Act Now

LEGAL FOCUS – Michelle Reilly, CEO, 6CATS International on the next phase of Criminal Finances Act.

The second phase of the Criminal Finances Act (CFA) 2017 has now come into force which grants HM Revenue & Customs greater powers of investigation and prepares the authority to carry out prosecution in the near future. However, it would appear that many agency owners and FDs – essentially those individuals who are most at risk – remain unaware as to what this means to them.

In a nutshell, the CFA has been introduced to further clamp down on evasive behaviour, with all parties associated with fraudsters facing action. As part of phase two, the following specifications have been added:

• HMRC has now been granted further powers to help it identify and prosecute fraud, including the ability to seize property during investigations.

• Investigating officers have been given increased authority to search for and seize cash, including gaming vouchers fixed-value casino tokens and betting receipts.

• Officials have been granted the ability to force forfeiture of cash without obtaining a court order.

For recruitment agencies, simply being connected with a contractor or third party supplier that has been involved in tax evasion will result in your name being put in the pot of those to investigate. However, despite the fact that this legislation now exposes agencies to greater risks, there’s still a concerning lack of knowledge around why the CFA matters to business owners.

At 6CATS International we’ve consistently faced a level of disbelief that this legislation will have an impact. Indeed, in our joint survey with Camino Partners, we discovered that 43 per cent of firms are currently unaware of the potential damage to the business from a breach of CFA rules. While a firm’s managing directors and owners may currently feel comfortable about remaining in denial, it is a risky approach that we would certainly advise against. Yes, it is true that with the second phase only recently being rolled out we have yet to see any big cases hit headlines. However, it is only a matter of time before this changes and agencies don’t want to be the first to make the news in relation to this.

HMRC takes a harder line

There can be no shying away from the fact that HMRC is becoming much stricter in its fight against fraud, with the second phase ensuring it is better equipped to tackle this issue. Claiming to be unaware of activity that your firm is even loosely connected with will not be deemed a defence by authorities. Rather worryingly, despite this fact, numerous agencies are currently involved in activity that is non-compliant, but they don’t know it.

Some of the most common activity that falls under this bracket is the use of split-payroll – where pay is divided between local and home-country currencies. Utilising any loopholes in order to increase a professional’s take home pay is also in breach of the Act and will see agency owners placed in the firing line if their teams aren’t making them aware of contractors or suppliers that are involved in this activity.

For those firms utilising management services companies, the risk cannot be offloaded to this supplier. Many of these companies are using non-compliant solutions which, under the CFA, would mean the recruitment agency is also breaching regulations by failing to prevent the facilitation of tax evasion. What we’ve certainly found in these instances is that many business owners are simply unaware that their suppliers aren’t compliant, but with phase two of the Act making it clear that HMRC has the power to investigate all parties associated with fraud, it is no longer acceptable to rely on the reassurance that a supplier is compliant.

Our talks with recruiters really demonstrate that, while some may feel they are compliant, most agencies are, in fact, failing to carry out the correct due diligence and checks. With it being only a matter of time before we see the first agency case hit headlines, business owners and FDs need to take action now to ensure they are not the ones that are made an example of.

Of course, seeking expert advice is crucial, but it is also key that senior leaders take control and ensure teams understand what is non-compliant under the CFA and, perhaps more importantly, what to do if they are made aware of a potential breach of the rules. The onus really is on managers and agency owners to drive compliance in relation to the Criminal Finances Act as it will be these individuals held accountable should investigations reveal any association with tax evasion.