The Criminal Finances Bill contains the new corporate criminal offence of failing to prevent the facilitation of tax evasion. The new offence is committed where a relevant body (i.e. company or partnership) fails to prevent an 'associated person' (including an employee, agent or sub-contractor) from facilitating an offence of tax evasion. The relevant body has a defence if it has put in place appropriate procedures for the prevention of such offences or where it would be unreasonable to do so – this is where HR has an important role to play.
The offence covers failing to prevent the facilitation of UK or, in certain circumstances, overseas tax evasion. Conviction can lead to unlimited financial penalties, ancillary orders (such as confiscation orders) and obligations to report to regulatory bodies. The scheme of this new offence is similar to the approach taken under the Bribery Act.
The purpose of the proposed offence is to make it easier to hold corporate bodies to account for the facilitation of tax evasion offences by persons acting on their behalf. Government guidance explains that this is to avoid the difficulty in having to prove the knowledge and involvement of the most senior management and sets out several public policy reasons for the creation of this new offence.
A reason that resonates from an employment perspective is that requiring the proof of the knowledge and involvement of senior management discourages rigorous internal reporting of alleged wrongdoing. This contradicts prevailing corporate governance and compliance standards.
The guidance sets out six guiding principles designed to increase compliance.
- Risk assessment: assessing the opportunities, incentives and means available to employees, consultants and other service providers to facilitate tax evasion and then consider how to manage these risks.
- Proportionality of risk-based prevention procedures: greater rigour in practices and policies will be expected from organisations facing a higher magnitude of risks than those facing lower risks.
- Top level commitment: senior management will be expected to demonstrate their commitment to the prevention of facilitation offences through the development, implementation and role in the substance of those policies.
- Due diligence: due diligence will be expected in relation to the engagement of employees, consultants and others and the greater the risk, the more rigorous the diligence process required.
- Communication (including training): the applicable policies and practices will need to be properly and adequately communicated, and appropriate training provided, to relevant employees at all levels.
- Monitoring and review: proper monitoring procedures will be needed to identify changing risks and any changes needed to prevention practices and procedures.
Businesses will need to ready themselves for the passing of the facilitation offence into law. HR will have an important role in ensuring a business’s compliance efforts are real and practical in avoiding corporate criminal liability for the actions of employees, consultants and other third parties acting for it or on its behalf.
Although the bill and guidance are at an early stage, some of the areas for HR involvement already seem clear:
- Recruitment: HR is likely to be heavily involved in developing the policies for identifying and assessing risk in respect of candidates as well managing due diligence in the recruitment process.
- Risk assessment and monitoring: HR will need to work closely with management in assessing, monitoring and managing risks arising within the workforce.
- Training: Much of the training required will be in areas familiar to HR, such as employee reporting obligations, codes of conduct and ethics and aspects of risk management.
- Reporting: HR will need a role in overseeing an effective whistleblowing policy which will be a key component in prevention policies, practices and procedures.
Daniel Peyton is an employment lawyer and managing partner at McGuireWoods. David Kirk is also a partner at McGuireWoods and is a former chief criminal counsel at the Financial Conduct Authority and director of the Fraud Prosecution Service
