I spent most of 2017 ensuring that some of the world's largest banks and corporations did not facilitate tax evasion, even by accident.
These companies invest large sums of money to thoroughly investigate every level of their operations to ensure that dishonest employees, junior or senior, anywhere in the world, can help customers and business partners evade taxes. I found every sexual way to shut it down.
What caused this outburst of public spirit? The Criminal Finances Act 2017 – A hidden victory for the Cameron and May governments.
The law created a new corporate crime for any company if its employees facilitated tax evasion. The company is automatically guilty regardless of whether the directors were involved in tax evasion or were aware of it.
It could be UK tax that was evaded, or it could be anywhere else in the world. Foreign companies are also eligible if they have even a small presence in the UK. No one could ignore it.
If a company is prosecuted for tax evasion, it is tantamount to a corporate death penalty. Banks could lose their banking licenses, companies could lose government contracts, and mining companies could lose their concessions.
There was only one defense. Companies can avoid criminal liability if they can prove they have taken reasonable steps to prevent employees from facilitating tax evasion. And this was the point. No one can be sure that someday, somewhere, a dishonest employee won't help someone evade taxes. So they had to work very hard to create a “reasonable procedure.” That's why they hired me.
The Criminal Finances Act (CFA) was a great concept. And everyone expected it to spread and other parts of Europe and perhaps other parts of the world to enact similar rules. Every company in the world will turn into a giant unpaid tax cop. This had the potential to radically reduce the scope for malicious actors to exploit legitimate businesses. A convincing answer to the charge that the City of London is the “dirty money capital of the world”.
The CFA followed the successful model of bribery law. This also created an automatic criminal act for businesses, with just one defense to motivate businesses to get their house in order. And people actually take bribery laws very seriously – in 2020 Airbus had to pay £830m to settle bribery charges in the UK, and Entein had to pay £830m to settle bribery charges in the UK last year Especially since they had to pay a £15m penalty.
At first, people took CFA seriously as well. We were all waiting for the first indictment. In 2019, HMRC announced that it carried out nine live investigations, and in 2020 it carried out 13 live investigations. But nothing happened. Every year, more studies were published. Every year, no charges are filed.
In this way, CFA gradually became less scary. It's 2024 and no charges have been filed yet. A client who paid for a thorough job across their global business probably feels stupid. Some of the rivals who pushed this probably feel vindicated. Even the best anti-tax evasion processes require regular updates, but who would spend big bucks now to update their 2017 results?
As a result, the valuable protection against tax evasion becomes less valuable over the years. Indeed, all talk of other countries following Britain's example has disappeared.
After newsletter promotion
The reason that no companies have been prosecuted under the CFA may be because not a single UK company has facilitated tax evasion since 2017. However, the possibility of that happening is not very high. A more plausible reason is that when evidence of tax evasion being facilitated came to light, HMRC quietly assessed penalties behind the scenes and the matter was quietly resolved.
This probably makes sense from a raw economic perspective. HMRC can collect tax without the time, cost or risk of prosecution. But in the long run, that's a grave mistake. Disabling what was once a powerful tool.
A law that is not officially enforced is as good as non-existent. Only saints will follow it. The rest of us, the ones we really want to comply with, don't care.
If we want to eliminate tax evasion from the corporate world, we don't need new rules. Enforcing existing rules is enough.
Dan Neidle is a former head of tax at Clifford Chance and founder of Tax Policy Associates.
