CCO investigations: had the horse already bolted?

This article was originally published in Tax Journal on 9 February 2023 and is reproduced with permission from the publisher.

 

Statistics published by HMRC show zero charges and just nine live investigations of the corporate criminal offence. Is this a “failure”? HMRC says not as behaviours have changed, but GPB79 million has been pledged to beef up this area. The offence was a response to criticism that no Swiss banks were prosecuted for helping to hide customer assets, but by that time banking secrecy had ended anyway. Where are the other typologies of facilitation?

HMRC has decided to publish corporate criminal offence (CCO) (the Criminal Finances Act 2017 Part 3) statistics regularly, as part of a broader campaign to tackle serious revenue crime and professional enablers, as set out by the outgoing head of the Fraud Investigation Service, Simon York, in an interview in the Financial Times on 12 January.

The statistics paint a mixed picture. Zero charges ever, nine live investigations, 26 other “live opportunities” under consideration, 77 opportunities rejected.

To many, this will not be seen as a great return on investment - and perhaps with this in mind an additional GBP79 million of resources to help HMRC tackle serious fraud and non-compliance by the wealthy was announced in the Autumn Statement. How much of this money should be spent on pursuing a “win” under the CCO?

Being fair, criminal investigations have a long lead time - but the offence has been on the statute book now for more than five years. HMRC justifies the absence of charges on the basis that the offence was partly created to drive behavioural change, the inference being that the mere existence of the offence has reduced the amount of facilitation taking place.

Let's see whether that theory holds water. It is worth remembering why CFA 2017 Part 3 was enacted. In 2008, sensitive banking data was stolen by an employee of the Geneva branch of a well-known global bank. The data was passed around a number of tax authorities including, eventually, HMRC in 2010/11. Many of the account holders were found to be UK tax-compliant, but many had clearly engaged in tax evasion and were offered immunity from prosecution in return for bringing their tax affairs up to date.

It was not just that bank that attracted business from foreign residents and many countries began to apply pressure to make countries change their banking secrecy laws and agree to automatic exchange of certain financial information. Overall, this led to the recovery of large sums of historic tax on previously undeclared inheritances, income and capital gains stashed in secret bank accounts around the world.

 

Change in focus

In around 2015, the focus began to turn to the question of why the UK had not prosecuted anybody for facilitation of tax evasion on such a grand scale. Many other countries were bringing criminal charges against banks.

HMRC's explanation when grilled by the Public Accounts Committee was to point to the difficulty of prosecuting a company under English criminal law. For offences involving criminal intent, the prosecutor must prove 'beyond reasonable doubt' that the criminal activity was known to or being undertaken by the 'directing mind and will' of the company - typically those at Board level or with full delegated authority, without recourse to any other person, for the action in question. This is more difficult to do the larger the company, where the activity is taking place in the foothills of the business.

The government's response was to change the law. CFA 2017 Part 3 was born, under which a company commits an offence if any of its 'associated persons' (not just those constituting its directing mind and will) engages in the criminal facilitation of tax evasion by another person. Board or senior management level knowledge is irrelevant. However, it is a defence if the company can show that it had in place reasonable procedures designed to prevent such facilitation from occurring.

It is true that many companies have spent money and time seeking to ensure they have such procedures in place. But does a new criminal offence stop all criminal activity in question in its tracks? When the similar framework for prosecuting companies which fail to prevent bribery by their associated persons was enacted in 2010, bribery didn't suddenly stop. Many investigations have been undertaken under the legislation and, in some cases, convictions or deferred prosecution agreements achieved.

 

Had the horse bolted?

There is therefore a broader question around whether the horse had bolted by the time this offence was enacted.

Knowingly offering secret banking services to allow a person to hide assets from a prying tax official is a clear typology of intentional facilitation of tax evasion. Swiss bank employees used secrecy as a marketing tool to attract clients to place their assets under the bank's management, for which they were rewarded. But that opportunity had already substantially ended when automatic exchange of information began in 2015, two years before this offence came along.

What other typologies are there where those linked to large companies may be intentionally facilitating tax evasion, and what is the driver? Helping the willing to find alternative ways to hide assets in a post-banking secrecy world is one - but a specialist interest. For broader businesses, on the sales side, tax has to be an important factor in the sale - perhaps because people can collude to apply no or a lower rate of tax paid on a sale price, making a product cheaper and thus drive sales. On the buy side, it is harder to see why someone might facilitate evasion. There is an obvious attraction in arranging payment of a bribe of GBP100,000 to win a contract for GBP10 million for my employer, which helps my career. But what is the attraction in helping somebody save 45% tax on the legitimate income they make working with my employer? What would I ask for: a reduction in price to reflect the tax evaded, and the saving boosts my career? Or maybe it is just that the relationship won't happen at all unless I play along and I'm under internal pressure to secure the relationship.

Large companies cannot rest easy, though. HMRC has money in its pocket and pride at stake. It has decided to publish statistics regularly - suggesting a confidence that it won't be long before it has its first runs on the Board. Now is the time for large companies to protect themselves if they are the one whose employee or employees are caught 'at it' by HMRC.