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Facilitation of tax evasion – considerations for banks

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Two new corporate offences relating to tax evasion were introduced in September 2017. The offences cover tax evasion in the UK and overseas and apply to companies, partnerships and LLPs.

The new offences essentially mirror the existing ones relating to acts of bribery. So a company is liable for the tax evading actions of its ‘associated persons’, which will include employees and agents.

The only defence available to a company that may be guilty of a tax evasion offence is to demonstrate that it had reasonable prevention procedures in place. This is very similar to the adequate procedures defence to the bribery offences. You can read about the requirements under the Bribery Act here.

If found guilty of a tax evasion offence, a company could face an unlimited fine, a confiscation order or a serious crime prevention order. It could also be banned from entering into public procurement contracts.


To be liable for one of the new offences, a three stage process must be satisfied.

  • Stage one: there is criminal tax evasion by a legal entity or an individual;
  • Stage two: there is criminal facilitation of the tax evasion by a person associated with the company; and
  • Stage three: the company failed to prevent the associated person from acting in that way by not having reasonable prevention procedures in place.

Stage one: tax evasion

There are two different types of tax evasion:

  • a UK tax evasion offence of cheating the public revenue or being knowingly concerned in the fraudulent evasion of any UK tax; and
  • a foreign tax evasion offence relating to conduct which is an offence under the law of a foreign country, which relates to a breach of duty regarding a tax imposed under that foreign law and which would be regarded as a UK tax evasion offence if the offence were committed in the UK.

Stage two: facilitation of tax evasion

A company will be guilty of an offence if a person associated with it facilitates the tax evasion offence by either:

  • being knowingly concerned in, or in taking steps with a view to, the fraudulent evasion of tax; or
  • aiding, abetting, counselling or procuring the tax evasion.

The foreign tax evasion facilitation offence will apply where the company is incorporated in the UK, it is carrying on at least part of its business in the UK or the conduct constituting the offence took place in the UK.

Stage three: having reasonable prevention procedures in place

If stages one and two are satisfied then a tax evasion offence has been committed and this has been facilitated by a person associated with the company.

A company will have a defence to this offence if it can show it had in place reasonable procedures designed to prevent persons associated with the company from committing tax evasion facilitation offences.

The company would be expected to carry out a risk assessment to establish which procedures are proportionate to the risk of tax evasion or whether the procedures are required at all.

What does this mean for banks?

The UK tax evasion offence will catch both UK and non-UK companies regardless of where the associated person who facilitates the offence is located.

The foreign tax evasion offence will catch UK companies, but also non-UK based companies carrying on business in the UK or where the associated person is in the UK at the time facilitation takes place.

Therefore, banks with branches in the UK will be caught by the new rules, even if there is no other connection to the UK. So, a German bank will be subject to these rules if one of its employees working in Singapore commits a tax evasion facilitation offence for a client based in New Zealand simply because the German bank has a branch in London. This highlights the wide remit of the offences, especially due to the lack of involvement the UK branch may have in the suspect transaction.

If a bank does not put in place reasonable prevention procedures then it will be liable for the acts of its associated persons. High level management do not need to be aware of the offence having taken place.

The highest risk of facilitation by UK banks is likely to be at a relationship level where there is a greater chance an employee may be aware that the circumstances surrounding a transaction are not bona fide. For example, a referral of a corporate customer to an offshore accounting firm with the intention of assisting them to set-up a structure to evade foreign tax, or undisclosed transactions or corrupt payments being authorised by a bank employee.

However, a bank will only be liable where the associated person has been complicit in the act of tax evasion. Unwitting acts will not be caught.

Guidance and prevention

HMRC guidance has been released which closely mirrors that issued in relation to the comparable bribery offences. The guidance lists the same six guiding principles as for the bribery offences but these are not prescriptive and failure to satisfy all of the suggested methods of prevention does not necessarily indicate that reasonable prevention procedures are not in place. It also contains a number of examples used to illustrate the risks to banks, in particular.

Despite the similarities with the bribery offences however, banks should avoid the temptation to simply implement the same procedures that they may already have in place to prevent bribery. Tax evasion risks are much wider and different factors will need to be considered. A more bespoke approach to tax evasion should be taken to ensure that precise risks are addressed directly.

An important point to note is that the offences do not change what amounts to tax evasion which has always been and continues to be a crime. Instead, they extend the scope of persons that can be prosecuted where tax evasion has taken place. However, there is a very fine line between evasion and avoidance and banks should ensure, as part of their reasonable prevention procedures, that associated persons are aware of the distinction and also conscious of the possible ethical or reputational implications even where the law is not being broken.

Banks, along with other financial service providers, owing to their very nature are likely to be exposed to a higher risk of the facilitation of tax evasion. Therefore, it is paramount that they carefully consider the required prevention procedures that may span beyond the UK.

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