Experts warn of fines for ignoring UK tax evasion law

01 Nov 2017

UK asset managers face hefty fines and reputational damage if they fail to comply with new legislation cracking down on businesses that may turn a blind eye to tax evasion.

The Criminal Finances Act of 2017, which came into force on September 30, introduces two separate offences for failing to prevent staff or any associate person or company from facilitating UK and foreign tax evasion.

Companies that fail to put in place prevention procedures face criminal and unlimited financial penalties, as well as the risk of disgorgement of profits.

Fund firms need to review their legacy business practices to assess their risk of prosecution as the only defence will be that they have “reasonable prevention procedures in place”, according to experts.

However, Martin Shah, partner at Simmons & Simmons, says a “significant” number of asset managers have not carried out the relevant business review and risk assessment.

He says there is a “gap” between what firms have done and what the UK tax authority, HM Revenue & Customs, will expect.

Hatice Ismail, partner at Simmons & Simmons, says this may be because some asset managers view themselves as low-risk businesses.

“Unfortunately we don’t agree with that and I don’t think HMRC will either,” she says.

It is “very unlikely” that firms would be seen to have the necessary requirements in place by not engaging with the legislation, she adds.

“It is all about changing behaviour. If they don’t do that […] if they have not taken the steps, it’s a strict liability offence.”

Martin says the legislation makes tax evasion a board agenda item and will make such risk assessments a regular occurrence. He says firms should be getting in touch with people deemed to be “associated persons” to explain that they do not condone tax evasion.

Asset managers should also carry out a risk assessment and provide staff training within a set timeline, such as two years, as a matter of best practice so they can demonstrate that they are in line with the legislation.

Hatice Ismail adds that firms should have worked out implementation steps to identify and close any gaps.

“Not all asset managers have done that,” she says.

Part of the reason for this is that firms have been waiting for further industry guidance.

This is expected in the next few weeks, with a draft of financial services related guidance currently with HMRC and awaiting approval from the UK Treasury.

There has also been some confusion about whether the fund distributor classifies as an associated person under the legislation.

This part of the legislation has “posed some difficulty” for “clients with large numbers of distributors” in terms of whether they should be part of a risk assessment.

 “Distributors should be complying [and] updating their own policies” says Hatice, and fund firms are wondering whether they should seek comfort from them that this is happening.

This article first appeared in FT's IgnitesEurope on 01 November 2017. To read the full article click here.

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