Criminal Finances Act 2017

The Criminal Finances Act 2017 took effect from 30 September 2017. It introduced new Corporate Criminal Offences (CCO) that apply to organisations that fail to prevent associated persons from criminally facilitating tax evasion.

CRIMINAL FINANCES ACT 2017 CORPORATE CRIMINAL OFFENCES

PREVENTING FACILITATION OF TAX EVASION | DEMONSTRATING A DEFENCE

CRIMINAL FINANCES ACT 2017 | BDO UK

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As part of a wider strategy aimed at preventing tax evasion, HMRC has allocated significant time and resource to clamping down on the facilitators and enablers of non-compliance. HMRC have told us that they are undertaking investigations, including office visits and dawn raids where they are making a point of asking all staff what they know of CCO and if personnel know what to look out for to identify tax fraud. It is therefore important to ensure you have taken the right steps to respond to the CCO legislation. It is our experience however that organisations can take a pragmatic approach in how they assess their potential exposure to the new offences and demonstrate reasonable prevention procedures. In most cases, our clients are able to build on their existing governance and control framework and introduce ‘quick wins’ to demonstrate stronger defences to this legislation.

JAMES EGERT TAX RISK PARTNER

CCO: DEMONSTRATING A DEFENCE

CUSTOMISED PRAGMATIC APPROACH 3 CCO: JOURNEY SO FAR 4 CCO ECOSYSTEM 5 THE RISK ASSESSMENT 6 OTHER DEFENCES 7 BDO APPROACH: PRACTICAL STEPS 8

BDO UK | CRIMINAL FINANCES ACT 2017

UNDERSTANDING YOUR NEEDS A CUSTOMISED AND PRAGMATIC APPROACH

UNDERSTANDING YOUR NEEDS:

WHAT WE CAN OFFER YOU

To comply with the CCO legislation whilst taking a pragmatic and practical approach to compliance To benchmark you to what other organisations in your industry are doing

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A well established methodology, which we have adapted for the needs of each of our 150 CCO clients

Facilitated CCO training and risk assessment workshop(s) to identify key risk areas

A practical and pragmatic approach to current and future compliance

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• To document your inherent and residual risk areas by identifying which part of your business is most at risk of the legislation, and by taking a risk based approach in our review • To identify and risk assess your “Associated Persons” – ie those persons who provide services for or on behalf of your business and those whose actions could bring you within the scope of the legislation To identify and involve the right stakeholders in the risk assessment process • To develop relevant and appropriate CCO policies and processes (internal and external) To roll out training and communications for the right people within and outside the business • • To develop a practical implementation plan •

Experience of working with

Bespoke training plans and an eLearning training solution built around your key risk areas

Development of a detailed CCO Implementation Plan, benchmarking to leading practice

organisations from global FTSE100s to fast growth UK based businesses

MARKET LEADERS IN ECONOMIC CRIME PREVENTION

At BDO, we are a market leader in supporting our clients in responding to this legislation. We have worked with well over 150 clients across all industries and of all sizes. This includes leisure and hospitality, global engineering firms, the medical sector, media, construction, retail and financial services. Our team are at the forefront of responding to the legislation and have good insight into HMRC’s broader thinking. We were present as an accountancy representative on the inaugural meeting of the newly formed Economic Crime Strategic Board chaired by the Home Secretary and Chancellor alongside CEOs and chief executives from the banking institutions Barclays, Lloyds and Santander as well as senior representatives from UK Finance, the National Crime Agency (NCA) and the Solicitors Regulation Authority, Accountants Affinity Group and National Association of Estate Agents. Our team have also delivered presentations at the Institute of Money Laundering Prevention Offices and separately with HMRC’s Financial Crime team at events and forums. We work with rapidly growing entrepreneurial clients and FTSE100s. No one engagement is the same, although we work hard to provide a consistent level of assurance to our clients so that they can demonstrate a defence to the legislation.

CRIMINAL FINANCES ACT 2017 | BDO UK

THE CORPORATE CRIMINAL OFFENCES The journey so far

The Corporate Criminal Offences, enacted as Sections 45 and 46 of the Criminal Finances Act 2017, addressed the perceived gap in the law that made it difficult to hold a corporation to account when its representatives committed the criminal offence of facilitating tax evasion. In summary, the legislation means that if an “ associated person” of a business does criminally facilitate tax evasion, and the business is unable to demonstrate that it had reasonable procedures in place to prevent such facilitation, the business is guilty of a criminal offence. The consequences of a prosecution include unlimited fines, reputational damage and the likelihood of regulatory sanction . “Associated person” is defined very widely and includes any person (individual or corporate) who represents (or provides a service for or on behalf of) the business - employees, contractors, agents, and in certain circumstances external suppliers.

In line with HMRC Guidance, first carry out a documented risk assessment, the purpose of which is to highlight potential risk areas and develop an Implementation Plan where remedial actions may be required.

Next steps typically include roll out of CCO policies, procedures, communication internally and externally (e.g., with suppliers and other ‘associated persons’), implementing new processes as needed, and training.

BDO has assisted businesses from all sectors in taking steps to help ensure that, should the need arise, they can demonstrate that reasonable steps have been taken to prevent the facilitation of tax evasion. Our work is tailored according to the size, complexity and sector of the business, and we offer various scope options as set out in pages 8-9.

A GLOBAL REACH

The Foreign offence

The Domestic offence

 Requires evasion of tax anywhere in the world

Requires evasion of tax in the UK

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 Relevant to any corporate (whether incorporated in the UK or not) carrying out a business or part of a

 Relevant to any corporate, wherever based or incorporated, providing services to UK taxpayers or with UK supply chain.

business in the UK, or if the Criminal Act of facilitation of tax evasion occurred in the UK.

TAX

The global scope of the legislation brings with it significant risks that should be included in the CCO risk assessment. The scope is broad and overseas businesses can be caught by having a branch, place of business or representative in the UK.

BDO UK | CRIMINAL FINANCES ACT 2017

CCO ECOSYSTEM FAILURE TO PREVENT

While the CCO defines new offences in terms of failing to prevent the facilitation of tax evasion, the approach to the legislation aligns very closely to defences as set out in the Bribery Act, setting a foundation for defining ‘failing to prevent’ in the future. There is a clear overlap with AML and ABC in what organisations are required to do to demonstrate a culture within their business that focuses on the failure to prevent economic crime. At the same time, HMRC is seeking to include CCO within the criteria of the Business Risk Review with a need to demonstrate a focus on the “potential liability under the corporate criminal offence (CCO) legislation and can evidence that it has considered its need for procedures to prevent its associated persons from criminally facilitating tax evasion.” Finally, and importantly, we have seen letters from HMRC clearly linking a failure to identify carousel and VAT fraud in the supply chain as a failure to prevent the facilitation of tax evasion. If you would like to talk about CCO or its wider impact (or any of the above), please reach out to one of the team.

Criminal Finances Act 2017

ABC Anti-Bribery and Corruption

AML Anti-Money Laundering

BEPS Base Erosion and Profit Shifting

BRR Business Risk Review

IR35 Off-payroll working through an intermediary

MTIC Missing Trader Intra Community Fraud (Carousel fraud)

PCRT Professional Conduct in Relation to Taxation

PDCF Profit Diversion Compliance Facility

PoTS Publication of Tax Strategy

SAO Senior Accounting Officer

CRIMINAL FINANCES ACT 2017 | BDO UK

DEVELOPING YOUR CCO DEFENCE THE RISK ASSESSMENT

UNDERTAKING A RISK ASSESSMENT

THE TYPICAL PROCESS

BDO’s approach to CCO is focused first on undertaking the Risk Assessment followed by the phased implementation of further defences as needed. Our specialist tax risk team have developed a methodology to provide a level of assurance. The benefits for you of our approach: A CCO report that will be your supporting evidence that you have undertaken a Risk Assessment. This includes detailed and summary Risk Registers that our clients can share with HMRC with confidence Benchmark to our CCO Risk Database built up over our work with over 150 clients Use of established CCO risk templates and presentation decks to share across your business and in workshops Development of a roadmap of prioritised actions to update and introduce prevention procedures Summary of main risk areas and practical next steps 2. 3. 4. 5. 1.

Your first step should be to determine the nature and extent of exposure to the risk of any “associated persons” engaging in activity to criminally facilitate tax evasion. The risk assessment should identify these risks and consider the extent of reasonable prevention procedures to mitigate these risks, with these being proportionate to the size, complexity and risk profile of your business. Our approach to the CCO risk assessment is centred around our facilitated CCO workshop. This includes both an initial training session and an opportunity to work with relevant stakeholders in your business to identify where there may be a risk of “associated persons” facilitating tax evasion. This typically includes finance, procurement, HR and operational leads.

Identify those people who could risk bringing you within the scope of the CCO legislation – your Associated Persons. Identify risk areas and mitigating controls by putting yourself in the position of your associated persons to determine where they may have the ‘means, motive, or opportunity’ to facilitate tax evasion. Assess those areas which are under close scrutiny by HMRC - off-payroll workers and VAT fraud within the supply chain, being two such areas Typical areas of the business that should be involved in discussions relating to CCO include tax, legal, finance, HR, and supply chain management.

BENCHMARK

We benchmark existing risks and controls to our CCO Risk Database and develop for each of our clients a detailed CCO Risk Register identifying any gaps and potential next steps.

Sharing of CCO policy templates

A tailored CCO eLearning module to ensure all those in your business understand their responsibilities.

DETERMINING THE EXTENT OF POTENTIAL EXPOSURES

RISK ASSESSMENT

BDO UK | CRIMINAL FINANCES ACT 2017

DEVELOPING YOUR CCO DEFENCE IMPLEMENTING DEFENCES

PROPORTIONALITY OF REASONABLE PROCEDURES:

COMMUNICATION AND TRAINING - TOP LEVEL COMMITMENT: develop an overarching CCO Policy or tone from the top in how you are meeting this legislation communicate policies and to your “associated persons” raising awareness both within and outside the business establish a risk based CCO training program, to incorporate CCO classroom and eLearning training.   monitor and review is focused on evaluating the extent to which internal controls are operating as intended carry out testing to establish how widely procedures are known within the organisation and whether they are being implemented effectively undertake your CCO risk assessment on a periodic basis ensure whistle-blower and escalation policies are procedures are embedded within the business and work as intended.     MONITORING AND REVIEW: 

Based on the outcome of a risk assessment, organisations are typically implementing or enhancing the following prevention procedures to align to the six key defence principles outlined in HMRC guidance.

review your policies and procedures in relation to the facilitation of tax evasion and in the context of the nature, scale and complexity of your business (bearing in mind factors such as sector risk, geographic risk, customer risk and business partnership risk) prioritise areas of weakness and develop a detailed implementation plan to address these areas. it is a vitally important aspect of your prevention programme and due diligence procedures that you identify your “associated persons" and are aware of any risks that they may facilitate tax evasion for many of your material suppliers and all associated persons that provide services for or on your behalf, we would expect a requirement for statements of compliance to CCO legislation, CCO specific contractual clauses and the right to review policies or CCO procedures as appropriate.

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DUE DILIGENCE:

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DEMONSTRATING REASONABLE PREVENTION PROCEDURES

PROPORTIONALITY OF REASONABLE PROCEDURES

TOP LEVEL COMMITMENT

COMMUNICATION AND TRAINING

MONITORING AND REVIEW

DUE DILIGENCE

CRIMINAL FINANCES ACT 2017 | BDO UK

BDO APPROACH

FIRST STEP: RISK ASSESSMENT

PRACTICAL STEPS 1: POLICIES AND PROCEDURES

We have four options for the risk assessment depending on the size, complexity, existing financial crime framework and level of client resource :

Quick wins include the development of CCO policies, procedures, due diligence checklists etc that should be distributed across your business and to key internal and external stakeholders. We have developed a suite of CCO template policies that includes:

1. Full support CCO Risk Assessment o Training presentation o CCO Risk Assessment workshop

1. Board paper on CCO

o Review of your existing policies and procedures o Completion of your CCO Risk Register within full CCO report o Identification of key risk areas and recommended controls o BDO Opinion o Closing meeting to discuss next steps o Template policy documentation 2. Light touch support CCO Risk Assessment o Training presentation o CCO Risk Assessment workshop o Summary note of workshop findings, with key risks identified o CCO Risk Database and template CCO Risk Assessment o Template policy documents 3. Enabling your Risk Assessment o Training presentation o Provision of CCO risk database and template CCO Risk Assessment o Template policy documents

2. Internal ‘Instant Messaging’ within the business

3. CCO communications to Suppliers (for all Associated Persons)

4. CCO Policy – detailed internal overview of CCO

5. CCO Employee Code of Behaviour

6. Code of Conduct for Suppliers – CCO section

7. Agent Declaration

8. CCO contractual terms for suppliers

9. Supplier due diligence checklist

10. M&A due diligence checklist

4. Benchmarking existing CCO risk assessment .

BDO UK | CRIMINAL FINANCES ACT 2017

PRACTICAL STEPS 2: CCO E-LEARNING

PRACTICAL STEPS 3: MONITORING AND REVIEW

Monitoring is all about the testing of adherence to your CCO procedures and underlying processes and controls that would identify where facilitation of tax evasion could occur. In many cases, this may be covered by existing internal audit or review procedures. Various events such as business transactions, expansion into new jurisdictions or business areas would also trigger a review of risks and controls.

HMRC specifically state that organisations “ should seek to ensure that its prevention policies and procedures are communicated, embedded and understood throughout the organisation, through internal and external communication, including training. ” We have developed and rolled out our CCO eLearning training across not only all our staff at BDO but for dozens of our clients across all industries (and over 10,000 people). Specifically, we see it as a way of demonstrating the right ‘culture’ within the organisation – ie that you can demonstrate you have a zero tolerance approach to tax evasion and facilitation of tax evasion. The training is always customised for the client in terms of the narrative and wording, as well as the interactive scenarios and images.

In practical terms, our clients are ensuring that CCO is embedded within their existing internal review framework (including Senior Accounting Officer, internal audit or simply peer reviews).

Similarly, CCO should be considered as part of wider ‘failure to prevent’ compliance including AML and Anti-Bribery.

Example of typical training programme

COMMUNICATION & TRAINING TYPE

AUDIENCE

Classroom based Senior management and key decision makers

eLearning training All those in the business that can influence financial transactions, e.g., HR, Finance, Procurement etc

CCO awareness and briefing (e.g. sharing of policies, email, revising contractual terms)

All suppliers (including contractors), remaining low- medium risk staff

10 CRIMINAL FINANCES ACT 2017 | BDO UK

We partnered with BDO to prepare the business for CCO because they provided a pragmatic and collaborative experience ensuring the training remained relevant to our business. We were very pleased with the content, it looked good and was easy to follow. “

HEAD OF TAX, MACE GROUP

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BDO UK | CRIMINAL FINANCES ACT 2017

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FOR MORE INFORMATION:

LONDON

JAMES EGERT, TAX PARTNER +44 (0)20 7893 2237 james.egert@bdo.co.uk MARTIN CALLAGHAN, DIRECTOR +44 (0)20 7893 3039 martin.x.callaghan@bdo.co.uk

MANCHESTER

ED DWAN, TAX PARTNER +44(0)161 817 7676 ed.dwan@bdo.co.uk LUCY SAUVAGE, DIRECTOR +44(0)161 817 7688 lucy.sauvage@bdo.co.uk

BDO is the brand name of the BDO network and for each of the BDO member firms.

BDO Northern Ireland, a partnership formed in and under the laws of Northern Ireland, is licensed to operate within the international BDO network of independent member firms.

LEEDS

KAREN RILEY, DIRECTOR +44 (0)113 204 1207 karen.riley@bdo.co.uk

www.bdo.co.uk

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