Criminal Finances Bill

Written evidence submitted by KPMG LLP (CFB 01)

I refer to the call for written evidence to the Commons Public Bill Committee which was issued on 26 October in relation to the Criminal Finances Bill. We are grateful for the opportunity to respond to the Committee on the Criminal Finances Bill and to contribute to the development of this widely applicable legislation.

KPMG is a global network of member firms in 155 countries, collectively employing more than 174,000 people across a range of disciplines. We offer tax, audit and advisory services to our clients which include business corporations, governments and public sector agencies and not-for-profit organisations.

We have limited our response to matters concerning Part 3 of the Criminal Finances Bill, the corporate offences of failure to prevent the facilitation of tax evasion. This response is written from our perspective as advisor to our many clients, as well as from our own viewpoint. Experts in financial crime, management and risk consulting, tax and tax evasion have input into this response.    

1. Introduction

1.1 KPMG LLP is grateful for the opportunity to respond to the Committee on the Criminal Finances Bill and to contribute to the development of this widely applicable legislation.

1.2 KPMG is a global network of member firms in 155 countries, collectively employing more than 174,000 people across a range of disciplines. We offer tax, audit and advisory services to our clients which include business corporations, governments and public sector agencies and not-for-profit organisations.

1.3 This response is limited to matters concerning Part 3 of the Criminal Finances Bill, the corporate offences of failure to prevent the facilitation of tax evasion (the "Corporate Facilitation Offences").

1.4 This response is written from KPMG’s perspective as advisor to its many clients, as well as from its own viewpoint. Experts in financial crime, management and risk consulting, tax and tax evasion have input into this response.

2. Summary

2.1 KPMG supports the overall aim of the Corporate Facilitation Offences contained within Part 3 of the Criminal Finances Bill, however we have some comments on the detail of how the Offences are proposed to be implemented.

2.2 In particular, some organisations that could fall foul of the Corporate Facilitation Offences are in fact victims of the criminality the offences seek to address, because unlike offences committed contrary to the Bribery Act 2010, the benefit of the facilitation offence does not necessarily flow to the organisation that failed to prevent it.

2.3 As a result it will be difficult for the organisation to identify the criminality even with good procedures because the primary issue is that a connected person is engaging in criminal behaviour which they have every incentive to hide from the business they are connected to.

2.4 Further, in the drafting of the defence, the use of "reasonable in all the circumstances" (emphasis added) in our view creates unnecessary uncertainty, as unlike "reasonable", this is not a formula that has to date been tested in the courts.

2.5 Finally, we support the intention to provide guidance that has official approval, however we are concerned that there is no requirement for the courts to take account of the guidance. We recommend that a provision should be added to Part 3 of the Criminal Finances Bill to require the tribunal to "have regard" to the guidance. This approach would be similar to that adopted in the General Anti-Abuse Rule.

3. Specific comments

3.1 KPMG supports the overall aim of the Corporate Facilitation Offences contained within Part 3 of the Criminal Finances Bill, to hold organisations accountable for what is done in their name, and to create a new offence for those that do not operate by reference to acceptable standards of conduct.

3.2 We have some comments on the detail of how the Corporate Facilitation Offences are proposed to be implemented.

3.3 In particular, some organisations that could fall foul of the Corporate Facilitation Offences are in fact victims of the criminality the offences seek to address.

3.4 Unlike offences committed contrary to the Bribery Act 2010 and similar offences, the benefit of the misdemeanour under the Corporate Facilitation Offences does not necessarily accrue to the organisation that has failed to prevent it occurring; in the instance of an offence committed contrary to the Bribery Act 2010, the organisation obtains or receives a business advantage, whereas no such advantage is necessarily obtained in an instance of facilitation. Thus under the Corporate Facilitation Offence it will be difficult for the organisation to identify the facilitation offence even with good procedures because the primary issue is that a connected person is engaging in criminal behaviour which they have every incentive to hide from the business they are connected to. For example:

3.4.1 Where an employee is bribed by a customer to facilitate their criminal tax evasion.

3.4.2 Where a criminal organisation plants an accomplice into the business to facilitate their criminal tax evasion (seen periodically in VAT frauds commonly known as Missing Trader Intra-Community ("MTIC") or carousel frauds).

3.5 In our view it may not be appropriate to criminalise a business in circumstances where the criminal behaviour may well not benefit the business at all. Specific examples of where it may not be appropriate to criminalise a business in these circumstances include:

3.5.1 Where the business does not benefit in any way differently whether the actions taken by the connected person are criminal or innocent.

3.5.2 Where the business otherwise behaves legitimately and in accordance with all appropriate laws except for the criminal behaviour of the connected person and there is no suggestion that this behaviour was or would have been permitted by the business.

3.6 This is exacerbated by the drafting of the defence, that organisations have procedures in place that are "reasonable in all the circumstances" to prevent the facilitation offence taking place.

3.7 In our view "reasonable in all the circumstances" (emphasis added) creates unnecessary ambiguity over its potential interpretation. "Reasonable" is already understood in the context of criminal law, however "reasonable in all the circumstances" is a new formula which has not been tested in the courts and so will create unnecessary uncertainty. In our view there is a risk it will be too wide. Specific examples of the uncertainty created include:

3.7.1 On the basis of the offence as drafted the "key" circumstances are criminal evasion of tax by a third party and the facilitating criminal behaviour of a connected person; is a business expected to be able to identify and prevent such criminal behaviour by connected persons where the connected persons are actively hiding this behaviour and/or subverting a business’ internal processes to enable them to do so?

3.7.2 What other circumstances does "in all the circumstances" encompass? Is this limited to those circumstances the business is aware of or does this include those HMRC believes the business should be aware of, as is commonly the case in cases of suspected MTIC fraud?

3.8 We support the intention to provide guidance which has been officially approved, whether this is government advice or industry advice that has been endorsed by HM Treasury.

3.9 We are however concerned that there is no requirement for the courts to take have regard to the guidance. While the courts cannot and should not be compelled to reach any particular conclusion, in our view an organisation should be able to rely on official guidance; it should be for the court to decide whether the way in which the organisation has done so is reasonable.

3.10 For example, the General Anti-Abuse Rule which was implemented in Part 5 of Finance Act 2013 to counteract tax advantages arising from tax arrangements that are abusive dealt with this by requiring that a court or Tribunal "must take into account" HMRC’s guidance (see s211(2) of Finance Act 2013).

3.11 We suggest that a similar provision should be added to Part 3 of the Criminal Finances Bill.

November 2016

 

Prepared 15th November 2016