I spent most of 2017 making sure some of the largest banks and corporations in the world would never facilitate tax evasion, even accidentally.
These businesses spent a fortune drilling down to every level of their business, finding and closing down any way in which a rogue employee, junior or senior, could help a client or business counter-party evade tax, anywhere in the world.
What created such an outbreak of public-spiritedness? The Criminal Finances Act 2017 – an unsung triumph of the Cameron and May governments.
The act created a new corporate criminal offence for any company if any of its employees facilitated tax evasion. It didn’t matter whether the directors were involved in the tax evasion, or even knew about it – the company would automatically be guilty.
It could be UK tax that was evaded, or tax anywhere in the world. And foreign businesses, too, fell within its scope if they had even the slightest UK presence. Nobody could ignore it.
If a corporation was successfully prosecuted for tax evasion, that would amount to a corporate death sentence: banks could lose their banking licence, corporations would lose their government contracts, mining companies could lose their concessions.
There was only one defence. A company could escape criminal liability if it could demonstrate that it had put reasonable procedures in place to prevent its employees facilitating tax evasion. And this was the whole point. Nobody could ever be sure that someday, somewhere, a rogue employee wouldn’t facilitate tax evasion for somebody. So they had to work really hard to create “reasonable procedures”. That’s why they hired me.
The Criminal Finances Act (CFA) was a brilliant concept. And everyone assumed it would catch on – that the rest of Europe, and then maybe the rest of the world, would enact similar rules. Every corporation worldwide would be turned into a giant unpaid tax policeman. It had the potential to radically reduce the scope for bad actors to exploit legitimate businesses. A compelling answer to the accusation that the City of London was the “dirty money capital of the world”.
The CFA followed the successful model of the Bribery Act. That also created an automatic criminal offence for corporations, with one single defence that incentivised them to get their house in order. And people take the Bribery Act very seriously indeed – all the more so after Airbus had to pay £830m in the UK to settle a bribery prosecution in 2020, and Entain had to pay a £615m penalty last year.
People took the CFA equally seriously at first. We all awaited the first prosecutions: in 2019 HMRC announced it had nine live investigations, then 13 in 2020. But nothing happened. Each year, more investigations were announced; each year, no prosecutions.
And so, bit by bit, the CFA has ceased to become scary. It is now 2024 and there have still been no prosecutions. Those clients who paid for exhaustive work across their global business probably feel like chumps. Some of their rivals, who winged it, probably feel vindicated. Even the best anti-tax evasion processes need regular updating – but who’s going to spend serious money updating their 2017 work now?
So that valuable protection against tax evasion is, year by year, becoming less valuable. Certainly all that talk about other countries following the UK’s lead has melted away.
It’s possible that the reason no company has been prosecuted under the CFA is that not a single UK company has facilitated tax evasion since 2017. That, however, doesn’t feel terribly likely. The more plausible reason is that when evidence has come to light of tax evasion being facilitated, HMRC has quietly assessed penalties behind the scenes, and the matter has been resolved quietly.
This likely makes sense from a raw economic perspective. HMRC gets to collect tax without the time, expense and risk of a prosecution. But in the long term it’s a serious mistake. It neuters what was once a powerful tool.
A law that’s not publicly enforced may as well not exist. Only saints will comply with it. The rest – the people we really want to comply with it – won’t bother.
If we want to drive tax evasion out of the corporate world, we don’t need new rules – we just need to enforce the ones we have.
Dan Neidle is a former head of tax at Clifford Chance and founder of Tax Policy Associates.
