The U.K.’s Criminal Finances Act 2017 (the “Act”), which went into effect on Sept. 30, 2017, significantly expands the U.K.’s ability to prosecute the criminal facilitation of tax evasion.

Under the Act, a “relevant body” — which is defined to include fund managers — may be held criminally liable for failing to prevent the criminal facilitation of certain U.K. and non-U.K. tax evasion offenses where the criminal facilitation was undertaken by a person or entity “associated with” the fund manager in his or her capacity as an associated person. The definition of “associated person” under the law is purposefully wide and designed to be fact-dependent. It includes employees and third parties to the extent that the fund manager exercises a degree of direction or control over the third party’s conduct.

The Act creates a strict liability corporate offense. Accordingly, criminal liability may be imposed regardless of whether the fund manager had knowledge of the criminal facilitation or the intention to criminally facilitate tax evasion. The only available defense is a showing that, at the time the facilitation offense was committed (i) the fund manager had in place such prevention procedures as were reasonable in all the circumstances; or (ii) it was not reasonable in all the circumstances to expect that such prevention procedures would have been put into effect. The U.K.’s tax authority has issued guidance regarding prevention practices and procedures that, if implemented, would potentially qualify as a defense.

The Act has a wide geographic reach, with potential application to fund managers regardless of whether they are located or doing business in the U.K. Potential penalties for the offense include fines, the confiscation of assets and reputational damage.

Before the Act, prosecutors in the U.K. could not charge a corporation or partnership with criminal liability unless they could prove that senior members of the relevant body were involved in and aware of the illegal activity. This requirement was often difficult to establish and was seen as an incentive for senior management to turn a blind eye to potential criminal activity. The new legislation encourages senior management to ensure that appropriate proactive steps are taken to discourage and prevent unlawful activity. 

[View source.]