UK and overseas companies in the frame: two new corporate criminal offences in force as of 30 September 2017.
What is the Criminal Finances Act 2017 and how should Life Science companies react?
On 30 September 2017 the Criminal Finances Act 2017 (the "Act") came into force and means that businesses could face prosecution and unlimited fines should they fail to take the necessary precautions and implement "reasonable procedures" to prevent facilitation of tax evasion by any of the business's associated persons.
The definition of associated persons is wide, being employees, agents, and all persons performing services for or on behalf of the business.
Liability can arise for (a) businesses based anywhere in the world and the facilitation of tax evasion in the UK; or (b) businesses with a UK connection in relation to the facilitation of tax evasion abroad (where the conduct is considered criminal tax evasion both in the UK and the other jurisdiction).
Businesses will face prosecution in relation to the facilitation of tax evasion by associated persons even if they do not know about it or derive any benefit.
The penalty could be criminal prosecution, leading to an unlimited fine.
It is a defence for a business to prove that, when the UK tax evasion facilitation offence was committed, the business had in place such prevention procedures as it was reasonable in all the circumstances to expect that business to have in place.
Risk situations for life sciences companies
The following are some suggestions of situations that would indicate a risk with respect to compliance with the Act. If these risk situations could arise in your business, controls and prevention procedures need to be put into place.
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Individuals or entities, including healthcare professionals or healthcare organisations, who request payment for services to be paid to the account of another person, institution, charity or other entity.
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The business sends payments to agents for organising events or travel. Does the company have the right to audit the agent (in any contracts) and is it undertaking those audits?
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The business gives personnel or agents access to cash, for example cash as an emergency fund in case they need to buy extra items last minute when organising a meeting or event.
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The business enters structured joint venture deals that might involve payment flow through intermediaries.
Actions for Criminal Finance Act Compliance
Companies (their senior level personnel and (if available) their compliance team) will need to (a) assess the current risk position of the business; and (b) implement controls and procedures if needed.
The key steps are:
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Risk assessment:
Identify business activities that could offer a window for a person associated with the business to facilitate a UK tax evasion offence. We set out some examples above as a starting point.
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Prepare and implement risk based prevention procedures.
The business need controls and procedures in place that are robust enough to avail the business of the reasonable procedures defence. Adding wording in policies is not sufficient.
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Top level commitment
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Due diligence
Add steps to the company due diligence procedure for each identified risk (and also set out in the due diligence policy that the checks are to be done).
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Communication (including training)
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Monitoring and review
If you would like assistance with working through and implementing this guidance please contact one of our lawyers listed.