New corporate offence in the Criminal Finances Act 2017 tightens duty of care for companies to fight tax evasion – also effects German companies

On 30th of September 2017 a new corporate offence came into force under Part 3 of the Criminal Finances Act 2017 (“CFA”) that makes it easier to hold domestic and foreign companies to account with regard to tax offences. If a company has failed to take reasonable steps to prevent an agent who acts on their behalf from facilitating tax evasion, the action of the agent can now be attributed to the company (see Part 3, Section 45 (1) - (3) CFA). Previously it was the public prosecutor’s responsibility to prove that the tax evasion was also known about at management level and that they intentionally tolerated it. Board members of global companies in particular could therefore not be held accountable because it was not possible to prove knowledge of these dishonest practices due to decentralised management and not every decision being penned by board members.

The new corporate offence applies to UK and non-UK companies (Part 3, Sections 45-46 CFA) provided that their trade has an effect on the English market or their activities or omissions demonstrate a connection with England and/or Wales.  The new offence is based on the assumption by the British Government that every company has extensive knowledge of foreign tax laws. Again, "ignorance is no defence" in this case.

Supreme Court establishes new test for “dishonesty” in criminal matters

The test for “dishonesty” used to be different for criminal and civil matters. In criminal matters R v Ghosh [1982] EWCA Crim 2 had established a two stage test. Firstly the action had to be objectively dishonest according to the standards of reasonable and honest people. Secondly the defendant himself had to realise subjectively that what he was doing was by those standards dishonest.

Now the Supreme Court held in of Ivey (Appellant) v Genting Casinos (UK) Ltd t/a Crockfords (Respondent) [2017] UKSC 67 that the test for civil matters also applies to criminal cases. This test does not have a strong subjective element. First the actual state of knowledge or belief must be established based on facts, then the question is whether this state of mind is seen as honest or dishonest according to the standards of ordinary decent people.

The case at hand was a civil case. The Appellant was a professional gambler. He managed to win £7.7 million within two days at the respondent’s casino using a technique called “edge sorting”. With the help of an associate he influenced the croupier to turn cards slightly depending on whether the players considered them “good” or “not good” and then to re-use the same deck of cards. This way the Appellant changed the odds in his favour as he could recognise the good cards. The croupier was completely unaware of the technique.

The Supreme Court decided that this behaviour was cheating as it influenced the cards that were used. There was no difference in using the croupier to influence the cards or doing it with one’s own hands. In particular it was held that it was irrelevant whether the Appellant thought he was cheating. Therefore Mr Ivey did not receive his winnings. Additionally the Supreme Court criticised the two stage test in criminal cases for favouring defendants with a more abnormal state of mind. Furthermore the subjective element was seen as difficult to apply in practice. The Supreme Court thus held that the objective test for dishonesty from civil matters also applies in criminal matters.

With this ruling the Supreme Court clarified this area of law and in the future it should be easier to proof dishonesty.

Criminal defence in English courts

Contrary to the practice in German criminal procedure, according to English law no distinction is made between the professions of a public prosecutor and a criminal defence lawyer. This means that lawyers appearing in court may be called to represent the state (Crown) as well as the defendant in court. Most criminal lawyers regard this opportunity to view things from a different perspective not only as a challenge but also as an enrichment of their experience.

Age of criminal responsibility according to English law

Although minors under 10 years of age cannot be prosecuted, minors between 10 and 14 years of age can already be prosecuted to a certain extent.  Whether the minor is already criminally responsible depends on whether he or she is judged able to understand his or her actions. If a minor is arrested after committing a theft and states that he did not “steal” the stolen goods, an English court will usually presume that criminal responsibility is given regarding the illegality of the action because the word “steal” was used.