The Criminal Finances Act targets corruption, money laundering and tax evasion and affects all organisations with a UK footprint.
The Criminal Finances Act targets corruption, money laundering and tax evasion. It forms part of the government’s coordinated approach to reducing financial crime and recouping criminal assets.
Perhaps the most striking element of the Act is the introduction of two new corporate tax offences:
- failure to prevent facilitation of UK tax evasion
- failure to prevent facilitation of foreign tax evasion.
These build on existing offences at the individual level and extend culpability to corporations and their associated persons. However, organisations need to explore what these offences mean for them and how to mitigate the associated risks.
One of the immediate challenges facing organisations is to work out what is meant by an associated person and who falls under this category. Broadly speaking it may refer to employees, contractors, sub-contractors, agents or suppliers, amongst others. But this will differ from business to business and a thorough risk assessment should look at all types of partners, taking into account the sensitivity of the function they provide.
As these are new offences, corporations need to fully communicate the risks across the business and train staff and associated persons accordingly. It is also important to remember that while these offences are new to corporations, HMRC is very experienced in successfully investigating and prosecuting in similar areas.
When the 2010 Bribery Act introduced the offence of failure of commercial organisations to prevent bribery, the act was new to both corporations and law enforcement. As such, it took a while to investigate non-compliance and bring prosecutions. Lessons have been learnt from the Bribery Act and HMRC have a large number of experienced and highly trained staff who can begin investigations immediately – whether your business is ready or not.
Last year alone, prosecutions under the Bribery Act have totaled half a billion pounds and the penalties for non-compliance with the criminal finances could be as high. Potential fines are unlimited, but the reputational damage could be great.
The risks are magnified by the fact that they are strict liability offences, with global reach. In reality this means the corporation does not have to be UK based (it must just have a UK footprint) and organisations are liable even if they were unaware of any offence taking place.
Another particularly interesting aspect of the Act is the extension of the moratorium period from 31 days up to seven months following a Suspicious Activity Report (SAR). It is an offence for an organisation to continue a transaction while a SAR is being investigated. Equally, it is an offence to tell the subject of the report why the transaction is not being processed. This leaves organisations in a very difficult position over a potentially long time frame. Corporations should consider their strategies under these circumstances and make adequate plans which are compliant with the Criminal Finances Act.
To prepare for the Act, organisations should conduct a risk assessment which is proportionate to the scale and nature of their business. Building on this, organisations should aim to mitigate risks through effective training, clear communications and compliance monitoring across the business.
For more information on the Criminal Finances Act and its implications please contact: