Criminal Finances Act 2017: What UK Businesses Must Know to Stay Compliant

The Criminal Finances Act 2017, an amendment to the Proceeds of Crime Act 2002, aims to strengthen law enforcement's ability to recover the proceeds of crime, tackle money laundering, and combat corruption and terrorist financing, including by creating corporate offences for failing to prevent tax evasion.

As a business, it is your responsibility to know your customers, suppliers, and anyone you trade with, so you do not fall foul of this legislation.

What Does This Mean to Your Business?

1. Increased Accountability

The Act introduces corporate offences for failing to prevent the facilitation of tax evasion. This means businesses are now held accountable for the actions of their employees and third parties, including agents, suppliers, and contractors.

What you must do:

• Ensure you have robust procedures in place to prevent tax evasion
• Regularly review and update these procedures
• Maintain documented evidence of your prevention measures

This isn't a one-time compliance exercise. Your procedures must evolve as your business grows and as risks change.

2. Financial Penalties

Businesses found guilty of facilitating tax evasion face severe consequences:

• Unlimited fines
• Confiscation orders
• Serious crime prevention orders
• Bans on bidding for public contracts

These penalties can have a devastating financial impact on businesses, making compliance a critical priority rather than an administrative burden.

For SMEs, a single breach could be existential. For larger businesses, it could mean losing access to major revenue streams, particularly public sector contracts.

3. Reputational Damage

Conviction under the Act can lead to substantial reputational harm that extends far beyond the courtroom.

The negative publicity associated with financial crime can:

• Damage your brand permanently
• Erode trust among customers
• Deter investors and partners
• Impact employee morale and recruitment

In the age of social media and instant news, reputational damage spreads quickly and recovery can take years. Some businesses never fully recover.

Prevention is far cheaper than cure.

4. Enhanced Compliance Requirements

To avoid liability, businesses must implement reasonable prevention procedures. This isn't optional – it's a legal requirement.

Your compliance framework should include:

#### Risk Assessment

• Identify where tax evasion risks exist in your business
• Assess your exposure through employees, agents, contractors, and supply chains
• Document your findings and update them regularly

#### Employee Training

• Train staff on what tax evasion looks like
• Ensure they understand their responsibilities
• Provide clear escalation procedures for concerns

#### Clear Policies and Controls

• Establish written policies on tax compliance
• Implement controls to prevent facilitation
• Monitor compliance and effectiveness

#### Due Diligence

• Vet suppliers, contractors, and agents
• Include anti-tax evasion clauses in contracts
• Monitor relationships for red flags

#### Regular Review

• Test the effectiveness of your procedures
• Adapt them as your business and risks evolve
• Maintain evidence of ongoing compliance efforts

These measures must be proportionate to the size and nature of your business, but no business is exempt from this requirement.

5. Information Sharing and Collaboration

The Act facilitates better information sharing within the regulated sector. Businesses must be prepared to cooperate with:

• Law enforcement agencies
• Financial institutions
• Other entities working to combat financial crime

This collaboration enhances the effectiveness of anti-money laundering and counter-terrorist financing efforts. Your business may be required to provide information, records, or assistance as part of investigations.

Transparency and cooperation aren't just good practice – they're legal obligations.

6. Extension of Unlawful Conduct Definition

The definition of "unlawful conduct" now includes gross human rights abuses or violations.

This extension means that businesses must be vigilant about:

• Their own operations and practices
• Their supply chain relationships
• Ensuring they are not indirectly involved in such conduct

Prosecutors can freeze and seize assets connected to these violations, adding another layer of compliance for businesses operating internationally or with complex supply chains.

Know Your Customer, Know Your Supplier

The cornerstone of compliance is understanding who you're doing business with.

This means:

• Conducting proper due diligence before entering relationships
• Monitoring existing relationships for changes or red flags
• Asking questions when something doesn't add up
• Documenting your due diligence efforts

You cannot claim ignorance as a defence. If you fail to ask reasonable questions or ignore warning signs, you expose your business to significant risk.

The Cost of Non-Compliance vs. The Cost of Compliance

Many businesses view compliance as a burden – an administrative cost that doesn't generate revenue. But the cost of non-compliance far exceeds the cost of getting it right.

Non-compliance can result in:

• Unlimited fines
• Loss of contracts and revenue
• Reputational damage
• Director disqualification
• Criminal prosecution

Compliance requires:

• Time to establish procedures
• Training investment
• Regular review and updates
• Due diligence costs

When framed this way, the choice is clear. Compliance isn't a cost – it's an investment in protecting your business.

What Should You Do Now?

If you haven't already reviewed your business's position under the Criminal Finances Act 2017, now is the time to act.

Immediate steps:

1. Conduct a risk assessment – Identify where tax evasion risks exist in your business

2. Review your procedures – Do you have documented prevention measures in place?

3. Train your team – Ensure everyone understands their responsibilities

4. Vet your relationships – Review your suppliers, contractors, and agents

5. Document everything – Maintain evidence of your compliance efforts

The Bottom Line

The Criminal Finances Act 2017 imposes significant responsibilities on businesses to prevent financial crime. By enhancing accountability, imposing strict penalties, and promoting transparency, the Act aims to safeguard the integrity of the financial system.

Businesses must proactively adopt robust compliance measures to navigate these challenges and protect their operations.

This isn't about ticking boxes. It's about protecting your business, your reputation, and your ability to trade.

If you're unsure whether your business is adequately protected under the Criminal Finances Act, a Company Health Check can assess your compliance posture and identify any gaps before they become problems.

Book Your Company Health Check →

Interested in learning more about how this could impact your business? Get in touch →