represents a sea change and companies would do well to keep a close eye on HMRC and government publications on the issue and we will continue to include updates on this in this newsletter.