The UK Criminal Finances Act 2017 becomes law this month and its contents potentially impact how companies conduct their business. At the very least, businesses should be aware of the Act to ensure compliance with new legislation on tax avoidance issues.

Companies will now be liable for criminal acts committed by employees who encourage or assist tax evasion by other individuals, even if senior management were uninvolved or unware of the acts. The only defence against being criminally liable is that an organisation had “reasonable procedures” in place to prevent such matters occurring.

The consequences of failing to do so have the potential to lead to criminal prosecution and unlimited financial penalties.

The three stages of the offences are:

  1. Tax evasion by a taxpayer (either UK or non-UK)
  2. Criminal facilitation of this offence by an associated person of the organisation
  3. The organisation failed to prevent an associated person from “facilitating”
According to Raj Chada, a criminal defence partner at London law firm Hodge Jones & Allen, specialist in both corruption and human rights issues, an equally important element of the Act, however, focuses on corporate human rights violations.

“Companies that in the past have perhaps benefitted from human rights violations in sectors such as mining will now have to be much more onerous in their compliance procedures,” he said.

“The Act will work as a deterrent by forcing companies to conduct more stringent checks into the nature of the business in which they are engaged prior to signing off projects.”

Chada’s view is that prevention is far better than cure in this area as there may be no way back from a criminal conviction for some businesses.

“A criminal conviction can be devastating for the reputation of a business. It can lead to direct financial loss vis share price, customer dissatisfaction or even barring a company from public sector contracts. Far better to ensure compliance becomes a matter of course and that no infringements of the Act take place.”