91探花

The Criminal Finances Act 2017 and, in particular, the corporate criminal offence (CCO) of failure to prevent the facilitation of tax evasion, has introduced significant changes to the corporate compliance landscape in the UK. Whilst the CCO aims to combat tax evasion by holding companies and partnerships criminally liable for the actions of their employees and associated persons, many businesses are motivated to comply for reasons beyond the fear of criminal prosecution. 

It has become abundantly clear that commercial considerations, such as transactional due diligence, regulatory compliance, and HMRC attention during its Business Risk Review Plus (BRR+) process, have a greater impact in driving businesses to adhere to their CCO obligations.

Evidencing good practice to enhance value

One of the key commercial drivers for CCO compliance is the need to demonstrate robust procedures during mergers and acquisitions. Furthermore, businesses that demonstrate an appropriate anti-corruption culture and associated compliance measures are more likely to attract and retain customers that adopt a similar approach and value ethical practices. Put simply, evidence of compliance with the CCO requirements can enhance a business’s reputation, making it a more attractive investment or commercial partner.

Regulatory impact

Whilst HMRC’s enforcement of the CCO provisions may appear light touch, with just 11 active criminal investigations as of July 2024, wider regulatory exposure is another important factor driving CCO compliance. Failure to comply with the CCO can result in criminal prosecution, unlimited fines and the consequential reputational damage. However, as well as preventing this exposure, businesses can ensure they meet the expectations of various regulatory bodies, thereby avoiding wider disruption that could arise from non-compliance. 

Managing HMRC BRR+ ratings

The HMRC BRR+ regime assesses the tax compliance risk of large businesses and categorises them into different risk levels. Those that demonstrate strong compliance with tax laws, including the CCO, are likely to receive a lower risk rating. This can lead to several advantages, such as reduced scrutiny, fewer investigations, and a more collaborative relationship with HMRC. Whilst HMRC’s guidance has stipulated the importance of CCO compliance for the assessment of risk in large corporates for some time, we are only now starting to see consistent enforcement, with businesses now firmly incentivised to implement reasonable prevention procedures to benefit from a lower risk status.

Building a culture of compliance?

It is important to note that some businesses recognise the importance of driving a culture of anti-corruption, and compliance with the CCO and other elements of the Criminal Finances Act 2017, without a wider commercial influence. This involves embedding ethical principles and practices into their core values, and ensuring that all employees understand and adhere to them. Compliance with the CCO from this perspective is more aligned with HMRC’s wider focus on shifting the cultural landscape on criminal and terrorist finances in the UK. 

Will the threat of criminal prosecution drive more to comply?

While the threat of criminal prosecution under the Criminal Finances Act 2017 should be the ultimate motivating factor driving compliance, it is evident that, for many, the implementation of reasonable prevention procedures is driven by commercial considerations. 

There is little doubt that commerciality is a compelling reason for businesses to address their CCO exposure, and that by doing so, they not only avoid criminal repercussions but also protect themselves against other commercial risks.

However, the question remains as to how long will it take for the threat of criminal prosecution arising from HMRC enforcement activity to tip the balance towards the statutory provisions becoming the main driver for CCO compliance?

For more information, please get in touch with Paul Marcroft or your usual 91探花contact.