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Will we see DPAs for individuals albeit limited to cases involving tax evasion?

17/05/2024

In a recently published plan, the UKs Labour Party has set out how a future Labour government intends to close the tax gap, through a variety of proposed legislative and institutional changes.

The “tax gap” is the difference between the amount of tax that is owed and the amount of tax actually collected by HM Revenue & Customs (HMRC).

Notably, the plan includes a consideration of expanding the application of DEFERRED PROSECUTION AGREEMENTS (DPAs) to individuals in cases concerning tax evasion.

Since their introduction, a total of 13 DPAs have been entered into between companies and either:-

  • The SFO (12) or
  • The CPS (1).

THE CURRENT SCOPE OF DPAS

  1. DPAs were first introduced in the UK in February 2014 (under Schedule 17 of the Crime and Courts Act 2013) and have increasingly grown in their centrality and importance within the UK’s economic crime framework.
  2. A DPA is an alternative to prosecution where such a route would be in the public interest
  3. A DPA is a court-mandated agreement between
    • A prosecuting agency (at present, the two agencies permitted to enter into DPAs are the Crown Prosecution Service (CPS) and the Serious Fraud Office (SFO)) and
    • An offending company,.
  4. The defendant signs up to certain conditions (such as payment of compensation and a financial penalty) and in exchange “defers” prosecution indefinitely, so long it does not subsequently violate the conditions of the DPA.
  5. Once agreed between the parties, the final terms of a DPA must be approved by the High Court in two separate hearings (one private and one public).
  6. The final DPA will then be published by the prosecuting agency on their website.

COMPANIES AND INDIVIDUALS

  1. Crucially, and unlike in the US, in the UK DPAs are currently only available to companies.
  2. Individuals may be prosecuted separately as part of the same investigation, but in practice this has happened extremely rarely, leading to only one conviction.
    • The conviction itself was also a guilty plea, not a contested trial: in 2023 the project manager of Bluu Solutions Limited was convicted of accepting bribes, and this bribery was also the subject of the 2021 DPA entered into between the SFO and Bluu Solutions Limited.
    • In 2023, the SFO dropped its prosecution of three former executives of G4S Care and Justice Services (UK) Ltd after having entered into a DPA with the entity in 2020.
  3. Further, options for “negotiated justice” more broadly in cases involving individual defendants in the UK remain far more limited than in the US.
  4. Existing legislative routes such as plea discussions and immunity deals remain scarcely utilised by enforcement agencies, particularly in the area of economic crime.
  5. This has led to growing calls for the expansion of the DPA regime to individuals, in order to deal efficiently with economic crime cases in a way that avoids the time and cost of a contested prosecution.

HOW WOULD LABOUR’S PROPOSAL FIT WITHIN HMRC’S EXISTING FRAMEWORK?

  1. The Labour Party’s plan would involve consideration of an expansion of DPAs to individuals, limited to cases involving tax evasion: an area that is typically the domain of HMRC.

PRESENTLY HMRC USES THE CIVIL INVESTIGATION TOOL IS CODE OF PRACTICE 9

  1. Presently, where fraud is suspected, HMRC’s most significant civil investigation tool is Code of Practice 9 (COP9).
  2. Under COP9, where HMRC suspect that an individual has committed tax fraud, the taxpayer is invited to make full disclosure of their actions, in return for an assurance that HMRC will not criminally investigate those disclosures.
  3. However, if a taxpayer does not cooperate with the COP9, a criminal investigation and prosecution may follow.
  4. HMRC does not itself prosecute taxpayers, but it can refer cases to the CPS and in 2022-23 a total of 240 prosecutions resulted from HMRC criminal investigations.
  5. The maximum prison term for tax fraud was increased from 7 years to 14 years earlier this year.
  6. A plea agreement may also be negotiated between the prosecutor and the individual or company being investigated in order to resolve cases of serious tax fraud
    • See, for example, the high-profile case of Bernie Ecclestone last year
  7. However, the Court retains discretion over sentencing even where there is a plea agreement in place.

WHAT MIGHT AN INDIVIDUAL DPA ADD TO THIS?

  1. Arguably, the existing COP9 procedure already mirrors the purpose of a DPA –
    • It encourages cooperation and disclosure from the taxpayer to recover the funds due, and in exchange the taxpayer will not face a criminal conviction so long as they abide by the terms of the deal.
  2. Unlike DPAs,
    • COP9s do not require any additional judicial oversight or cooperation with prosecuting bodies, so they would presumably remain HMRC’s first port of call when dealing with tax fraud.
  3. However, Labour may consider that the fundamentally criminal (albeit deferred criminality) nature of DPAs demonstrates a tougher approach to tax fraud than the civil COP9 procedure, despite the fact COP9 carries the retained threat of criminal prosecution for non-compliance.
  4. DPAs are also public, as opposed to the private COP9 procedure, which may contribute to the ‘naming and shaming’ deterrent effect, although it will of course correspondingly reduce their attractiveness to defendants as opposed to the COP9 route.
  5. Further, if one aim of individual DPAs is to benefit from significant cost and time savings through the avoidance of trial, plea agreements already represent a route to achieve this outcome. However, the lack of prosecutorial discretion in the UK, particularly over sentencing powers, means that individual DPAs would allow prosecutors to offer defendants greater certainty than plea agreements are currently able to provide.
  6. In Labour’s announcement, they suggest that the rates of prosecution following HMRC criminal investigations have been too low and this has led to a weakening in the deterrent effect of criminal sanctions.
  7. It is worth noting therefore that if DPAs were introduced for individuals, the numbers of actual prosecutions may fall further, and there could be concerns that the deterrent effect of DPAs is not as strong as for prosecutions, which may contradict Labour’s stated aim of being tough on tax evaders.
  8. There is no doubt that DPAs can be an effective method of bringing in funds:
    • If Labour’s priority is to quickly and effectively recoup the losses to the exchequer caused by tax evasion, then this may be a route to do so, although this is something that the civil remedy of COP9 is already designed to achieve.
  9. Ultimately therefore, whilst there may be a case for individual DPAs more broadly, it is not clear that they would add much of substance to HMRC’s already existing and varied powers in the area of tax evasion.
  10. This may indeed be the conclusion reached during the exploration of the idea that Labour has promised to undertake.
  11. Alternatively, it may be determined that the more enforcement tools available to HMRC the better, and that their underlying criminal nature makes DPAs sufficiently distinct from COP9 to offer something different.
  12. Perhaps the most important consequence of introducing DPAs for tax evasion cases would be the symbolic breaking of the existing barrier between individuals and companies under the DPA regime, and the inevitable calls that would follow to expand their use to the whole breadth of economic criminality.

Source

 https://blog.macfarlanes.com/post/102j7v5/individual-dpas-a-comment-in-passing-or-a-new-tool-for-hmrc

https://linkscan.io/scan/ux/aHR0cHM6Ly9ibG9nLm1hY2ZhcmxhbmVzLmNvbS9wb3N0LzEwMmo3djUvaW5kaXZpZHVhbC1kcGFzLWEtY29tbWVudC1pbi1wYXNzaW5nLW9yLWEtbmV3LXRvb2wtZm9yLWhtcmM=/1CCDE1E1AFC465894F81DB718167A6CDE9C6EAC72D5300E118D69A286AA50E86?c=1&i=1&docs=1

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