Corporate Criminal Offense: What Should Business Owners Know?

Many countries have legislation in place to combat tax evasion by corporations. In the UK, this piece of legislation is called Corporate Criminal Offence (CCO), which mandates companies to prevent their employees, agents, or other associated persons from facilitating tax evasion.

CCO is a strict liability offence. Failure to implement the appropriate policies and procedures leaves the company with high exposure.

Falling foul of CCO could mean companies will be held criminally liable and face significant fines and reputational damage if they are found to have turned a blind eye to tax evasion. 

For this reason, it is important that business owners are fully aware of what CCO is, the risks of not complying with it, and the steps necessary to prevent problems. This article will cover these and some other issues related to CCO. 

What is CCO?

Corporate Criminal Offense is a piece of legislation introduced by Part 3 of the Criminal Finances Act 2017. It made it a crime for corporations to facilitate or not prevent associated persons from committing tax evasion. 

Under CCO, there are two criminal offences. The first is the failure to prevent tax evasion from employees, agents, or contractors. The second is the failure to prevent foreign tax evasion. 

By placing the onus on companies to manage the risk of tax fraud, the UK authorities have effectively negated their duties and placed the responsibility onto the corporates. The law aims to combat financial crime and increase transparency in business operations. The legislation is part of a global trend toward greater corporate accountability.

Why do companies need to take CCO seriously?

Of course, since CCO is a piece of legislation, it is extremely important that businesses take it very seriously. According to the HMRC, as of January 2023, there are nine live CCO investigations, and 26 other cases are under review.

Companies should be aware of the risks of not complying with CCO as well as the opportunities it provides:

Criminal liability

If a company is found to have failed to prevent tax evasion, it can receive substantial fines.

As this is a criminal offence, there is little protection for the officers of the company who, irrespective of their country of residence, may find themselves in a courtroom!

Reputational damage

Being fined or associated with breaking CCO legislation can cause significant damage to a company’s reputation. 

Clients or partners might refuse to be connected with a company that facilitated tax evasion, and businesses might have difficulty attracting talent. Being criminally liable can have a negative impact on the company’s share price. 

Compliance requirements

Companies must demonstrate that they have procedures in place to prevent the facilitation of tax evasion. These steps must be taken immediately. Failure to comply can result in criminal liability.

It is essential that companies take CCO seriously and act fast to avoid penalties in the future. 

International compliance

CCO represents the UK’s efforts as part of a global trend of greater transparency and anti-corruption measures.

Acting in compliance reaffirms to investors that best practice is being applied. 

Business relationships

Ensuring the prevention of tax evasion builds better and stronger business relationships, lowering the risk of anyone involved being held responsible for a corporate criminal offence. 

What do companies need to do to comply with CCO?

As discussed, CCO legislation requires companies to take proactive steps to prevent tax evasion by employees, agents, and other associated persons, which can be partners, clients, or freelance workers. 

To comply with the legislation, companies need to understand tax laws, understand the risks their businesses present, and implement due diligence procedures to avoid tax evasion, demonstrating their commitment to CCO.

Businesses can take the following steps to comply with the Corporate Criminal Offense legislation:

1. Conduct a risk assessment

Your company should identify all the potential risks of tax evasion within the organisation and among partners, employees, and clients. 

At this stage, companies also need to document their findings, making sure “associated persons” and stakeholders are included in the risk assessment process. 

Working with a company specialised in corporate compliance or business expansion can provide you with an extra security layer when assessing risks and identifying needs. Following the HMRC guidance and understanding tax laws, companies like these will be able to protect your company from criminal liability. 

2. Create a prevention policy

Companies should develop and implement a tax evasion prevention policy, outlining their commitment and establishing procedures for identifying and reporting potential issues.

A prevention policy will make it very clear what measures will be taken in case of tax evasion, potential penalties, and even expectations for employees and stakeholders. 

With everything clearly outlined, “associated persons” will be able to consult, comply and take action according to your company’s guidance. 

3. Provide training

Employees and agents should be made aware of CCO legislation and how seriously the company takes its commitment to preventing tax evasion.

Often, ignorance can lead to problems, representing a risk to your business and credibility. Making information accessible to everyone who might be affected by CCO is an essential step in complying with the legislation. 

Train and guide your team by offering practical examples of how to identify and report potential instances of tax evasion, as well as what tax evasion means and the consequences of not paying their due taxes. 

4. Implement due diligence procedures

Since CCO places the responsibility of tax evasion on every company, it is important that you protect your business by implementing due diligence procedures.

Before starting a relationship with another business, make sure you have access to all the information and documentation you might need to understand their commitment to preventing tax evasion. 

The same can be said about employees and other workers. You can ask for background checks and references and monitor their activities to ensure taxes are paid. 

5. Monitor and review

Complying with CCO legislation is not a one-time thing but a regular commitment to preventing tax evasion. Therefore, companies should constantly monitor and review the procedures they have in place, ensuring that they remain effective and up to date.

Constant risk assessments will also provide a deep understanding of what needs to change or improve to continue complying with CCO. 

6. Appoint a responsible person

With every legal requirement, it is important that roles and responsibilities are clearly defined within the organisation, ensuring that stakeholders will have someone to guide them or answer questions when necessary.

Appoint a senior person within your company who will be responsible for ensuring compliance with CCO legislation. It is important that this person has the authority to carry out a full investigation and report its findings to the board, then implement necessary changes.

With a centralised authority, your company will be able to follow the proper guidelines for preventing tax evasion. 

7. Document every step

In case of suspicious activity or a local government tax investigation, your company will need to supply documentation and proof of all policies, procedures, and prevention measures.

As you ensure your business complies with CCO, document every step, keeping records of what has been done, of the risks you identified, how your prevention policy was implemented, the training you provided, and how you and your partners’ activities have been monitored.

As mentioned above, complying with CCO is a constant activity and not a one-time action you must take. Therefore, you must be able to demonstrate the continuous steps you have taken to prevent tax evasion. 

Final thoughts

Since Corporate Criminal Offense legislation was introduced in 2017, companies have been required to comply with CCO and put procedures in place to prevent and avoid tax evasion from employees and stakeholders.

Taking the steps necessary involves applying the legislation and managing business relationships to avoid putting your company in a risky situation.  

Working with specialised resourcing companies will help you assess potential risks, create procedures to prevent tax evasion, and ensure that your company complies with CCO legislation.

Failing to act makes your company (and its officers!) criminally liable and subject to fines. Therefore, it is important to take CCO seriously and hire all the help necessary to take action immediately.