Tax Avoidance and Evasion

Catherine McKinnell Excerpts

Wednesday 13th April 2016 Commons Chamber

[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

As the co-founder and chair of the all-party parliamentary group on anti-corruption, I am pleased to have the opportunity to contribute to today’s debate.

The issues under discussion are, rightly, very high on the public agenda, and a great number of my constituents have contacted me to share their concerns. They, like many others, have a strong sense of both the real and the perceived injustice in our system, whereby the vast majority of people in this country play by the same rules and have very little choice about the contribution they make to the public purse. This is not about envy or anger at wealth, whether it be earned or inherited; it is about the fact that those at the top end of the income scale seem to play by an entirely different set of rules. That, understandably, makes people angry, and the Government must take genuine steps to level the playing field and regain the public’s trust.

One of the assertions that has been made in representations to me is that the solutions to the problem are easy. Although I do not necessarily subscribe to that view, I do think that there are a few relatively simple steps that the Government could take to make a significant difference. Those steps would bring about much greater transparency about the ownership of individual and company assets and wealth, and enable a very clear view of who the beneficiaries are of investments and funds, whether they are held here in the UK or in offshore trusts and accounts. It is essential to deal properly not only with aggressive tax avoidance that Parliament never intended to be pursued, but with tax evasion and other criminal activity, such as fraud and corruption. Too often, both issues go hand in hand.

In his statement on the Panama papers on Monday, the Prime Minister acknowledged:

“Under current legislation it is difficult to prosecute a company that assists with tax evasion”.—[Official Report, 11 April 2016; Vol. 608, c. 26.]

He is absolutely correct. In fact, the challenge is understated, and I will briefly explain why. At present, under UK law, in order to hold a company criminally liable, prosecutors must identify an individual sufficiently senior within the organisation—usually at board level—as its “controlling mind” with knowledge of the offence. In an increasingly globalised world where multinational organisations, which have very complicated structures and management arrangements, are the norm, that sets an extremely high bar for prosecutors to cross. By contrast, in the US a company can be held vicariously liable in criminal law for the actions of its employees undertaken in the course of their employment.

The Government seemed to acknowledge that inadequacy in UK law and included proposals in their 2015 manifesto to introduce corporate criminal liability for economic offences. Yet by September 2015 those proposals were quietly dropped, a fact that came to light only in response to a written parliamentary answer. The grounds stated by the Minister who gave that answer were that

“there is little evidence of economic crime going unpunished.”

That was, frankly, a ridiculous assertion, and I hope that the Panama papers have finally put that notion to bed.

It is clearly unacceptable that, here in the UK, prosecutors of economic crime—tax evasion, corruption and fraud—are effectively operating with one hand tied behind their backs. Indeed, David Green, the director of the Serious Fraud Office—the law enforcement agency tasked with prosecuting the most serious and complex economic crimes—has been clear for some time about the inadequacy of our law. As he pointed out in an interview with the Evening Standard in January, the identification principle

“is difficult because inevitably the email trail tends to dry up at middle management and evidentially it is hard to prove.”

I put that point to the Prime Minister on Monday, and I was glad to hear him commit to going away and looking at the proposals. I hope that Ministers are listening carefully to this debate and that those at the Ministry of Justice in particular will report back to him as a matter of urgency. The proposal is to extend the application of the section 7 offence—which I will explain—not only to tax evasion, but to all economic crime.

This is the nub of the issue. As the Prime Minister announced on Monday—indeed, he had announced it previously, but no follow-up action has been taken as yet—the Government intend to legislate so that corporates can be held criminally liable for failing to prevent the facilitation of tax evasion. That is an acceptance that the current corporate liability framework, which applies to all economic crimes, does not work.

The Government propose to do that by creating an offence modelled on section 7 of the Bribery Act 2010, introduced by the last Labour Government, that holds a company liable if it fails to take “adequate steps” to prevent bribery by its employees. In other words, it puts the onus on companies to ensure that proper compliance procedures are in place and holds them criminally liable if they do not do so. That model, which already applies to the offence of bribery, will apply to tax evasion under the Government’s proposals.

Why stop at tax evasion? Why not extend the provision to cover failure to prevent other crimes, such as fraud or money laundering, as promised in the Conservative party’s 2015 manifesto? The director of the Serious Fraud Office has suggested that that is a workable solution. Back in 2013, he highlighted the benefits:

“Such an approach would merely add a criminal sanction to existing obligations; it would assist in the reform of poor corporate culture which contributed to the crash; it would underpin the recovery by encouraging clean and stable markets; it would increase investor confidence, assist in more rapid prosecutions and dovetail well with deferred prosecution agreements.”

[Mr Jim Cunningham (Coventry South) (Lab)]

My hon. Friend mentioned earlier the situation in America. None of the bankers in this country was held to account for the crash, but a number of those in America were. Does she agree that something should be done about that?

[Catherine McKinnell]

Absolutely. My hon. Friend raises a very important point. The banks in America have paid significant fines as a result of their behaviour ahead of the crash, but it has been significantly more difficult to ensure that justice is done here. That is the very reason why the issue needs to be addressed. The solution is very simple and workable. The Government already intend to legislate on tax evasion, so it would simply be a case of expanding the number of offences to which the legislation applies.

I strongly urge the Government to look closely at part 2 of schedule 17 to the Crime and Courts Act 2013. It sets out a useful list of offences, covering all manner of fraudulent and corrupt offences—from false accounting and forgery, to fraudulent trading, bribery and money laundering—that the Government’s proposed new offence could equally apply to. The work is all done. The ducks are lined up; the Government just need to implement the change.

The revelations in the Panama papers represent a pivotal moment that the Government must not squander. The Panama papers have not just highlighted issues relating to tax evasion and, indeed, avoidance, but raised even greater questions about illicit financial flows, laundered money and the proceeds of crime, and about how companies exploit tax havens and secretive jurisdictions to facilitate that. Ahead of next month’s anti-corruption summit the Government should send out to the rest of the world the clearest of messages that the UK is serious about tackling economic crime in all of its forms, and its facilitation. I urge the Government to take the opportunity to take this important step to arm our law enforcement agencies and courts with the ability properly to hold companies to account.