In 2015, Mossack Fonseca law firm’s files were leaked to the world in, what became known as, the Panama Papers scandal. These documents contained information that led to investigations of financial crimes, of both individuals and companies, around the globe. In the UK, the consequences of this led to a new crime being added to the Criminal Finances Act 2017.
What is this new corporate tax evasion crime?
The newly identified crime applies to corporations and business partnerships that can be investigated by HMRC for a “failure to prevent the facilitation of UK tax evasion”. It is the UK government’s attempt to deal with corporate fraud and money laundering in the UK and abroad. Companies can no longer rely on the ‘we didn’t know anything, they’ve just gone rogue’ defence. Any business is automatically liable for the criminal behaviour of their “associates”. They must have “reasonable prevention procedures” in place that stop foreign and domestic tax evasion.
The consequences of being found guilty are severe, with possible asset seizure and unlimited financial penalties available as sentence.
How are HMRC using this new investigative power?
Recently, law firm Greenberg Traurig sent a Freedom of Information request to HMRC, to find out the answer to this question. Their reply, as reported by City A.M.: “HMRC currently has less than five criminal investigation into behaviours occurring since 30 September 2017 for an offence under Article 45. These investigations have been commenced since November 2018 and are the first in a pipeline of cases HMRC has under development that may have Article 45 implications.”
HMRC are being deliberately non-specific in their “less than five” number so as to adhere to strict confidentiality rules. It is not appropriate for HMRC to give any information that could lead to the identification of anyone under their investigation.
Barry Vitou, of Greenberg Traurig, said: “We know HMRC are keen on pursuing an increasing number of criminal investigations, as stated in their 2018 business plan. The plan included a target of 100 investigations a year by the end of parliament. Despite the apparent ’pipeline of cases’ it has under development that may involve the offence, it is likely to be some time until we see the first prosecution for the UK offence which will require the approval of the Crown Prosecution Service. Although many will welcome the fact that HMRC is utilising its powers of criminal investigation to consider behaviour that may be caught by the UK offence, it is surprising that the number of investigations involving this offence is so low, particularly given the furore surrounding its inception and entry into law.”
So it would seem that HMRC are starting to use their new powers to investigate corporate level tax fraud of this nature. But perhaps it is surprising that the number of current investigations is so low. Let’s hope for successful prosecutions of guilty parties and hefty amounts of recouped tax back in the Treasury’s account.