the Corporate Criminal Offence

Webinar takeaways – the Corporate Criminal Offence

..for the failure to prevent facilitation of tax evasion.

In March 2021, Rachel Cook, Senior Associate at Peters & Peters Solicitors LLP provided an update on the Corporate Criminal Offence legislation, what it means for us as advisers and also our clients. In this article, we provide a summary of useful points and takeaways from the presentation.

The Corporate Criminal Offence for the Failure to Prevent Facilitation of Tax Evasion (CCO) was brought in in 2017. Essentially it makes a corporate entity guilty of a criminal offence where any person associated with the entity is found to have facilitated tax evasion in the course of representing the entity. In this article, references to entities or companies are to be read as referring to any corporate body.

It was already a crime for a company to facilitate tax evasion, however, previously it was very difficult to prosecute. The prosecutors would have had to show that a “directing mind” of the company (usually someone on the board of directors) had directly facilitated the crime or was party to it. The new legislation means there is no need for a “directing mind” to have facilitated the crime, only that a person associated with the company did so and that the company had not taken reasonable steps to prevent it.

Overseas or UK tax evasion

The tax evasion can occur anywhere in the world and importantly, there does not have to have been a conviction in relation to the offence for the CCO to apply. There does however have to have been tax evasion according to the laws of the country in which the offence occurs.

If the offence occurs in a foreign jurisdiction, the company only falls foul of the legislation if the relevant body is incorporated under UK law, it carries on a business or part of a business in the UK or if any of the conduct relating to the foreign tax evasion facilitation offence takes place in the UK.

If there is UK tax evasion facilitated by an entity, then regardless of where the entity is, it is caught by the legislation and can be prosecuted. Given how high tax evasion is on the global agenda, there is no doubt that territories all over the world will assist each other to prosecute if necessary.

Associated persons

We have mentioned associated persons a few times in the article and it is important to understand that this legislation applies not just if employees facilitate tax evasion, but also any persons associated with the corporate – this could be contractors, consultants, or other agents. Where a company has overseas contractors for example or agents acting on their behalf, they should be aware that any tax evasion facilitiation undertaken by these individuals could directly impact the corporate.

The penalties for a corporate being convicted under the CCO are:

  • An unlimited fine
  • A public record of the conviction
  • Reputational damage

Examples of companies who have been fined as a result of similar corporate offences under the Bribery Act 2010 include Tesco and Rolls Royce. Enforcement action against corporates could affect companies who intend to tender for public contracts.” To date there has been no enforcement action for the CCO.

Safeguards

The only safeguard for companies whose associated people are found to have facilitated tax evasion is that they took reasonable steps to prevent it. These reasonable steps are set out by HMRC on their website:

  • risk assessment;
  • proportionality of risk-based prevention procedures;
  • top level commitment;
  • due diligence;
  • communication, including training; and
  • monitoring and review.

If a company is being investigated for an offence under the CCO legislation, these are the things the investigators will be looking for. In particular, the top level commitment to the measures and the communication to employees and persons associated with the company, including training.

If a company has put sufficient measures in place and provided adequate training, then the company should have a defence as it will have done everything reasonably in its power to prevent it.

Final thoughts

This legislation affects all companies regardless of size or sector. Every company has a responsibility to educate its employees and needs to be seen to have “top level commitment”.  The Government doesn’t want this to be just another administration burden; it is looking to change the way companies operate and make people more aware of the risks of tax evasion within their industries, by forcing them to take responsibility for it.

Currently, the level of understanding of the legislation is still very low so a lot of work needs to be done to educate companies about the CCO to ensure it is implemented and the corporate mentality changes appropriately.

You can find a summary of useful points and takeaways from our recent Family Investment Companies webinar here.

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