Why we can expect more Swiss Leaks-style prosecutions in the UK

The UK’s extra-territorial reach in tax investigations is so vast that HNWs and corporates should be careful where they tread, or risk being linked to international criminal activities, writes David Walbank QC

News of the recent conviction in France of Peter Braunwalder, the former head of HSBC’s private Swiss unit, brings into sharp relief the UK’s new extra-territorial criminal offences of corporate failure to prevent the facilitation of tax evasion, which many criminal practitioners believe will herald similar legislation in other jurisdictions worldwide. The political background to the new offences is particularly apposite and consists of a succession of high-profile scandals, including not only the HSBC Switzerland secret accounts case but also the Panama Papers and more recently the Paradise Papers.

The Criminal Finances Act 2017 creates different offences, depending on whether the evasion was of UK taxes or of the tax regime of other jurisdictions. The UK tax offence is committed by a ‘relevant body’ where an ‘associated person’ commits a ‘tax facilitation offence’. A relevant body which can be caught by these provisions is defined in the act as being ‘a body corporate or partnership wherever incorporated or formed’ and that means wherever in the world incorporated or formed. An associated person is an employee, agent or any other person performing services for or on behalf of the corporation or partnership. As for a tax facilitation offence, it is probably sufficient to refer to the government’s own guidance on this legislation, which states that the facilitator must have acted deliberately and dishonestly to facilitate the third party taxpayer’s evasion. Unwitting facilitation of tax evasion through accident or ignorance or negligence will not be sufficient for the offence to be made out.

If, however, those circumstances are made out the corporation or partnership will be guilty of a criminal offence unless it can establish a statutory defence (in relation to which the burden of proof is on the corporation or partnership) of having had in place ‘reasonable prevention procedures’. Whilst that may sound like an enormously elastic concept, the UK government has issued guidance which states that ‘ultimately, relevant bodies need to sit at the desks of their employees, agents and those who provide services for them or on their behalf and ask whether they have a motive, the opportunity and the means to criminally facilitate tax evasion offences and, if so, how this risk might be managed’.

As for failure to prevent an associated person’s facilitation of a third party’s evasion of foreign taxes, the approach is essentially the same, save in two important respects. There is a dual criminality requirement and there does need to be some nexus with the UK in the sense of the corporate either being incorporated in the UK or carrying on business or an undertaking in the UK or the criminal facilitation by the associated person taking place partly within the UK.

These are, however, pretty low hurdles for the prosecution to clear and we can surely expect to see in the near future many more criminal prosecutions, not only of individuals who have assisted taxpayers in hiding their assets but also of the corporates for whom they work.