The Centre for Applied Legal Research (CALR) has relaunched the Staff Research Seminar Series. The first instalment was held on 26 February 2018 and featured two presentations both related to banking and finance law.
Sam Bourton, PhD applicant and Associate Lecturer at the Bristol Law School, opened the session with a paper entitled ‘Revisiting Dishonesty – The New Strict Liability Criminal Offence for Offshore Tax Evaders’. She started by explaining the difference between tax evasion and tax avoidance. Whilst both are ways to minimise financial liabilities, evasion in contrast to avoidance is unlawful. It is the failure to declare income, assets and other activities although taxes are due on them. Tax evasion can be tackled via non-criminal and criminal penalties. Non-criminal tax evasion usually requires the individual to pay what is owed and civil liabilities might arise. If the tax evasion is viewed as criminal then civil as well as criminal penalties might be imposed. The key difference is whether the individual was dishonest. Ms Bourton pointed out that despite the vast range of statutory offences that could be used to tackle tax evasion the UK actually uses the common law offence of ‘cheating the public revenue’ because it is phrased in broad terms an can incur huge penalties. In this case the mens rea element of the crime is of utmost importance: the person must have been acting with dishonesty. The test to ascertain the character of the person and whether he/she is sufficiently blameworthy was spelled out in R v Ghosh and widely criticised notably because there is no one standard in relation to honesty/dishonesty. As Ms Bourton explained that first the jury might not be able to understand the context in which the act was undertaken and second what is an honest or dishonest act hinges on each person’s own understanding of the concept of honesty. As a result it seems that the HMRC and CPS have only prosecuted the worst cases when it was easier to show dishonesty. The HSBC scandal revealed the scale of tax evasion in the UK and yet, HMRC only prosecuted one person and not for tax evasion but for lying on a form, COP9, asking him/her to confess to tax evasion. Recently HMRC has been given a target of 1,000 tax evasion prosecutions to be mounted per year. Concurrently the UK has adopted a new offence in the Taxes Management Act 1970 that allows for the application of a strict liability test, thereby removing the mens rea element of the crime for offshore offences. Here, tax evasion is now punishable by a fine and/or a maximum of six months imprisonment. Whilst many have expressed concern over the new offence, Ms Bourton stressed that it only applied to specific jurisdiction and only covered offshore tax evasion of £25,000 and over. At the same time the Ghosh test was revisited by the Supreme Court in Ivey v Genting Casinos, rendering the application of the test seemingly more straightforward. However, as Ms Bourton pointed out, this is not necessarily the case for cases relating to tax evasion. Ultimately the difference between tax avoidance and tax evasion hinges upon an individual’s own perception and therefore, according to Ms Bourton, motive must be taken into account. It crucially distinguishes between those who abide by the law and those who purposefully choose not to. Ms Bourton then finished her presentation by propounding her own (re)definition of the offence.
The next speaker was Prof Nic Ryder who presented the paper ‘Too scared to prosecute and too scared to jail?’ he had recently submitted to a journal for publication. Prof Ryder contrasted corporate liability as understood in the UK and in the US. He explained that the US had a long history of robust and forceful enforcement. In fact, when the scandal with Arthur Andersen LLP happened and the company was threatened with prosecution it yielded its licence as a consequence of which 25,000 employees lost their jobs. In other words, this move was tantamount to corporate death penalty. In light of this the Department of Justice altered its approach considering the impact of such actions on investors, employees and other relevant stakeholders. With this view it increased its use of deferred prosecution agreements, a move Prof Ryder questioned. Whilst such an attitude is mindful of the wider consequences of the prosecution of a company it is weak on deterrence. Indeed a company such as HSBC with a poor record of compliance with financial regulations such as weak anti-money laundering procedures, violations of the US Secrecy Act and violation of the UN sanctions regime will certainly not be deterred from continuing violating the law if deferred prosecution agreements are the preferred method of the Department of Justice to deal with financial crime. In the UK the situation is different. Courts have accepted the common law standard in relation to corporate liability for crimes which means that as long as it is possible to identify the person who has the directing mind and will of the company (Tesco Supermarkets LTD v Nattrass) a company can be prosecuted for violating financial regulations. In the UK deferred prosecution agreements are only used in relation to breaches of the Bribery Act 2010. Prof Ryder noted that in the UK the focus is increasingly on the prevention of economic crimes and thus verifying whether robust compliance procedures are in place. This, he believes, is a worthy mechanism that ought to be used more widely and not only in relation to bribery offences. Prof Ryder finished by explaining that the UK has launched a call for evidence in 2017 on corporate liability for economic crime and suggested five options for reform. He however believes that none of these options will be adopted as the consequences of the prosecution of banks are enormous for the domestic economy and there is no political appetite for such reforms. In other words ‘too scared to prosecute, too scared to jail’.