Should you be worried about falling foul of the Criminal Finances Act 2017? When we last discussed the Act, back in early 2018, we suggested that the answer to this question should be ‘yes’.
And nearly two years on, our views haven’t changed. Indeed, if anything, we’re more convinced than ever that the Act is a greater threat than many businesses—and their directors—believe.
Simply put, both companies and directors face penalties for non-compliance with the Act’s requirements. Yet the actual crime may have taken place without directors’ knowledge, by someone fairly junior in the organisation—who may not even have viewed their actions as either wrong, or criminal.
Mis-judged priorities
There are probably two distinct reasons why so many businesses seem unaware of their obligations under the Criminal Finances Act 2017.
First, timing. It’s perhaps unfortunate that the Act came onto the statute books when it did, back in 2017, as in many businesses’ eyes, it was somewhat overshadowed by GDPR.
Rightly or wrongly, it seems that many businesses viewed GDPR as the greater priority, and so focused all their compliance energies on that.
Second, the Act is perhaps somewhat unfortunately named. With—say—the Bribery Act, or the Modern Slavery Act, it’s very clear what their focus is.
Less so with the Criminal Finances Act. A business owner could be forgiven for thinking that he or she didn’t know any criminals, and wasn’t overly concerned about their finances.
Any taxes, anywhere
In fact, the focus of the Criminal Finances Act is tax evasion. And in particular, the connivance of businesses—either knowingly or unwittingly—in facilitating tax evasion.
Again, business owners could be forgiven for not immediately seeing the relevance to their businesses.
But the tax evasion in question is very broadly defined. Overseas taxes, UK taxes, income tax, VAT, employment taxes… any taxes, in fact. Also covered, logically enough, are situations where taxes are evaded by the mis-statement of tax reliefs and tax credits.
Take a close look, and all of a sudden, the Criminal Finances Act may not seem such an irrelevance.
Widespread risk
Does your business make cash payments to suppliers or contractors, for instance? Has a customer asked for an invoice to be issued in a way that changes or disguises either the nature of the goods or services involved, or the parties involved? Do any suppliers or contractors have overly-complicated supply chains or payment procedures? And are there any self-employed contractors performing jobs indistinguishable from those of full employees?
As we pointed out almost two years ago, these are just four of almost twenty such so-called ‘red flag’ indications that tax evasion may be occurring. And occurring in a manner facilitated by your business, for which you and your fellow directors could be criminally liable.
Because under the Act, it is the job of business to make sure that reasonable measures are in place so as to avoid—either inadvertently, or deliberately—the facilitation of tax evasion.
Even if the evasion took place overseas, or involved a tax obligation to overseas tax authorities.
What to do?
In fact, protecting your business—and its directors—is fairly straightforward.
The only admissible defence for businesses is to have in place reasonable prevention procedures, backed by appropriate policies, training, and risk assessments.
Businesses aren’t required to undertake excessively burdensome procedures, but compliance does demand more than mere lip service. They need to be able to demonstrate that they have taken reasonable steps, and have put in place adequate systems, controls, policies, and procedures.
Government guidance suggests that the following steps and processes constitute reasonable prevention procedures:
• Risk assessment
• Proportionate, risk based prevention procedures
• Top level commitment
• Due diligence
• Communication (including training)
• Monitoring and review
Do these, in other words, and you’ll have done everything that could reasonably be required. And you’ll be able to demonstrate it, should a prosecution for tax evasion take place.
Half-measures don’t count
Of course, it’s important to do these things properly.
It’s also important to be able to put in place policies that are robust, but which won’t strangle your business in red tape and bureaucracy.
And—from experience—we’d suggest that it’s a rare risk assessment that doesn’t identify several tangible risks requiring appropriate preventative actions to be developed and put in place.
Likewise, employee training needs to developed, targeted, and delivered to those employees whose roles put them in danger of compromising your business.
We can help
Here at The Legal Director, our part-time legal directors—your own general counsel, in effect—can help with all this. And do so in the no-nonsense, business-friendly language for which we’re known. Cost-efficiently and effectively, they’ll roll out a proven package of Criminal Finances Act resources that are appropriate for your business.
Leaving you free to concentrate your energies elsewhere, where the impact will be greater—serving clients and customers, winning new business, developing new products, and cementing your business’s relationships.
So, please, pick up the phone or send us an e-mail.
