Posted: 23 / 05 / 2023
Article by: Sarah Richards, Group Head of Tax
It is now six years since the Corporate Criminal Offences (CCO) of failing to prevent facilitation of UK and foreign tax evasion came into effect. Put simply, CCO legislation makes companies and partnerships criminally liable if they fail to prevent their employees, agents, or contractors from facilitating tax evasion.
It is worth noting that on the 11th April 2023, the UK Government introduced a new “failure to prevent fraud” corporate criminal offence into the draft Economic Crime and Corporate Transparency Bill, likely to come into force by the end of 2024, albeit a definitive timeframe has not yet been published.
The new offence will form part of broader reforms of UK corporate criminal liability and businesses considering this new offence should review the risks identified from the CCO when considering implementation of reasonable procedures. Recently, we’ve seen an increasing focus on disruption arising from non-compliance, with CCO forming a part of transaction due diligence, new supplier take-on and even the lending decisions of some financial institutions.
What is Corporate Criminal Offence?
CCO covers both UK and Foreign tax evasion and applies to all companies and partnerships, regardless of their size or sector, that operate in the UK or have UK tax obligations. The law makes it a criminal offence for a company to fail to prevent the facilitation of tax evasion by an associated person even if they didn’t know it was taking place. An associated person can be an employee, agent, or contractor of the company.
What is the impact of the Corporate Criminal Offence?
CCO has a significant impact on the way companies and partnerships conduct their business. The law places a legal duty on companies to take reasonable steps to prevent their employees, agents, and contractors from facilitating tax evasion, meaning effective policies and procedures to identify and manage tax evasion risks need to be in place.
CCO also has an impact on the reputation of companies. Being prosecuted for the facilitation of tax evasion can result in significant reputational damage, loss of business, and a decline in shareholder value.
What are the penalties for Corporate Criminal Offence?
If a company is found guilty of CCO, it can face an unlimited fine. Additionally, the company can also face a range of other penalties, including:
- Confiscation orders: The court can order the company to pay a sum of money equal to the profits made from the facilitation of tax evasion.
- Publicity orders: The court can order the company to publicise its conviction and the details of the offence.
- Debarment: The company can be debarred from bidding for public contracts.
A significant legal development that affects all companies and partnerships operating in the UK or with UK tax obligations
CCO is a significant legal development that affects all companies and partnerships operating in the UK or with UK tax obligations. Companies need to take CCO seriously, with effective preventative policies and procedures in place to protect financial and reputational interests.
If you need support in this area, our experts can:
- Identify and document your inherent and residual risk areas.
- Identify and risk assess your “Associated Persons”.
- Identify and involve stakeholders in the risk assessment process.
- Benchmark against leading organisations in your industry.
- Develop a practical implementation plan.
- Develop relevant and appropriate CCO policies and processes both internal and external.
- Roll out internal and external training and communications.
- Implement monitoring and review procedures to maintain compliance.