The first prosecution of the corporate offence of failure to prevent the facilitation of tax evasion has commenced

In August of this year, a Stockport accountancy firm, Bennett Verby Ltd, was charged with the offence of failing to prevent the facilitation of tax evasion. The case is of great significance as it represents the first prosecution of its kind and serves as a stark reminder to all corporates of the importance of establishing and maintaining reasonable procedures to prevent the facilitation of tax evasion.

Background

Those with good memories will recall that the corporate offence of failure to prevent the criminal facilitation of tax evasion was introduced by the Criminal Finances Act 2017 and came into force on 30 September 2017.

Following its introduction, reporting on the offence has been unnaturally quiet other than statistical updates, leading to the offence being described by some as a “paper tiger”. HMRC has been heavily criticised to date for its apparent unwillingness to use the offence. However, that has now changed with Bennett Verby Ltd being charged with failing to prevent the facilitation of tax evasion.

One to watch

We understand a provisional trial date in the Bennet Verby Ltd prosecution has been set for 27 September 2027. Over the next 12 months, the case will undoubtedly be watched closely as tax disputes and white collar crime practitioners gain their first insight into how HMRC and the Crown Prosecution Service handle a prosecution for this offence. There is also a strong expectation that should the prosecution result in a conviction, HMRC’s confidence and appetite for further prosecutions for the offence will grow exponentially.

Overview of the offence

Given the recent publicity over the charges brought against Bennet Verby Ltd, we have set out below a general overview of the ingredients of the offence and the steps corporates should take to build the only defence available of having in place ‘reasonable preventative procedures’.

The offence(s)

The Criminal Finances Act 2017 contains two corporate criminal offences:

1. The failure to prevent the facilitation of UK tax evasion offences by an associated person (section 45); and
2. The failure to prevent the facilitation of foreign tax evasion offences by an associated person (section 46).

The offences are extra-territorial in reach. The first offences relates to the evasion of UK tax, and where such UK tax is being evaded, a relevant body (incorporated bodies such as some partnerships and all companies) may be liable wherever it is formed or operates.

The second offence relates to the evasion of a foreign tax, and where foreign tax is concerned, a relevant body will only be liable if it has a UK nexus (e.g. it is formed under UK law, carries on a business or part of a business in the UK, which will include a representative office, for example, or any part of the criminal facilitation of tax evasion takes place in the UK).  Both the foreign tax evasion and the criminal facilitation of that tax evasion must be capable of constituting a criminal offence in both the foreign jurisdiction and the UK for the offence to bite.

The necessary elements for the offences are:

1. An person (natural or legal) commits a tax evasion offence.
2. The tax evasion offence is criminally facilitated by an “associated person” (either an individual or a corporate) of a relevant body whilst acting in the capacity of an associated person.
3. A relevant body fails to prevent its associated person from committing the act of criminal facilitation.

Both offences carry strict liability meaning that a relevant body will be guilty of an offence unless it can demonstrate that it had in place reasonable procedures to prevent the facilitation of tax evasion or that it was reasonable for it to have no procedures in the relevant circumstances. This is the only defence available to the offences.

Implications for failure to act

The consequences for relevant bodies that are unable to evidence having in place reasonable preventative procedures include:

• Criminal prosecution
• Consequential individual criminal prosecutions
• Intrusive criminal investigations
• Reputational damage
• Regulatory implications (future restrictions)
• Unlimited fine and remedial orders
• Confiscation proceedings

Developing “reasonable preventative procedures”

The Government has published general principles to assist corporates in developing prevention frameworks and systems which most will recognise in the context of financial crime compliance programmes (as they were modelled on the UK Bribery Act’s adequate procedures).  The following six guiding principles should be followed as a relevant body constructs its policies and procedures in light of the increasingly onerous compliance pressures placed upon them.

Practical steps for organisations

We have set out below 3 key steps that we recommend businesses consider as part of their approach to the offences and their development of reason preventative procedures given the increased recent scrutiny:   

First stage: Feasibility

• Understanding what, who and where your business is impacted by the offences, including the relevant body, the relevant associated persons and the services they provide and what risk do they pose to the company?
• Following dialogue with the senior managers of the company, curate a strategy for how risk assessments will be conducted and what resources will be dedicated to review.
• Carry out those specific risk assessments using an agreed methodology, identifying relevant risks and likelihood.

Second Stage: Enhance and Implement

• Enhance and develop new and existing frameworks and procedures based on gaps identified in the risk assessment, in keeping with agreed proportionality based risk prevention strategies.
• Ensure that a clear timeframe with actionable goals is set, kept to, and evidenced, with appropriate resources dedicated and individuals appointed to overview the implementation of any enhancements.

Third stage: Monitor, Learn & Re-review

• Ensure that newly implemented strategies and processes are tested and maintained, with risk assessments updated as frequently as deemed necessary on the basis of the guiding principles.
• Endeavour to keep up to date with legal developments in the area.

How can we help?

Given that the offences have been in effect for almost 8 years now, we expect that most businesses have already considered their position and have in place reasonable preventative procedures. However, the prosecution of Bennett Verby Ltd should be a reminder to all of the need to continuously review, test and update your risk assessments, policies and procedures to ensure that they are still fit for purpose.

The Tax Disputes and Investigations team at Kennedys are well placed to assist with the preparation, maintenance and ongoing monitoring of businesses risk assessments and other financial crime policies and procedures. If you have any questions or if we can be of any assistance please do contact us.