Who Does the Criminal Finances Act Apply to?

Who does the Criminal Finances Act Apply 2017?

The Criminal Finances Act 2017 is a UK law covering offences related to tax evasion and illegal payments.

The law looks to improve the ability to pin-down blame and liability on organisations, businesses or individuals in facilitation of avoiding tax to make them more accountable, as this has traditionally been difficult to do. It builds on previous laws and it widens the scope of parties that may be liable for such actions to include organisations in most sectors and individual people.

In addition to tax evasion domestically and offshore, the law also tackles other serious problems like fraud and the recovery of “the proceeds of crime… money laundering, tax evasion, and corruption”.[1] To meet and prevent the spread of new global problems like terrorism, it also tries to stop the criminal financing of terror organisations or radicalised persons.

The Criminal Finances Act 2017 created two new offences[2] relating to tax evasion when it came into force, and these are:

  1. Failing to prevent the act of avoiding tax in the United Kingdom
  2. Failing to prevent tax evasion practices outside of the United Kingdom/offshore

It may be enforced by the Serious Fraud Office (SFO) and grants new investigatory powers to Her Majesty’s Revenue and Customs or HMRC who have already begun to enquire and inspect some organisations for facilitation tax evasion.[3]

Who Does the Act Apply To?

The Criminal Finances Act 2017 applies to a wide range of parties and scenarios. It covers all types of organisations that provide financial services abroad and domestically, as well as all institutions that pay tax in the UK. In addition to large parties, individuals may also be liable under the act.

The territorial reach of the act is very wide, thus organisations outside of the UK are affected if they meet a certain few conditions. If an organisation is accused of UK domestic tax evasion, they must be a UK taxpayer, but they can be located anywhere in the world. For offshore evasion, the offence committed in the host country must be illegal in the UK as well, and the organisation must have some link back to the UK. This could mean the businesses has some parts of their operations in the country.

There are a certain number of ‘high-risk’ providers, especially offshore financial service providers. This means that the act has very real impacts for organisations like accountancy firms and their employees, law firms and financial advisers based overseas. These organisations can be liable for their own actions, as well as actions of ‘associated persons’[4] in a partnership if they facilitate tax evasion domestically or offshore. Under the Criminal Finances Act 2017, an associated person is defined as “an individual, corporate entity or an employee of a corporate associated person, carrying out services on behalf of the firm”.[5]

The law really cracks down on liability and even individuals who indirectly contribute to and cause tax evasion may be found guilty. Individuals may be accused of facilitating tax evasion or money laundering directly, or they may be guilty of a variety of other offences including obstructing an SFO, HMRC or immigration investigative officer from carrying out their duties[6].

Crimes of this nature are extremely serious, and any organisation or individual found liable under the Criminal Finances Act 2017 can be given an unlimited fine and/or prison time. As with most laws, if a party under investigation can prove that there were relevant procedures in place to stop tax avoidance in the UK or abroad, they may have a defence under the act.

You can view our Criminal Finances Act online training course here.

[1] https://www.gov.uk/government/collections/criminal-finances-act-2017

[2] https://www.kennedyslaw.com/thought-leadership/article/the-uk-criminal-finances-act-2017-implications-for-offshore-financial-providers

[3] https://www.accountancydaily.co/hmrcs-first-probes-corporate-tax-evasion-facilitation

[4] https://www.lawsociety.org.uk/support-services/advice/practice-notes/criminal-finances-act-2017/

[5] https://www.lawsociety.org.uk/support-services/advice/practice-notes/criminal-finances-act-2017/

[6] http://www.legislation.gov.uk/ukpga/2017/22/part/1/chapter/4/enacted