Failure to prevent facilitation of UK tax evasion offences

Criminal Finances Bill – in a Public Bill Committee at 9:25 am on 22nd November 2016.

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Amendment made: 50, in clause 37, page 95, line 40, after “England” insert “and Wales”.—(Mr Wallace.)

This amendment corrects an omission in clause 37(8)(b).

Question proposed, That the clause, as amended, stand part of the Bill.

Photo of Ben Wallace Ben Wallace Minister of State (Home Office) (Security)

Clause 37 creates a new offence that will apply to relevant bodies who fail to prevent persons acting in the capacity of persons associated with it from criminally facilitating a UK tax evasion offence. It also provides a defence for the relevant body of proving that it had in place reasonable procedures designed to prevent persons associated with it from criminally facilitating tax evasion, or that it was not reasonable in the circumstances to expect them to have such procedures.

The offence will apply to any legal person, based anywhere in the world. It does not matter where in the world a relevant body is based. If people are criminally facilitating UK tax fraud, that body can commit the offence and be tried by the UK courts. The offence was first announced in March 2015 and has been subject to two public consultations, including one on draft clauses and guidance. A succession of high-profile data leaks has shown the lengths to which some people will go to hide their taxable income and gains from HMRC, and that there are professionals willing to help them to perpetrate that fraud. There has been unprecedented international action to increase tax transparency around the globe, but that must be coupled with action to tackle those professionals and corporations who are complicit in tax crime.

The existing criminal law already makes it an offence to evade tax. When an individual taxpayer evades their tax, they can be prosecuted. When a professional such as a banker or an accountant is complicit in the fraud, that individual can also be prosecuted. However, for the relevant criminal acts to be attributed to the corporation itself, the existing law on corporate criminal liability requires the most senior members of a corporation to be involved in and aware of those acts. At present, they can simply say, “I did not commit the crime” and blame the individual employee for the offence. That current approach to corporate criminal liability simply does not reflect the decentralised way in which decisions are made in large multinational organisations, and it can leave them beyond the reach of the criminal law.

The new offence will change that. By moving beyond seeking to attribute specific criminal acts to the relevant body, and by focusing instead on its failure to prevent those who act in its name from breaking the criminal law, we can better ensure that relevant bodies take reasonable steps to ensure that crimes are not committed when services are being provided on their behalf. The improved approach to criminal corporate liability has already been adopted with success in relation to the Bribery Act 2010. Businesses are already accustomed to the offence of corporate failure to prevent bribery and much of the new offence will be familiar. I know that hon. Members would like the approach that we are taking to go further still, to cover fraud more generally, money laundering and false accounting. That is an issue to which we will come later, in the debate on new clause 6, which has been tabled by the hon. Member for Ealing Central and Acton.

It is important to note that the offence we are considering is one of tax fraud—tax crime. It is not about tax non-compliance that falls short of being criminal, such as accidental non-payment of taxes. There has been much discussion about how the offence will operate in relation to tax avoidance. Tax avoidance, and even aggressive avoidance, is not a crime and falls outside the scope of this measure. The Bill is, after all, about criminal finances. However, it is right that we distinguish between actions that are within the letter if not the spirit of the law, and fraudulent acts dressed up and marketed as tax planning. We must robustly challenge those who mislabel their criminal behaviour as avoidance or planning; and the Act will address such behaviour.

The clause is not intended to criminalise conduct that is not currently against the criminal law. It is not primarily about what is a crime, but rather about who is held to account before the criminal courts. It seeks to ensure that when crimes are committed in the name of a relevant body, that relevant body can be placed in the dock, alongside the taxpayer evading their tax and the professional enabler criminally facilitating that offence.

I stress that reasonable prevention procedures are needed for the defence to be available. “Reasonable” does not mean excessively burdensome, unduly expensive, disproportionate or foolproof; nor does it demand the impossible. It means taking a risk-based and proportionate approach. Under clause 39, the Government will issue guidance to help business to assess its risks and put prevention procedures in place.

As is the case for the individual accountant, it will not matter where the relevant body is based. British businesses have welcomed the global reach of the new offence as it requires businesses providing services to UK taxpayers, regardless of where in the world those businesses are based, to operate to the same high standards as British businesses. I welcome the cross-party support, and support from the NGOs that I have met, that has been expressed for the measure.

Photo of Rupa Huq Rupa Huq Shadow Minister (Home Office) (Crime and Prevention) 9:45 am, 22nd November 2016

We support the clause, its global reach and the idea of weeding out corporate bad apples, if that is not mixing too many metaphors—weeds and apples at the same time. The Minister is correct; we think the clause could go further. We have tabled amendments to the next clause.

Photo of Richard Arkless Richard Arkless Scottish National Party, Dumfries and Galloway

We support the clause and, like the Opposition spokesperson, we commend its international reach. We look forward to discussions, perhaps this afternoon, on new clause 6, but instinctively, like Opposition Members, we are minded to take the clause further.

As time goes on, we ought to monitor the issue of designing processes that demonstrate that reasonable measures have been taken not to facilitate tax evasion. As a consumer finance lawyer, I have seen large multinational organisations roll out various folders of processes, procedures and protocols, but we were not always convinced that those had been followed to the letter. Some sort of monitoring mechanism would be most helpful.

We ask the Government to take note of the evidence we heard last week that these measures could disproportionately impact smaller organisations; larger organisations may be more suited to gathering this information in order to set out processes and procedures. We should keep an eye on those two things. We look forward to discussions on new clause 6 and support the clause.

Photo of Ben Wallace Ben Wallace Minister of State (Home Office) (Security)

To clarify, I think that statutory guidance is first published in draft. Given the hon. Gentleman’s experience, I would welcome his input on whether that guidance is appropriate. We did that with the Bribery Act; I remember when that came out. Statutory guidance is an important tool for small businesses, because big businesses have big compliance departments and can do all the work even without the statutory guidance, but for small or medium-sized businesses, the statutory guidance is a good starting point. It is really important both that we get it right, and that we get it written in plain English.

I reiterate the offence created by the clause: if someone in a Crown dependency or overseas territory—I know that hon. Members are interested in those—is advising UK citizens to evade UK tax, it does not matter that they have no nexus here; they are criminally at risk. As regards trying to change the behaviour of overseas territories or tax havens, this offence will allow us to prosecute people anywhere in the world who are encouraging people to evade UK tax. That is a major and significant step. If someone on a Caribbean island calls themselves a tax consultant and encourages British people to evade tax, we will come after them. That is a major change that goes beyond the shores of the United Kingdom. I hope that the action that we have taken to stop that will go some way to alleviating colleagues’ concerns about the behaviour of some tax havens around the world.

Question put and agreed to.

Clause 37, as amended, accordingly ordered to stand part of the Bill.

Clause 38