Covering topics of: CDD, Data Protection, Voice Recording, Short Selling and other fund matters Applicable to: each financial industry sector, investment businesses, funds and fund services businesses These unprecedented circumstances …
Facilitation of Tax Evasion
A new offence of corporate failure to prevent tax evasion will be introduced through the latest Criminal Finance Bill. The measure is far reaching, in every sense, and is intended to ensure that banks and other financial institutions are held to account for the actions of their employees.
Two new criminal offenses will be introduced in order to tackle corporate facilitation of tax evasion. Both, in their own way, have world-wide application:
- The ‘domestic fraud offence’. This criminalises corporations, wherever in the world they are based, which fail to put in place reasonable procedures to prevent their representatives from criminally facilitating tax evasion.
- The ‘overseas fraud offence’. This criminalises corporations carrying on business in the U.K. which fail to put in place reasonable procedures to prevent their representatives facilitating tax evasion in another jurisdiction.
The laws are intended to target deliberate and dishonest behaviour at the taxpayer level, which will, if proved, then lead to an inquiry as to whether such taxpayer criminality was facilitated by a representative of the corporation under scrutiny.
The consequences are serious – in addition to regulatory action, the corporation may be subject to an unlimited fine and it is anticipated that corporations may be prohibited from bidding for public contracts.
Unexplained Wealth Orders (“UWO”)
Law enforcement agencies will sometimes have reasonable grounds to suspect that assets identified during criminal or civil recovery investigations are the proceeds of serious crime. However in the words of the U.K. Government, from its notes to the Criminal Finance Bill, the agencies are often ‘unable to get sufficient evidence, particularly if they need evidence from overseas.’
The UK clearly sees this as a major issue as its figures estimate that up to £90 billion is laundered in the U.K. Corruption is said to cost EU member states €120 billion a year.
The solution to this has seen the UK introduce Unexplained Wealth Orders, which effectively, in appropriate cases, turns the usual burden of proof on its head, so that an individual or a company will have to explain the origin of assets that appear to be disproportionate to their known income where they are suspected of involvement in or association with serious criminality.
The procedure is that the relevant Agency will apply to the High Court, putting before the Court the available evidence which, it will assert, provides a prima facile case. If the High Court assesses there to be (i) wealth disproportionate to income and (ii) reasonable suspicion of links to serious crime then the Court may issue an UWO. Assets may be frozen at the same time, in order to preserve the status quo pending conclusion of the investigations.
In the case of a non-EEA official or PEP it is only necessary, for the purposes of obtaining an UWO, to show disproportionate wealth. This is said to reflect the fact that by their very nature such persons have power and access that can be abused for private gain.
The recipient of an UWO will be given a period of time to justify or explain the unexplained wealth. A failure to respond is an offence, as is the provision of inadequate or false information.
If a response is provided, the law enforcement agency can then consider any necessary next steps.
It is disconcerting, though perhaps unsurprising in the current political climate, to see such measures which include (in the case of an UWO) no less than reversing the ‘usual’ burden of proof to require a subject to prove its innocence.
There is no reason to believe that these steps represent the end of the measures to be put in place. On the contrary – in his Autumn Statement 2016 the Chancellor of the Exchequer Mr Philip Hammond outlined further measures including the proposed introduction of a legal requirement to correct a past failure to pay U.K. tax on offshore interests within a defined period of time, with new sanctions for those who fail to do so. No indication was given as to the time period in question, or the sanction for breach. The legislation is intended to be introduced in the Finance Bill 2017.
The U.K. government also announced a consultation on a new legal requirement for intermediaries arranging complex structures for U.K. tax residents holding assets offshore to notify HMRC of the structures and the related client lists.