Criminal Finances Act 2017 – Football clubs can now be criminally liable for failing to prevent tax evasion by players & managers

From 30 September 2017, the Criminal Finances Act 2017 will impose criminal sanctions on companies who fail to prevent tax evasion by any employee or agent/intermediary. The creation of a corporate criminal offence will be of particular concern to the sports sector, as companies and partnerships can now be held accountable for their employees and agent/intermediary’s actions, and the Act extends to worldwide tax evasion if there is a sufficient UK element.

Key facts you need to know

  • Corporations have an obligation to put procedures in place to prevent someone associated with them from committing tax offences. In the context of clubs, this extends to players, intermediaries, and professional advisors. Clubs face these obligations as they fall within the bracket of a ‘relevant body’ under statute (s.44(1)). These obligations will be particularly onerous for clubs when it comes to securing players from outside the UK, given that the new legislation is not limited to UK tax. The new obligations will add another layer to the regulatory process of securing players by ensuring that they and their advisors comply with the tax regime of that particular country as well as the UK. Clubs must be aware that they may be liable for an action in ‘tipping off’ if they notify anyone that they suspect them of tax evasion.
  • The Court has a new power to require individuals to provide an explanation of the source of wealth by issuing an Unexplained Wealth Order (UWO) to individuals who have wealth in excess of £50,000 which appears to be disproportionate to their income. Making a false or misleading statement when responding to a UWO is a criminal offence.

What you need to do

As with money laundering, protection from prosecution lies in introducing effective preventative procedures which meet the requirements of the Act. The regime is principle based and so there is no set of statutory rules which, if followed, will provide protection. HMRC has issued guidance on what principles need to be reflected in the procedures and the most important of those are:

  • Risk assessment – ensuring that in relation to any particular relationship you have sufficient knowledge to understand the risk that tax evasion presents.

  • Proportionality – ensuring that the procedures are proportionate to the risk taking into account the nature and complexity of the business being conducted and the contractual relationships.

  • Top level commitment - there must be a culture of people at all levels of the business engaging in preventing tax evasion led from the top.

  • Due diligence – before doing business or engaging employees, due diligence must be undertaken, including in relation to any financial or legal advisers.

  • Communication and training – it is not enough to have procedures in place. Regular training on the obligations under the Act and effective communication of the firm’s procedures so that it is clear what is expected of everyone at every level is essential.

  • Monitoring and review - the club must continue to review the procedures in place to ensure that they are adequate. If a club does suspect tax evasion has taken place it is under an obligation to report such instances to the relevant authorities to avoid being deemed to be facilitating tax evasion. Failure to do so may potentially see clubs being considered by the authorities as assisting players in offences found under Part VII such as concealing property (s.327) and making arrangements to facilitate tax evasion (s.328).

The penalties for failing to prevent tax evasion will most likely lead to fines that will be determined by a court.

Next Steps

Businesses need to carry out reviews, devise the appropriate procedures that are proportional and communicate and train the whole team so that the risk of falling foul of the legislation with the financial, personal and reputational damage that will accompany prosecution is minimised. Procedures must be robust and enforced as the reasonableness of those procedures will be judged against actual or suspected tax evasion by employees or associates. 

The sports industry (football players and managers in particular) is already exposed to media attention in relation to both tax avoidance in the UK and tax evasion accusations/convictions in EU countries. HMRC are conducting enquiries in to players and managers. Against this background, businesses operating in the sports sector are likely to be assessed as high risk and it is critical that clubs prepare themselves now for 30th September by introducing procedures that are effective and proportionate to that risk.

A more detailed version of this article and how it affects the football industry in particular was published in the October 2017 version of the EPFL Legal Newsletter. If you would like to know more about this topic, please find the extended article here

If you require any advice in relation to the Criminal Finances Act 2017, please contact Ellie Milner.

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