UK PE firms warned to assess AML policy against new law

UK private equity firms will need to beef up their anti-money laundering policies and procedures as strict new rules come into force, according to law firm Hogan Lovells.

The Criminal Finances Bill, which includes the action plan for anti-money laundering and counter-terrorist finance, makes it a criminal offence to “prevent the facilitation of tax evasion.”

“[Failure to prevent tax evasion will be] a strict liability offence which will require consideration by way of risk assessment and will need to be addressed when formulating policies and procedures,” the firm said in a note.

The Government's aim is to hold corporate entities to account for the actions of associated persons – including employees and service providers – and to prevent situations where lax compliance cultures encourage individual employees to commit criminal offences.

Having in place reasonable procedures to prevent tax evasion facilitation offences can be used as a defence in a prosecution.

The UK tax authority, HM Revenue and Customs, has also published draft guidance on what corporate entities need to do to rely on the available defences.

This includes six guiding principles: risk assessment, proportionality of risk-based prevention procedures, top-level commitment, due diligence, communication (including training), and monitoring and review.

“The new offences will also place an additional burden on corporate entities because they will need to assess whether they need to put new procedures in place to ensure that employees and other associates do not facilitate tax evasion, and document the steps which they have taken to implement and enforce their procedures,” Hogan Lovells added.

Notes to the Bill clarify that reasonable procedures do not mean fail-proof procedures, so corporate entities can adopt a risk-based approach, the firm added.

The legislation, currently passing through the UK legal system, introduces two new corporate offences of failure to prevent facilitation of tax evasion, one targeting tax avoidance in the UK, the other by foreign entities operating in the UK.

There is no date for the entry into force of the bill, but it is not expected to come up against much opposition in either house of the UK Parliament.