Corporate criminal tax investigations ongoing despite pandemic

The investigations span 10 different business sectors, including financial services, oil, construction, labour provision and software development. Specifically, 12 investigations or opportunities relate to businesses in the financial sector, according to the press release published following a freedom of information request.

"HMRC has sustained its focus on the CCOs despite the huge impact that administering and enforcing the furlough scheme has had on its business operations," said Andrew Sackey, a tax and white collar crime expert at Pinsent Masons, the law firm behind Out-Law.

Penny Simmons, a tax risk expert at Pinsent Masons, said: "It is interesting that only one new investigation has been opened since 1 December 2019 and the number of live investigations has only increased by one in the same time frame, which may indicate the impact that Covid-19 has had on HMRC's stretched resources. However, the fact that investigations are continuing, and indeed increasing, amidst the pandemic illustrates the importance of the CCOs to HMRC in its pursuit to influence corporate behaviour and combat tax evasion across supply chains".

"If businesses have delayed reviewing their CCO procedures due to the Covid-19 pandemic, this is yet another reminder that the CCOs haven't gone away and it is as important as ever that a business has reasonable procedures in place to prevent the facilitation of tax evasion," she said.

The CCOs were introduced in 2017, and make it a criminal offence if a business fails to prevent its employees or agents from facilitating tax evasion. A successful prosecution can result in an unlimited fine and a criminal record for a business, restricting its access to some regulated markets and ability to bid for government contracts in the UK and overseas.

A business will have a defence if it can prove that it had put reasonable procedures in place to prevent the facilitation of tax evasion. Guidance published by HMRC identifies six guiding principles that underpin the defence, one of which is that a business undertakes a risk assessment to determine its exposure to the CCOs.

HMRC guidance has identified the financial services sector as posing a higher risk of tax evasion facilitation.

Sackey said: "Of particular note is the fact that, with 12 of the 32 current investigations and opportunities relating to businesses in the financial services sector; a clear pattern of enforcement focus is beginning to emerge.

"Financial services firms particularly should urgently explore whether pre-covid controls remain reasonably fit for purpose in the changed and more dispersed work environment that we’re all experiencing,” he said.

David Hamilton, a white collar crime expert at Pinsent Masons, said that it was "unsurprising" that 12 of the 32 CCO cases that HMRC currently has under active consideration involve financial services.

"Although heavily regulated, banks and other payment institutions, accountants and tax advisors, among others, are integral to the investment, payment and tax planning industries where the opportunities to enable tax fraud are many and varied," he said.

"Financial crime has been an FCA priority for many years, with recent business plans and enforcement reports stressing that the regulator will crack down on firms that fail to maintain effective controls to detect, disrupt and reduce the risk of financial crime. Firms must be cognisant of both regimes. The HMRC stats are another reminder for financial services firms that their controls must be sufficiently robust not only to provide a defence of 'reasonable procedures' under the CCOs, but also to maintain compliance with the FCA’s Handbook requirements, principally under SYSC," he said.