UK: The Failure To Prevent Tax Evasion

Last Updated: 13 November 2017
Article by David Rundle

This article first appeared on Compliance Monitor, Volume 30 Issue 3, November 2017.

The Criminal Finances Act 2017 ("the Act")1 came into force on 30 September 2017. The Act contains a patchwork of new powers, and amendments to existing legislation, largely directed at combatting money laundering and terrorist financing. It also creates a new corporate criminal offence of failing to prevent the facilitation of tax evasion, which poses significant risk to financial services firms. 

This article summarises the offences and identifies key aspects of HMRC's guiding principles. In doing so, it aims to highlight some central issues which businesses should consider.

The framework of the offence will be familiar to the compliance industry. It largely mirrors section 7 of the Bribery Act 2010, which criminalises the failure of commercial organisations to prevent bribery. Once a person 'associated' with a company is found to have committed an applicable offence, that company will be criminally liable, unless it discharges its burden of showing that it procedures for preventing the relevant misconduct were reasonable in all the circumstances.

Financial services firms should carefully consider the risks posed by their specific business model, the products in which they deal and the countries in which they operates. Thereafter, they must create and foster a compliance model which proportionately addresses those risks. As ever, the challenge lies in determining what policies and procedures will meet the statutory objective standard of reasonableness. 

Before assessing the potential risk, it is essential to have a clear understanding of the scope of the new offences, how they operate and to whom they apply. Thereafter, compliance professionals, in considering whether existing procedures are adequate, should carefully apply the guiding principles set out in HMRC's Guidance, dated 1 September 2017.2

Foreign scope of the offence

The Act creates offences for the failure to prevent the facilitation of both UK and foreign tax evasion respectively. The UK offence (section 45) will apply to any corporate body (company or partnership), wherever incorporated or formed, provided the underlying offence relates to the evasion of UK taxes. 

The foreign tax offence (section 46) captures the conduct of a corporate body where: 

  • It was incorporated / formed in the UK; 
  • It carries on part of its business in the UK; OR
  • Conduct constituting part of the foreign tax evasion facilitation offence takes place in the UK. 


  • Where there is dual-criminality, i.e. the conduct amounting to tax evasion and the conduct amounting to facilitation, would constitute a criminal offence both in the UK, if committed there, as well as in the country which has suffered the tax loss.

The scope of this offence raises significant challenges, and effectively demands harmonised standards for any company operating in the UK. The Guidance states that an international company will be doing business in the UK, for the purposes of the Act, where it has a UK branch. On the face of this provision, transnational companies will have to apply UK standards to the prevention procedures implemented in each of the countries in which it operates. In doing so it will have to assess the specific risk each country poses. Even if a company has a common business model, the risk of tax evasion arising from each of the jurisdictions in which it operates may be materially different. 

The Guidance states that, where a section 46 offence is suspected, a criminal or civil action by the country suffering the tax loss will normally be preferred. However, it goes on to acknowledge that there may be circumstances where an effective foreign action is not possible (e.g. lack of resources or corruption), and therefore, if it is in the public interest to do so, the UK Government may be inclined to prosecute. 

The framework of the offence

Subject to the observations above, the framework for each offence is broadly the same. A company will be liable where:

  1. an "associated" person, whilst acting in that capacity, 
  2. commits a facilitation of tax evasion offence, and 
  3. the company fails to show (on the balance of probabilities) that its prevention procedures, in place at the time, were reasonable in all the circumstances. 

i) Who poses a risk? - 'associated' persons 

In order to be liable, a person "associated" with the company must have committed a facilitation offence, when acting in that "associated" capacity, i.e. for and on the company's behalf. An "associated" person can be an employee, an agent or someone who performs services for the company. The Guidance acknowledges that contractors could be 'associated' persons for the purposes of the Act. 

However, crucially the Guidance recognises that the standard of prevention procedures considered reasonable will depend on how the facilitating offender is "associated" with the company. Companies cannot be expected to apply similar levels of supervision and control over employees and contractors. The viability, and hence reasonableness, of any policy or procedure will be shaped by the relationship between the company and any potential "associated" person. 

Businesses should therefore, in formulating their compliance procedures, consider who could be defined as "associated persons" for the purposes of the Act, and assess the risk posed by each category of person, before tailoring a package of prevention procedures for each. 

ii) What poses a risk? - offences of facilitating tax evasion

The procedures implemented by a company will be shaped by how any associated person can themselves commit a facilitation offence. Section 45(5) of the Act sets out the ways that a facilitation offence can be committed. From a company's perspective, when formulating its procedures, the important point is that the facilitation of tax evasion is committed knowingly, i.e. with the knowledge that one's conduct is facilitating tax evasion. Accordingly, companies do not need to develop and implement policies and procedures that would protect against an act of negligence, or that would serve to actively root out tax evaders. Such an approach may prove effective at meeting the standards expected under the Act. However, in failing to target the risk which the Act seeks to tackle—the knowing facilitation of tax evasion—such an approach may at best be inefficient, and at worse inadequate.

In developing appropriate procedures, companies will need to identify which persons are most at risk of committing facilitation offences. In the context of the financial services sector, the risk is naturally most acute for customer-facing roles. That assessment will be based, not only on the type of customers which personnel are in contact with, but also the products and services which the personnel are tasked to promote or advise on, and the terms of any incentive scheme which apply. The Guidance encapsulates these issues by highlighting three factors: Opportunity, Motive and Means. 

iii) How is the risk combatted? – reasonable procedures

Under the Guidance, HMRC has set out six Guiding Principles aimed to assist relevant firms in identifying what may constitute "reasonable procedures". Unsurprisingly, the Principles come with a Government health warning: they are "not prescriptive", are intended to be "flexible and outcome focused" and any procedures adopted should be "proportionate to risk". 

The Principles are:

1. Risk assessment. As articulated above, any company will need to assess the nature and extent of its exposure to risk: who are its "associated persons"; which of them are most liable to commit a facilitation offence (dependent on sector); in what circumstances (specific transactions, products or services); in relation to which clients; and in which jurisdictions. In assessing those risks the Guidance suggests that there will be cross-over with guidance for other risk-based assessments (e.g. the Joint Money Laundering Steering Group Guidance). A company will need to keep its risk assessment under constant review.

2. Proportionality of Risk Based Prevention Procedures. The prevention procedures should be proportionate to the risks identified and include both formal policies and practical steps through which to monitor their application. The specific procedures adopted will depend on the level of control and supervision the company is able to exercise over the category of person acting on its behalf.

3. Top Level Commitment. The expression of this principle effectively puts the importance of a firm's culture on a statutory footing. Procedures may only be reasonable if a firm's top-level management fosters a culture where the facilitation of tax evasion is considered unacceptable and which allows the effective monitoring and supervision of those most at risk.

4. Due Diligence. Companies must apply due diligence procedures to their customers and to any associated persons in high-risk positions. 

5. Communication (including training). Companies must communicate and embed, throughout the organisation, their policy of tackling any activities which could facilitate tax evasion. Communication should come from all levels within the company.

6. Monitoring and review. A company must constantly monitor and review its prevention procedures. The implementation of any improvements deemed necessary should be considered routine. 

Final word: Documentation

Companies must rigorously document their risk assessment and implementation of the procedures deemed proportionate. If a bad actor facilitates an offence of tax evasion in its ranks, an organisation will have the burden of demonstrating the reasonableness of its procedures. Companies must therefore ensure that their application of each of the Guiding Principles is well documented. 

This article was co-authored by Paralegal Chloe Salter.



The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions