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Prevention of the Facilitation of Tax Evasion

The Criminal Finances Act 2017 (the CFA) came into force in the United Kingdom on 30 September 2017 and creates new duties for Shearman & Sterling LLP, Shearman & Sterling (London) LLP and Shearman & Sterling (together, the firm).

The firm has a policy of zero tolerance towards tax evasion and its facilitation. This has always been the case. In circumstances where it is suspected that tax evasion or the criminal facilitation of tax evasion is connected with a transaction or engagement, the firm will not continue to act and may be obliged to make a report to the relevant authorities. The firm expects that all those with whom it does business will maintain a similar zero tolerance policy.

Summary of the Law

The CFA introduces the offences of failure to prevent the criminal facilitation of UK tax evasion and failure to prevent the criminal facilitation of foreign tax evasion (the “Failure to Prevent Offences”). These are strict liability offences.

Under the CFA, the firm is potentially liable in respect of the actions of any of its Associated Persons. This is defined to include all partners, employees (both lawyers and non-lawyers) and agents of the firm, as well as any other person who performs services for or on behalf of the firm. An Associated Person can be an individual, a partnership or a body corporate.

The Failure to Prevent Offences are committed where (1) any person commits a tax evasion offence, and (2) an Associated Person of the firm criminally facilitates the tax evasion offence, unless reasonable prevention procedures are in place. It must be shown that both the conduct constituting the tax evasion, and the facilitation, constitute criminal offences by both the person evading taxes and the Associated Person, although formal criminal convictions are not necessary.

An Associated Person must not:

(i) be knowingly concerned in, or take steps with a view to, the fraudulent evasion of UK tax by another person;

(ii) aid, abet, counsel or procure the commission of a “UK tax evasion offence”,

(a “UK tax evasion offence” is defined in the CFA Section 45(4) as either (a) an offence of cheating the public revenue or (b) an offence under the law of any part of the UK, consisting of being knowingly concerned in, or taking steps with a view to, the fraudulent evasion of UK tax); or

(iii) facilitate the commission of a foreign tax evasion offence, being facilitation which amounts to an offence under the law of a foreign country and which would amount to an offence under (i) or (ii) above if the relevant tax were a UK tax.

Key Facts

1. The firm conducts detailed due diligence, as required by applicable law, on its clients, agents and others with which it does business. Where “red flags” are raised by the due diligence process, further diligence will be conducted and more detailed questions asked.

2. The CFA does not create new tax evasion offences or amend the current ones. It changes who can be held accountable for acts that contravene existing law.

3. In order to fall under the remit of ‘criminal’ facilitation of tax evasion under the CFA, an individual must act deliberately and dishonestly in order to facilitate the tax evasion of another person.

4. The CFA is relevant where tax evasion is facilitated in any context and by any means, not just by the provision of tax advice.

The firm’s Reasonable Procedures

The CFA requires the firm to put in place reasonable procedures aimed at preventing the criminal facilitation of tax evasion by its Associated Persons. The firm’s reasonable procedures include:

1. A global policy on the prevention of the facilitation of tax evasion. This policy is approved by the firm’s senior leadership and is provided to Associated Persons of the firm. It applies in every jurisdiction in which the firm operates. Compliance is strictly compulsory.

2. Due diligence on our clients and third parties.

3. Compulsory staff training.

4. This public confirmation of the firm’s position on the facilitation of tax evasion.

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