What is the UK Criminal Finances Act?

Posted by

Vivek Dodd

on 15 Apr 2021

The Criminal Finances Act 2017 targets corruption, money laundering and tax evasion and affects all UK organisations.

What is the UK Criminal Finances Act 2017?

The Act builds on the existing legislation to offer greater enforcement powers and additional measures to protect the public purse.

Key changes of the legislation

1. Increased powers to investigate the proceeds of crime

This includes unexplained wealth orders, further information orders and application to Politically Exposed Persons (PEPs).

2. Reform of the Suspicious Activity Reports (SARs) regime

Including greater information sharing and the introduction of Super SARs, submitted as a joint report from multiple regulated sources. This includes the right to extend the moratorium period over suspicious transactions for up to seven months.

3. Improved civil powers to recover proceeds of crime

Where money is stored in bank accounts and items of personal property, there are civil powers to recover assets gained through criminality.

4. Measures to combat terrorist financing

The Act extends anti-money laundering laws to include potential terrorism funding.

5. New corporate tax offences to prevent the facilitation of tax evasion

Previously, if an individual evaded tax and was facilitated by the advice or actions of those in a corporation, although the individual will have committed a crime and those directly facilitating it could be prosecuted, the corporate entity would not hold any liability.

What active steps need to be taken by organisations?

The biggest change made by the Criminal Finances Act 2017 was making the failure to prevent the facilitation of tax evasion a criminal offence. Organisations need to take reasonable preventative measures are put in place. But, what do these look like?

Ultimately, this will be different for each business. It’ll depend on the services they provide, the nature of the client relationships, the territories they operate in etc.

To give firms a helping hand, HMRC has produced a set of guidance notes which outline six Guiding Principles. These will look familiar to any businesses which have to operate anti-money laundering controls.

HMRC's 6 Guiding Principles

1. Proportionality of risk-based prevention procedures

The preventative procedures will need to be proportionate to the risk the business faces, which will depend on the nature, scale and complexity of its activities. Businesses are not required to undertake excessive due diligence but they will have to show that they have paid more than just mere lip service to preventing the facilitation of tax evasion.

2. Top level commitment

Businesses must be able to demonstrate that top-level management is committed to preventing persons associated with the business from engaging in criminal facilitation of tax evasion.

3. Risk assessment

Businesses should identify the nature and extent of the risk that their associated persons are criminally facilitating tax evasion. The risk assessment should be documented and kept under review.

4. Due diligence

Businesses should apply a risk-based approach to due diligence on their associated persons in order to mitigate the identified risks.

5. Communication (including training)

Businesses should seek to ensure that their preventative policies and procedures are embedded and understood throughout the organisation, through internal and external communication, including training.

6. Monitoring and review

Businesses should monitor and review their preventative procedures and make improvements where necessary.

MLRO Responsibilities Checklist

Putting procedures & personnel in place

It’s clear that knowledge about the Act, and its provisions in relation to the prevention of facilitation of tax evasion is something that businesses and their employees need to know.

Each business will need to understand what the risks of tax evasion taking place looks like for them. The risks will need to be assessed. Suitable preventative measures will need to be agreed. Senior management will need to understand what is required, and their potential accountability. Those carrying out monitoring reviews and audits will need to know what they’re looking for. Also, those tasked with managing third party relationships will required a good degree of knowledge, in order to make sure those parties are doing what they need to do.

Without this knowledge, and the subsequent application of procedures, the risk of criminal proceedings being taken in the event of tax evasion occurring is greatly increased. Nobody wants that, least of all the people who own and run the business.

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