The importance of the Corporate Criminal Offences legislation
04 September 2020
In September 2017, the Corporate Criminal Offences (CCO) was introduced, which is a piece of legislation that can hold a corporate liable if it fails to prevent any associated person from assisting in committing tax fraud. It was introduced by Part three of the Criminal Finances Act 2017, and has been based on its associated legislation, the Bribery Act 2010.
The Customer Stakeholder Engagement Team at HMRC wanted to make all industry sectors aware of the CCO, as, although some sectors may feel that it is more relevant to them than others, based on how tax fraud could relate to the services they offer, the CCO is further reaching than many businesses may realise.
Regardless of the size of a business, or the types of service that they provide, if there is a possibility that somebody linked to that business could facilitate fraudulent activities through their actions, then that business needs to be aware of the CCO. An offence can be committed irrespective of whether the tax evaded was due to be paid in the UK, or in a foreign country.
In order for a CCO to be committed:
- Stage one - there must be a criminal offence at taxpayer level
- Stage two – the evasion must have been criminally facilitated by an associated person of a corporation
- The corporation must have failed in preventing the associated person from committing the stage two offence
An “associated person” of a corporation relates to someone who has a formal contractual relationship. An “associated person” means employees and agents of a corporation, and anyone else providing services for, or on behalf, of the corporation. A corporation cannot sub-contract out of its liability.
Criminal convictions could lead to an unlimited penalty, director disqualification, exclusion from bidding for public contracts, public record of the conviction, and other severe regulatory impacts.
As of 31 July 2020:
- There are ten live HMRC CCO investigations, and an additional 22 opportunities under review across ten different business areas, which include financial services, oils, construction, labour provision and software development
- These opportunities and investigations relate to a variety of HMRC customer groups, ranging in size from small businesses up to the UK’s largest organisations
- HMRC has continued to progress CCO investigations and opportunities, in spite of coronavirus, but only where it has been safe to do so for both HMRC and its customers
HMRC wishes to make it clear that the CCO is not just about investigations and prosecutions, and runs deeper than that, aiming to change industry practices and attitudes towards risk to try to prevent the facilitation of tax fraud from happening in the first instance.
The concept of Reasonable Preventative Procedures (RPPs) was introduced within the CCO, and relates to processes which help a corporate to stop its associated persons from aiding tax fraud, and can be used as a defence against a CCO prosecution. RRPs are not a new concept, and the majority of corporates will already have these processes in place. The idea is that by embedding, regularly reviewing, and adapting RRPs in order to address tax fraud facilitation risks, the corporates will eliminate the chances of their associates facilitating tax fraud, supporting compliance in their industry sector.
HMRC is asking businesses to consider how the CCO may affect them, and how their RRPs look. The approach taken to the CCO and RRPs could potentially help reduce fraudulent behaviour and target tax evasion risks.
Government guidance on the topic is available, ‘Tackling tax evasion: Government guidance for the corporate offences of failure to prevent the criminal facilitation of tax evasion’.
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