The Criminal Finances Act came into force in September 2017. It introduces two new corporate offences:

  • Facilitating UK tax evasion
  • Facilitating foreign tax evasion

The offences apply to all business entities including:

  • Fund managers
  • Fund of funds
  • Special purpose vehicles
  • Custodians
  • Administrators
  • Fund service providers

The above offences are founded on three components:

  • Criminal tax evasion by a taxpayer (either an individual or a legal entity) under existing law;
  • Criminal facilitation of the tax evasion by an Associated Person of a Relevant Body (while acting in the capacity of an Associated Person);
  • Failure by the Relevant Body to prevent its Associated Person from committing the criminal facilitation act

Tax evasion in relation to foreign tax

HMRC stipulates that two additional criteria must be met where the tax evasion is in relation to foreign tax:

  • The Relevant Body must have sufficient UK nexus, for example, incorporated or conducting business in the UK) or its Associated Person must have carried out the criminal facilitation in the UK; and

  • Dual criminality-the conduct of the tax payer and the facilitator must be recognised as criminal in both the UK and jurisdiction to which the foreign tax relates.

Who is a Relevant Body?

A “Relevant Body” may be a body corporate or a partnership (wherever incorporated or formed) or a firm or entity of similar character formed under the law of a foreign country;

Who is the Associated Person?

A person will be acting in capacity of a person associated with a Relevant Body where the person is:

(a) an employee of the Relevant Body acting in the capacity of an employee;

(b) an agent of the Relevant Body acting in the capacity of agent; or

(c) performing services for or on behalf of the Relevant Body and acting in the capacity of a person performing such services

  1. Principles and applications

The Firm has put in place procedures to prevent incidences of facilitating tax evasion using the 6 guiding principles set out by the HMRC:

  1. Risk assessment
  • The Firm considers the risk of tax evasion as part of its assessment of country risk of the client, including whether the country subscribes to the Common Reporting Standard, sectoral risk, transaction risk, business opportunity risk, business partnership risk, product risk and customer risk. 
  • The Firm’s administrators  carry out tax risk assessments within KYC and AML for existing and new underlying investors
    • The Firm documents this as part of its annual due diligence visits and updates with the administrator
    • The Firm records incidences of where the administrator raised concerns over an investor and how it was investigated
    • The Firm must be satisfied that the controls in place by the administrator are in line with its Tax Evasion policy
  • The Firm carries out in-house tax evasion risk assessment within its KYC and AML checks for potential clients
  • Where the firm has engaged with a 3rd party (marketing materials, promotions, consultants, acting as Associated Persons) it includes a confirmation note within the agreement or engagement letter that the 3rd party is also assessing and mitigating the risks of tax evasion
  • The Firm’s Tax-Evasion Risk Assessment Register identifies the motive, risk, means and opportunity for an Associated Person to commit tax evasion and lists the mitigating actions
  • The Firm’s Tax-Evasion Risk Assessment identifies where existing procedures or the Firm’s business culture may add to the risk of tax evasion and lists the mitigation actions

  1. Proportionality of risk-based prevention procedures
  • The Governing Body of the Firm is committed to understanding and articulating the approach to mitigating tax evasion risks to all staff
  • The Governing Body has implemented a process to ensure that all staff are trained and understand tax evasion policies
    • There are designated internal personnel who have the responsibility of implementing any tax-evasion policies or working practices across the business
    • The implementation (training programmes, website updates etc) are accountable to the Governing Body
  • The Governing Body has the responsibility of oversight and maintains tax evasion policy and procedures at its annual meeting as a review item
  • The Firm maintains a register which records incidences of suspected and actual wrongdoing, and what action was taken
  • Where suspected tax evasion has been highlighted by an employee, the Firm will protect whistle-blowers in line with its existing whistle-blowing protection policy

  1. Top level commitment
  • Senior management at the Firm endorse and uphold tax evasion policies, and take responsibility for implementing firm-wide prevention measures, the assessment of risk, the adherence to disciplinary measures and continued commitment to the whistleblowing process to include matters regarding tax evasion by Associated Persons
  • The Firm’s Governing body has in place a clear escalation process for raising internal tax evasion concerns, and which is shared with employees
  • The Governing Body ensure they receive adequate information from their 3rd parties on their respective commitment to preventing tax evasion
    • Materials attesting to this from 3rd parties are recorded on an audit trail
    • The Firm’s Governing Body document concerns where 3rd parties do not demonstrate sufficiently strong adherence to the principles of HMRC tax evasion and what decisions or actions were made

  1. Due diligence
  • The Firm conducts an initial assessment of its counterparties using its tax risk assessment  
  • Based on the outcome of the risk assessment, the Firm conducts a due diligence process on its counterparty’s adherence to UK tax evasion policies and this is recorded in an audit trail

  1. Communication (including training)
  • The Firm’s Tax Evasion policy is approved at Governing Body Meetings on an annual basis
  • The Firms procedures for preventing tax evasion are embedded into the business culture through staff onboarding and communicated to external parties in engagement letters, terms of business and in due diligence correspondence.
  • The Firm has a zero-tolerance policy on any reported breaches and maintains an open-door policy for employees who wish to ask questions
  • The Firm produces clear and robust external communications with new clients and other 3rd parties (including service providers) on its tax evasion policy
  • Training materials and sessions are made available to all employees
  • The Firm updates its tax evasion policies and procedures on an annual or ad-hoc basis as required and send alerts (via email) to all staff on the key updates and where the materials are kept online

  1. Monitoring and review
  • As the risks related to tax evasion vary over time, the Firm conducts periodic reviews of its procedures including internal staff training, as outlined here.
  • The Firm has appointed qualified personnel in place to generate and monitor internal feedback and keeps abreast of developments or updates as given by the HMRC and industry best practices
  • The Firm maintains an audit trail of all internal tax compliance training, with signed registers containing dates and names of staff who attended