Companies could find themselves caught between authorities in different countries following legislation which has just come into force in the UK. The Criminal Finances Act will hold a company criminally liable if any of its employees help commit tax evasion. But, according to legal experts, there is much scope for confusion over if different countries claim entitlement to the same funds. 

Financial penalties

Howard Cooper, managing director in Kroll’s investigations and disputes practice commented: 'The Criminal Finances Act came into effect this weekend enabling UK tax authorities to carry out tax evasion investigations around the globe if they involve a UK tax liability. The rules make it a criminal offence if a business fails to prevent associated persons – employees, agents, sub-contractors, professional advisers or joint venture partners – from enabling tax evasion, facing unlimited fines for those found guilty. This effectively means that businesses could face large financial penalties for failing to prevent tax evasion, even if they weren’t personally implicated in it.' 

Areas of risk

He added that the act 'requires businesses to actively identify areas of risk and consider the steps they need to take to mitigate tax evasion. They need to take a range of steps to protect themselves including introducing compliance programmes, training, due diligence of third parties and regular monitoring to ensure that they are implementing these steps effectively.'

Different authorities

Commenting on the new act, Chris Warren-Smith, disputes and investigations partner in the London office of global law firm Morgan Lewis, predicts that the UK tax authorities will increase actions for enforcement to recover taxes and the proceeds of crime sheltered domestically and abroad. However, he points out that at the same time the new “failure to prevent tax evasion” offence can be enforced in different ways by different authorities, including at least HMRC, the SFO and the FCA, all of which are publicly pointing to their increased enforcement agendas.

Conflicting claims

'Similarly, multiple UK authorities will be in the position to pursue the same proceeds of crime using the civil process once the Act comes into force. International issues potentially arise too as other countries (particularly in Europe and the US) ramp up their own enforcement and recovery activities to recover funds for the public purse. It is not difficult to imagine situations in which authorities in different countries are claiming an entitlement to the same funds.  For example, an international tax fraud scheme, or criminal Ponzi scheme, with the proceeds of the fraud distributed across various countries could lead to conflicting claims to recovery,' Mr Warren-Smith points out. 

Confusion and overlap

He adds that this situation 'creates the possibility for confusion and overlap once the Act is in force, both at a domestic and international level. Companies trying to deal with issues that arise may well find themselves caught in the middle between authorities in different countries with different ideas about what should happen. The level of cooperation needed to avoid this happening is not yet perceived to be in place.  It will also be important that the authorities cooperate constructively to avoid compromising what might be otherwise successful prosecutions or recovery actions.'