Criminal Finances Act Expands Scope of Corporate Criminal Liability; Has Significant Implications for Financial Services Providers

December 13, 2016 Scott Freedman

Financial Institutions grappling with the advent of the Common Reporting Standard (CRS) will need to stay abreast of another important piece of new UK legislation that will come into force at the same time next year and which will be a further test of their compliance procedures and systems.

The Criminal Finances Bill sets out further measures by the UK Government to combat money laundering and tax evasion. Critically, it further expands the concept of corporate criminal liability.

The UK Government regularly engages with those that will be affected by the new law, and delegates attending the 3rd Sovos AEOI Networking Series Event welcomed the opportunity to hear from a speaker from the HMRC who gave an overview of the Bill and outlined the implications it will have for their companies.

‘Fail to Prepare, Prepare to Fail’

Entitled ‘Fail to Prepare, Prepare to Fail’, the 3rd Sovos AEOI Networking Series Event took place in London on November 30. Delegates from a wide range of financial institutions and professional services firms heard from two keynote speakers from the HMRC and from a panel of speakers representing a cross section of views from the financial services industry. (To read more about the event, click here.)

This event followed the highly successful AEOI networking event that Sovos held in New York in September. (To read more about this event, click here.) Sovos organises these events to help its customers better prepare for the advent of the Automatic Exchange of Information (AEOI), an OECD-inspired global initiative designed to tackle tax evasion that will have profound implications for the financial services industry.

About the speaker

Jennifer Haslett works in HMRC’s Centre of Offshore Evasion Strategy where she is responsible for Corporate Crime and International Engagement. She first joined the team in 2011 when she worked on the introduction of FATCA. Jennifer led a major public Consultation on the Criminal Finances Bill in 2016 and regularly advises HM Government Ministers on it.

A Chance to Hear from the Industry Regulator

Delegates attending the event welcomed the opportunity not just to hear Jennifer’s presentation but to ask her detailed questions too. They also heard the answers to questions posed by other delegates attending the event together with those posed by the panel of speakers.

Below is a brief summary of what the delegates heard from Jennifer.

New Act Follows Success of the Bribery Act

Jennifer explained that the new Act – if passed, will become go into effect in September 2017 – is modelled closely on Section 7 of the 2010 Bribery Act, which first introduced the concept of corporate criminal liability. The new offences follow the same strict liability ‘failure to prevent’ approach to corporate misconduct previously seen in that Act.

It now takes this one step further and seeks to prosecute not just individuals, partnerships and corporations which commit tax evasion but those professionals that facilitate the crime by acting as advisors, even if they are operating offshore or at arm’s length.

A Global Law for a Global Crime

The new law seeks to ensure that ‘justice doesn’t fail’ and it therefore reaches far beyond the UK to include those entities based overseas. And the crime need not be committed in the UK. It will be sufficient for the authorities to seek a conviction if the corporate criminal is associated with the UK in some way, for example, if it had an office there.

Associated Persons; the Net Widens

Under the terms of the Act, an entity will commit an offence where it fails to prevent an associated person – someone acting for or on behalf of the entity – from criminally facilitating either: 1) a UK tax evasion offence or 2) an equivalent offence under foreign law.

Associated person need not be an employee of an entity but can be someone acting for or on behalf of it. This considerably widens the net so as to capture the network of professional advisors that surround a criminal engaged in tax evasion.

The Importance of Reasonable Procedures

The main impact on financial services firms is compliance-related. For each offence, it will be a defence for the entity to show that it had reasonable procedures in place to prevent such facilitation, or that it was not reasonable to expect it to have such procedures.

Both general guidance and industry-specific guidance will be available to help financial institutions to determine what these reasonable procedures might constitute for them and the HMRC is already working with some banks so as to stress-test their existing procedures in advance of the Act becoming law next year.

Six Principles to Observe

According to Jennifer, HMRC recognises that these reasonable procedures will vary from organisation to organisation but offered the following six principles for those financial institutions about to review their own.

  1. Carry out a thorough risk assessment
  2. Ensure that you have procedures in place that address the risks identified in the assessment and are proportionate to them
  3. Implement due diligence rule to ensure these procedures are adhered to
  4. Set the appropriate tone from the top, ie, ensure that senior management communicates on the topic and provides appropriate guidance
  5. Train all relevant staff
  6. Review

Next Steps

  • Sovos recently commissioned the Aberdeen Group to survey leaders at 100 top financial institutions to learn how they are managing AEOI and best practices for staying compliant. Download the report here.
  • Sovos is aware that this is a key issue for its customers. We’ll be publishing further blogs about the Criminal Finances Bill in 2017 and will be arranging an event to discuss it.
  • Please contact Sovos if you would like to receive an invitation to this event.

The post Criminal Finances Act Expands Scope of Corporate Criminal Liability; Has Significant Implications for Financial Services Providers appeared first on Sovos Compliance.

 

About the Author

Scott Freedman

.Scott Freedman is director of product strategy for AEOI solutions at Sovos Compliance. Scott has over 15 years of experience in strategic marketing and product strategy. He has worked for business-to-business software and SaaS solution companies like Thomson Reuters, and with Fortune 500 companies as a business consultant. Scott has a background in law and earned his JD and undergraduate degrees from the University of Chicago and University of Illinois.

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