Preparing for new corporate offence of agents facilitating tax evasion

The proposal is to make corporations criminally responsible if they fail to take reasonable steps to prevent their agents from taking actions that facilitate tax evasion. Agents include employees but also others who 'act on behalf of' the corporation. Commercial organisations such as companies and partnerships would be caught by the offence but also not-for-profit companies that are not engaged in a business, profession or trade.

Those agents could be inside or outside the UK, working for UK or non-UK corporations, and, in relation to UK agents, it is proposed that the laws will apply even if it is non-UK tax that is being evaded.

The proposal is at an early stage so it is not clear whether the offence will definitely be introduced and, if it is, the precise form it may take. This guide is based on the proposals set out in a consultation document published on 16 July 2015.

If the proposal is adopted it will affect a broad range of organisations from banks to accountancy and law firms, trustees and financial advisers, and support services like company formation providers. Depending on the scope of the offence, it could also potentially affect other businesses and organisations. All affected organisations should therefore be paying close attention to the risks created by these changes.

Points to note

The legislation will be based on the Bribery Act 2010, which made it a criminal offence for a commercial organisation to fail to prevent bribery by a person associated with it. 

The agent has to intend to intend to help with tax evasion - so the rules will not catch those whose employees act unwittingly. However, if appropriate policies are not in place, it could only take one 'rogue' employee for the organisation to be guilty of a criminal offence.

The consultation document suggests that the offence could apply if an agent: 

• provides introductions or planning and advice on how to hide money using different jurisdictions, investments or structures;
• sets up companies, trusts or other vehicles to hide beneficial ownership;
• opens bank accounts, or provides legal services and documentation for notary services or powers of attorney that support the evasion;
• is involved in the "maintenance of infrastructure", by providing professional trustee or company director services, or virtual offices, IT structures, legal services and documentation to obscure the true nature of arrangements; or
• provides "financial assistance" including helping those trying to evade tax to move their money out of the UK or keeping it hidden by providing ongoing banking services and platforms; providing client accounts and escrow services and moving money through financial instruments and currency conversions.

Reasons for the legislation

The legislation is proposed because it can be difficult to hold corporations to account for what their agents do. Under current law to get a conviction against a corporation it would be necessary to prove that senior members of the corporation were involved, and in many cases the decisions may not have been made centrally.

As with the UK's Bribery Act, the intention is not to bring prosecutions so much as to change the behaviour and attitudes of large businesses, and encourage them to put training and systems in place to prevent this happening.

Overseas agents

It is proposed that the new criminal offence would also apply to businesses with no UK operations, if their agents are facilitating the evasion of UK tax. .

Examples of where this could apply include: 

• a non-UK bank account being operated for a UK resident where the relationship manager knows the account is not being declared;
• a non-UK trust being set up with a bogus settlor in order to evade anti-avoidance rules;
• a non-UK company being established to carry out a trade where the professional directors have little real control over the affairs of the company and the parties know the company is in truth controlled (and therefore taxable) in the UK; and
• (according to an example in the consultation document) a bank referring a customer to an authorised third party, which in turn establishes a structure to facilitate the evasion of UK tax.

If the agent can be shown to have facilitated UK tax evasion, the organisation is guilty of the offence, unless it can show it had appropriate procedures in place to train and control its agents.

While the UK may have difficulty, in reality, in prosecuting foreign entities, the likelihood is that any non-UK agents will want to comply with the legislation to protect their reputation. Issues raised in the UK could also lead to agents being prosecuted under their own countries' anti money laundering rules.