UK shifts AML onus on to companies
The most senior executives in companies based in both the United Kingdom and outside are being deliberately targeted by new legislation designed to tackle tax evasion and money laundering. The Criminal Finances Bill was recently introduced in the UK parliament and will make failing to prevent tax evasion a new corporate offence.
According to the UK government website, the new law will significantly improve the government’s ability to tackle money laundering and corruption, recover the proceeds of crime, and counter terrorist financing. It will achieve this by making corporates liable not just for tax evasion facilitated by employees but also by external agents and service providers.
Introduction of the Bill follows a national risk assessment that was conducted in October 2015 that identified and assessed the money laundering and terrorist financing risks facing the UK. A subsequent report suggested prioritising a more robust law enforcement response, reforming the supervisory regime, and increasing the UK’s international reach.
Following implementation of the new law, the UK’s tax department HMRC can assert criminal jurisdiction over companies anywhere in the world both for UK tax evasion and non-UK tax evasion in cases where there is a connection to the UK.
London-based Pinsent Masons partner and head of tax Jason Collins said that the government was most likely to pursue a prosecution where the tax evasion involves a developing country, especially emerging economies. “Although not all parts of a multinational’s business might be affected by the non-UK tax evasion offence,” he says, “in practice, operating two standards might look like the facilitation of non-UK tax evasion is being endorsed so long as you are not caught.”
While the UK government has been keen to position this latest AML initiative as part of a “new and powerful partnership with the private sector”, the new legislation is likely to mean a heavy administrative burden for companies. To ensure compliance with the new law, organisations will have to introduce preventive measures to prevent the facilitation of tax evasion such as new processes, risk assessments and internal audits.
Collins said: “The Bill will particularly affect bank and trust companies, but it will affect all sectors such as infrastructure and energy business operating in developing countries, especially if they rely heavily on external consultants, high tax sectors such as alcohol and tobacco or business that handle large amounts of cash.”
Although the Bill will be burdensome for companies, Collins added that complying with the various measures will be vital to any defense if investigated. “It is important that businesses carry out an initial risk assessment – and supplement this with regular ongoing assessments, external audits and robust policies, to ensure they are doing everything reasonably possible to prevent criminal activity.”