In Industry Insights

If anti-money laundering and sanctions compliance are in the spotlight right now, spare a thought for the Criminal Finances Act 2017. A shy, overshadowed piece of legislation that desperately craves your compliance department’s attention. 

What is the Criminal Finances Act 2017?

The Criminal Finances Act creates the corporate offence of ‘failing to prevent’ the facilitation of tax evasion by associated persons. It is an offence that can only be committed by a firm, not an individual.

Similar to the Bribery Act, a defence is only available if firms can demonstrate that steps were taken to prevent associated persons facilitating tax evasion.

For a law firm to be caught by the offence there must be:

  • criminal tax evasion at the taxpayer-level (which may include evasion of tax in third countries)
  • which is facilitated by a person associated with the firm
  • and a failure by the firm to prevent the facilitation.

The meaning of ‘facilitation’ and ‘associated person’

The first limb of the offence (tax evasion) is pretty clear cut. It is the other parts (facilitation by an associated person) that causes the uncertainty. 

‘Facilitation’ means deliberately and dishonestly taking action to facilitate taxpayer-level evasion.

An ‘associated person’ is likely to be a professional adviser, and can be a real person or an entity. The definition is pretty wide and can include:

  • The firm’s partners, employees and consultants
  • Agents including experts, counsel and foreign law firms
  • Any other person performing services for or on behalf of the firm, potentially including referrers and introducers

Whether or not a person is ‘associated’ with the firm is entirely fact specific, and is not determined by the title or contractual relationship between the parties.

It is likely that unregulated agents and others acting on behalf of the firm will be more of a risk than regulated persons. That is because those caught by regulation will be subject to their own professional duties. Unregulated accountants, and tax and wealth advisers will be a much higher risk. 

A compliance framework

All ‘failure to prevent’ corporate offences require positive steps to be taken by the firm. We suggest:

  • Risk assessment – You could include it in your AML and/or sanctions risk assessment. Are we involved in tax advice? If not, do we work with any third parties that could touch on tax issues, whether in the UK or overseas? Not only does this help you identify weak points and potential exposure, it also proves that the firm’s leaders have engaged with the legislation.
  • Implement a policy and procedure – As with all policy documentation, the steps should be proportionate and reflect the risk assessment. Tell staff what the Act means in plain language, what is expected of them and how to report issues. Then go into detail about the practical steps that are in place to reduce the risk, for example thoroughly vetting agents and tax advisers. Some firms build supervision and review triggers into their workflows when tax advice is required.
  • Training – A successful implementation means telling the team about it, to put it into context. Given the specific nature of the legislation, training may need to be prioritised and targeted to those in the firm that need to know.
  • Review – Periodically revisit your risk assessment to make sure it is still relevant. This process should inform you whether the other compliance elements need to be updated. In the meantime, listen to feedback from the team. Is the policy and procedure working? Does it create unnecessary barriers?

Further guidance on the Criminal Finances Act 2017

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