Financial Services Quarterly Report - Third Quarter 2017: Global Update: UK Criminal Finance Act 2017: Immediate Considerations for Asset Managers

by Dechert LLP

Dechert LLP

UK asset managers, non-UK asset managers carrying on business in the UK and the funds they manage are within the scope of the new corporate criminal offences of failing to prevent the facilitation of tax evasion. As the new offences apply with effect from 30 September 2017, to the extent not already completed, asset managers and funds should prioritise conducting a risk assessment and formulating a strategy to implement reasonable preventative measures.

Criminal Finance Act 2017

The Criminal Finance Act 2017 has introduced two new corporate criminal offences of failing to prevent the facilitation of UK tax evasion and foreign tax evasion. For further information regarding this legislation, please refer to Dechert OnPoint, UK Criminal Finances Act 2017: A Dechert “Dirty Money” Trilogy; Part One: “A Fistful of Tax Dollars” – A New Corporate Offence of Failure to Prevent the Facilitation of Tax Evasion.

In brief, the offences may apply where an “associated person” of the asset manager or fund (the “relevant body”) criminally facilitates the criminal evasion of tax by a third party, and the relevant body fails to prevent the associated person from committing the act of criminal facilitation. However, the relevant body will not be guilty of an offence if, at the time the facilitation offence was committed, the relevant body had reasonable procedures in place to prevent the facilitation of tax evasion or it was reasonable for no such procedures to be in place.

Application to Financial Services

Although not specifically targeted to the financial services sector, HM Revenue & Customs (HMRC) published guidance, making clear that it considers the sector to be high risk as regards the new offences. A further indication of HMRC’s expectation for the financial services industry is provided by the following quote attributed to HMRC in AIMA (the Alternative Investment Management Association)’s published guidance: “It cannot readily be conceived that there is any circumstance in which it would be reasonable for a financial institution to fail to conduct a risk assessment and maintain a record of that assessment.”

HMRC previously announced its expectation that, by 30 September 2017, relevant bodies will have conducted a risk assessment of their business in relation to the new offences and created a plan to address major risks and priorities identified, with a clear timeframe for implementation. Therefore, any UK asset managers and any non-UK asset managers carrying on business in the UK that have not yet taken these steps on behalf of the entities in the management group, as well as any funds they manage, should do so as a matter of priority.

Risk Assessment

A critical part of the initial and ongoing risk assessment will be identification of the “associated persons” of the asset manager itself and the funds it manages. An associated person is, broadly, any employee, agent or other person who performs services for or on behalf of the relevant body.

In the context of a typical asset management business, associated persons may include the partners and employees of the business, any subsidiaries or group companies, and possibly certain service providers (such as distributors, lawyers or accountants). In the context of a fund, the range of associated persons may be wider and may also include the fund’s directors, its investment manager and/or adviser, the prime broker, custodian, administrator, intermediaries and distributors and other service providers. As a result, the risk assessment undertaken by an asset manager and the preventative measures it implements will likely differ from those in the case of a fund.

By way of example, in the context of a typical asset management business, it should be relatively easy to “sit in the seats” of the partners and employees and consider if they have a motive, means and opportunity to facilitate tax evasion. Any identified risks may be managed by putting appropriate internal policies and training in place. In many cases, the highest risk areas will be operation processes (such as payroll and accounts payable/receivable) that are directly responsible for payment flows.

With respect to third-party associated persons (particularly in the case of a fund), sitting in the seats of service providers and understanding their means, motives and opportunities may be more difficult. Therefore, the risk assessment process and preventative measures implemented should be tailored to the specific relationships with the relevant associated persons and the services they perform. In the case of external associated persons, consideration should be given to amending or updating contractual terms to require the organisation to have reasonable preventative measures in place.

Action Items

To the extent the following steps have not already been completed, asset managers should:

  • Identify the associated persons of the asset manager and of the funds it manages.
  • Assess the risk that such associated persons may facilitate the evasion of tax while acting for or on behalf of the manager/fund. Do they have the means, motive and opportunity to facilitate tax evasion? Are there any tax evasion red-flags in the way they carry out their activities?
  • Consider whether steps could be taken to prevent or manage any identified risk areas. This may include (among other measures): training; other internal communications (such as a public statement from senior management); and/or contractual safeguards.
  • Put in place a strategy for the implementation or enhancement of risk-based prevention procedures and controls. This may build upon existing procedures, such as those in relation to anti-money laundering or the Bribery Act.

HMRC’s conclusion that the financial services sector is at high risk for tax evasion is not surprising, given the sums of money involved and the complex structures utilised. Although it may be difficult for asset managers and funds to prevent a rogue associated person from facilitating tax evasion if such person is determined to do so, taking these steps and putting preventative measures in place may significantly reduce the risk of prosecution under the new offences, as well as the unlimited fines, reputational damage and possible regulatory consequences that may follow.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Dechert LLP | Attorney Advertising

Written by:

Dechert LLP

Dechert LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.