What is the Criminal Finance Act 2017?

Compliance Knowledge Base | Anti-Money Laundering (AML) Training

Posted by: India Wentworth Published: Thu, 06 Sep 2018 Last Reviewed: Thu, 06 Sep 2018
What is the Criminal Finance Act 2017?

The Criminal Finance Act (CFA) was brought about to increase the powers of law enforcement agencies in dealing with money laundering offences, the recovery of proceeds of a crime, tax evasion, and terrorist financing. The Act makes companies criminally liable if they fail to report suspicions – regardless of whether these suspicions are about a team member, a client, or an external body.

Organisations can avoid criminal liability if they able to show acceptable risk mitigation against criminal financing, or if they can prove that the circumstances mean it would be unrealistic to expect procedures to be in place. The Act targets deliberate and dishonest behaviour amongst organisations.

The legislation aims to tackle crimes committed by those who act for or on behalf of an organisation. Under the CFA, companies that fail to try to prevent associated persons from criminal finance offences are subject to unlimited fines and confiscation orders.

Facilitation of Tax Evasion:

The three stages to the facilitation of tax evasion are relevant for the domestic and foreign tax evasions offences:

  • Stage one: Tax evasion by either an individual or a firm under existing laws
  • Stage two: Criminal facilitation of tax evasion is committed by an associated person of the relevant body
  • Stage three: The group failed to prevent its employee from facilitating tax evasion, or they failed to implement the measures needed to prevent the facilitation of tax evasion in the first place

There were two new offences added with the introduction of the Act: domestic and overseas fraud. They differ because domestic fraud refers to companies that fail to implement prevention methods that aim to stop employees/agents/associated persons from facilitating tax evasion.

Overseas offences are relevant to companies that trade within the UK and fail to put the expected prevention tactics into action to stop employees/agents/representatives from carrying out tax evasions in other jurisdictions.

What is the Criminal Finance Act 2017?

What You Should Do:

The government has created guiding principles to work alongside the Act and inform companies of the steps they can take to prevent criminal financing.

Risk assessment

  • Firms will have to make sure they've reviewed their practices and procedures to minimise any risks, alongside putting in place the appropriate monitoring and training of staff. The Act essentially makes owners and managers responsible for preventing their staff, and external agents, from committing tax evasion, whether they mean to or not. The larger the business, the greater the risk that suspicious activity will occur that could be caught.
  • HMRC recommends that you 'sit at the desk' of the associated person and consider whether they have a motive, the opportunity and the means to facilitate tax evasion.

Responding to the Risks

  • After reviewing the risks, organisations should design or upgrade procedures to cope with any concerns (where needed) and mitigate risks. You can do this by making it clear to employees where the firm stands in terms of attitudes around tax evasion, so you can create a workforce with a consistent understanding and level of awareness.
  • Having clauses within employee contracts requiring them not to get involved with facilitating tax evasion, and to report their concerns straightaway.
  • Putting on effective staff training that deals with the recognition and prevention of financial crime.
  • Providing a safe whistle-blowing procedure. This means that employees feel secure if they ever need to report any unlawful activities.
  • Monitoring and enforcing prevention procedures to prevent financial crime, as well as regularly reviewing these procedures to keep up-to-date with the threats out there.

Top level commitment

  • The push needs to start from the top. By getting senior management involved in preventing tax evasion, you can create a much more efficient and secure working environment.
  • Having a clean-cut, zero tolerance attitude towards it means that employees know the consequences of tax evasion without any confusion that could create discrepancies.

Due diligence

  • Due diligence and regular record keeping are the steps you can take to reduce the threats of laundering by making daily checks. This could seem like a waste of time, but constant customer checks and up-to-date records maintain a much stronger company all round.
  • The more vigilant you are in the day-to-day running of the business, the harder it is for people to take advantage of their position.

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