Criminal Finances Act and human rights

By Liliya Akhmadullina, guest blogger

In April 2017, the UK Government enacted the Criminal Finances Act (‘Act’) which has created a potentially significant liability for companies and partnerships involved in the facilitation of tax evasion. The Act’s wide extraterritorial application means that a company will be liable not only for conduct which occurred in a part of the United Kingdom but also in a country or territory outside the United Kingdom. The MPs message during Parliament’s debates was clear: if a company is part of UK plc, or sends people to the UK, it is not okay for it to ‘criminally facilitate the evasion of taxes, wherever they are owed.[1]

The Act is not aimed at making the UK authorities being the police officers of the world’s tax affairs but instead ensuring that corporations understand that their unlawful conduct, whether in the UK or overseas, will be penalized.

What does  conduct connected to gross human rights abuse include?

While only time will show the effectiveness of the new Act, one of its provisions is a progressive step to ensure that the UK is no longer a safe haven for human rights violators. Expanding the scope of the Proceeds of Crime Act 2002, the new Act allows the UK prosecutors to use civil recovery measures against the companies whose conduct ‘constitutes the commission of a gross human rights abuse or violation’.[2] Conduct, connected to a gross human rights abuse or violation includes:

• acting as an agent for another in connection with activities related to a gross human rights violations;
• directing or sponsoring such activities; profiting from such activities; or
• ‘materially assisting’ such activities.

The Act does not define ‘human rights’. Companies should therefore refer to the European Convention of Human Rights which was incorporated into the UK Human Rights Act 1998. However, the Act states that prohibited conduct includes torture or cruel, inhuman or degrading treatment. Examples of the inhuman or degrading treatment previously found by courts include overcrowded cells, inadequate health care in prisons; sleep deprivation.

With many new positive changes, the Act also contains norms that may increase companies’ vulnerability to criminal liability. Thus, conduct is connected with the commission of a gross human right abuse or violation if it is conduct by a person that involves profiting from such activities. Would companies only get prosecuted under the Act if they contracted foreign politically exposed persons (PEPs) or those acting in an official capacity that were involved in the gross human rights abuses. This raises a number of questions: does providing goods to a government whose minister was accused by a human rights NGO in violations of human rights constitute as profiting from such activities or materially assisting such activity? What exactly does ‘profiting’ mean? Does it involve direct and also indirect profiting? Would a company that uses cobalt derived in a mine located in the Democratic Republic of Congo where human rights abuses occur, be considered as profiting from such activities?

Whilst we would have to see the impact of the Act over the coming years, it may be worth noting that a  few years ago, a number of coffee retailers were accused of evading billions in taxes[3]. The public’s outrage did not result in a court’s verdict. However, if the UK prosecutors decided to prosecute a coffee chain today , under the new Act, the former may decide to check whether the coffee chain has also profited from the activities relating to a gross human rights abuse or violation. The main challenge is, how far down the supply chain line prosecutors are willing to go.

What is ‘material assistance’?

It is questionable how UK prosecutors and courts will interpret what constitutes ‘material assistance’. It is especially relevant for companies operating globally. If a bank lends money to a company that buys food from a land owner that uses violence against local farmers and regularly bribes local police to cover his crimes, would a bank be considered as someone that provides a financial support in connection to human rights abuses? Or as long as a private business owner is not a public official or a person acting in an official capacity, is there nothing to worry about?

Examples for companies in mining and energy sector

For companies operating in the mining and energy sector, human rights risks are especially high. There are a few examples that come to mind:

• land acquisition by companies operating in these sectors may involve human rights abuses
• Pressuring staff to work extra hours
• Not providing staff with an adequate housing and/or sufficient food can be viewed as degrading treatment.
• Logging forests in a delta of Amazon River which deprives indigenous population of their means of living which could also potentially be seen as a degrading treatment.

Companies need to be aware that their operations in a country with an oppressive regime, combined with any of the above mentioned human rights violations, may result in their prosecution by the UK authorities.

It is worth to remember that the Act is applicable even to conduct that occurred before the Criminal Finances Act came into force. However, no recovery can be obtained through unlawful conduct after the end of a period of 20 years from the date when human rights abuse or violation occurred. This provision is however no ease for a corporation with activities in a wide range of countries, including those who have worked in the past with oppressive regimes. The challenge is to decide how far to go as for managers of many companies it is hard to justify risk minimization decisions in favour of safety at any cost.

The next post is going to talk more about UK Criminal Finances Act and discuss different risk reduction measures aimed at prevention of liability under the Act.

[1] https://hansard.parliament.uk/commons/2016-11-22/debates/bb28ffa6-8a64-4c38-9653-67e0648e5881/CriminalFinancesBill(FifthSitting)

[2] Section 13 of the Act, http://www.legislation.gov.uk/ukpga/2017/22/introduction/enacted

[3] https://www.theguardian.com/business/2013/apr/30/costa-coffee-sales-tax-starbucks