UK Criminal Finances Act 2017 Commences With New Tax Evasion Offences, Anti-Money Laundering Rules, And Asset Forfeiture Provisions

On 30 September 2017, Part 3 of the UK Criminal Finances Act 2017 (the "CF Act") came into force creating new corporate offences for failing to prevent the facilitation of UK or overseas tax evasion.1 Similar to the standard set forth for bribery in the UK Bribery Act 2010 (the "Bribery Act"), the new tax offences effectively impose strict liability on a company whose employees are found to have facilitated tax evasion, unless the company can show it had reasonable prevention procedures in place. At the same time, the law creates new measures, which are set to come into effect in the near future, aiming to tackle money laundering and corruption, facilitate the recovery of the proceeds of crime and terrorist financing and provide authorities with new investigative and recovery powers. It is the latest effort in a global trend among UK, US, and other international regulators to aggressively battle tax evasion, money laundering, and other financial crimes worldwide.

1. New Corporate Offences for Failure to Prevent Tax Evasion

   With the enactment of the CF Act, two new corporate criminal offences came into effect: (i) the failure to prevent the facilitation of domestic UK tax evasion; and (ii) the failure to prevent the facilitation of foreign tax evasion.2 For a corporation, partnership, or other organisation to be convicted of either offence, prosecutors must prove the following three stages:

   Stage one: criminal tax evasion by a taxpayer (whether an individual or a legal entity); Stage two: criminal facilitation of the tax evasion, involving deliberate and dishonest behavior by an employee, agent, sub-contractor, or other person acting on the organisation's behalf (a so-called "associated person"); and Stage three: that the organisation failed to prevent its associated person from committing the criminal facilitation offence. The penalties on conviction for either offence include unlimited fines and a potential bar on competing for future government contracts.

   1. Removal of Identification Doctrine

      Traditionally, under the "identification doctrine," organisations can only be liable for criminal behaviour by their employees if senior members of the corporation - typically at board level who are the "directing mind and will of the company" - were aware of the conduct at issue. Not surprisingly, this historically led to a poor conviction rate of organisations for economic crimes.3

      However, under the CF Act, organisations may be criminally liable for failing to prevent the facilitation of tax evasion by an associated person regardless of whether senior management had knowledge of the tax evasion or...