UK’s sweeping new law targeting bankers, lawyers, advisors, offshore professional directors, nominees with fines; and “public shaming” for enabling offshore tax evasion

By Christine Duhaime | January 1st, 2017

Wide, Wide Net for Enablers

Starting today, parts of the UK’s Finance Bill 2016 came into effect which allows the HMRC to go after so-called “enablers” who help UK tax payers avoid taxes using offshore schemes, services or arrangements, such as bank accounts, investment or broker accounts, trusts, companies, directors / officers or nominees.

The amendments introduce a “name & shame” procedure and civil penalties for anyone, including lawyers, bankers employees, investment firms, accountants, incorporation firms and introducers who help individuals, trusts, funds or companies avoid taxes offshore and for other forms of non-compliance in respect of inheritance, capital gains and income tax.

The name and shaming will be like a “perp walk” only online, so that a bank, law firm, advisor or other enabler will be forever located on an online search and is intended to hurt lawyers, accounting firms and banks where it hurts most – reputation.

Foreigners Beware?

Its important to note that offshore taxation and legal advice, and financial services provided to UK companies, shareholders, funds or individuals by necessary implication, always involves persons, firms, banks, advisors, introducers, enablers and incorporation services firms situated offshore (i.e., not in the UK) and so foreign persons, firms, entities and enablers should not automatically assume that the legislation does not apply to them if they are in other countries such as Canada, Guernsey, Cayman Islands, Dubai, The Cook Islands or the US.

If it did not apply to offshore enablers, the Bill would have little effect, although we have not come across any statement by the Financial Secretary on the issue of extra-territoriality of the Bill.

Am I Caught? 

The Bill captures people who enable others to avoid taxes using offshore mechanisms, including people who design, merely market or facilitate tax avoidance and specifically includes:

  • What the UK government calls the “whole supply chain of advisors and intermediators” who work in the flow from those who “develop offshore tax avoidance arrangements or schemes” to the tax payer who uses such arrangements or schemes to pay less tax than Parliament intended.
  • People who introduce tax payers to offshore tax avoidance schemes.
  • People who facilitate offshore tax avoidance arrangements
  • People who “develop, advise or assist” professionals develop offshore tax avoidance schemes and arrangements.
  • People who earn money from  offshore tax avoidance arrangements.
  • Banks and their necessary employees in the offshore tax avoidance machinery.
  • Trustees and their necessary employees in the offshore tax avoidance machinery.
  • Lawyers and their necessary employees in the offshore tax avoidance machinery.
  • Accountants and their necessary employees in the offshore tax avoidance machinery.

And also includes those who, for offshore tax avoidance:

  • Open bank accounts.
  • Provide legal services and legal documents.
  • Provide notary services and Powers of Attorney (the POA if a significant one).
  • Set up trusts and companies.
  • Act as professional trustees.
  • Act as professional corporate directors.
  • Act as nominees for offshore entities.
  • Help move money or assets, including by taking in placements or investments in other countries.
  • Provide planning services for offshore tax avoidance.
  • Act as a middleman or introducer, regardless of whether they are an advisor or not.
  • Complete currency conversions.
  • Hold funds in escrow or trust.

Considering that an enabler can be liable for merely introducing parties and for services that were careless, as opposed to deliberate, and may include foreign firms, advisors and middlemen, the Bill appears to the most sweeping ever enacted by a country to address tax evasion.

Clearly, the HMRC worked through all of the players who set-up and facilitate offshore trusts, and offshore private companies in order to map out those caught by the legislation.

Careless to Deliberate Conduct

The fines imposed can be quite significant, up to 100% of the amount of taxes avoided. Liability flows for a range of conduct including being careless to actual deliberately enabling tax avoidance.

The rationale behind the amendments is to “raise the stakes” to ensure that enablers, who the UK Government has said historically took the position that they will not be prosecuted, will be required to pay the costs of tax avoidance and be shamed by being named for assisting tax evaders use offshore arrangements.

Interestingly, the conduct is for tax avoidance, as opposed to the more serious tax evasion although it includes tax evasion as well as tax avoidance.

Tax evasion is a predicate offence to a money laundering offence (hence a reportable incident as a suspicious transaction to a FIU) but also, all tax evasion offenses are also money laundering offenses.

In order to be potentially liable, the lawyer, banker, advisor or enabler must have encouraged, assisted or facilitated a person to avoid taxes or be non-complaint in respect of offshore taxes.

An example would be a lawyer acting as a corporate nominee, a protector or a global bank providing offshore director services under numbered companies in order to obfuscate the beneficiaries of a trust if it leads to tax avoidance in the UK.

A Move to Just Lawyers as Advisors for Anything Offshore

Interestingly, we could not find any submissions by law firms or law societies in respect of privilege, or even the extra-territorility of the Bill in the debates in the UK Parliament.

Privilege does not attach to advice that is given in furtherance of criminality or fraud but often advice may be inter-twined as between advice that unwittingly was used for criminality and other parts of advice so the issue is of importance in the administration of justice when it comes to legislation impacting lawyers and law firms.

We suspect that, because only lawyers’ communications are protected by privilege (as opposed to advisors, trustees, protectors, banks, accountants whose advice is not), the Bill will result in a global move towards having anti-money laundering compliance and tax advice where they touch on offshore jurisdictions, be provided by external law firms so that communications (those that are privileged) can be safeguarded.

Not all uses of offshore taxation is tax avoidance or tax evasion but the Bill risks forcing firms that are not law firms, to open up their records to various governments around the world who will likely adopt similar laws.

However, one should recollect the testimony provided to the US Senate on correspondent banking in which banks said: “There is no reason for offshore banking to exist if not for tax evasion or other financial crimes.”

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