In May 2023, FTSE 100 company Entain Plc (Entain) announced that it anticipated receiving a “substantial” financial penalty following an investigation by HMRC into the activities of its former Turkish-facing online betting and gaming business.
In the announcement, Entain explained that it was seeking to agree a deferred prosecution agreement (DPA) with the Crown Prosecution Service (CPS) in order to bring the matter to a conclusion.
As both HMRC and the CPS have conduct of the case, it provides an illustrative example of how HMRC cooperates with prosecuting bodies in order to tackle corporate criminal offences.
HMRC recently announced in its 2022/2023 annual report that, with regard to serious fraud, 240 prosecutions were brought during this period as a result of HMRC criminal investigations. Arguably, these numbers could be higher and the annual report notes that HMRC typically prosecutes only where the fraud is particularly serious or a deterrent effect is needed. That may also explain why HMRC were able to secure 218 convictions out of those prosecutions, at an impressive success rate of 91% in court.
Entain is a good example of when HMRC will be ready to act.
HMRC’s role in fighting economic crime
As expected, HMRC’s role in fighting economic crime is focused on investigating tax-related criminal offences (such as the fraudulent evasion of tax or the common law offence of cheating the public revenue). The establishment of HMRC’s Fraud Investigation Service in 2015 brought together HMRC’s criminal and civil investigators with a view to tackling serious and complex cases of tax non-compliance.
Interestingly, the offences under investigation in Entain’s case are not limited to tax-related offences but include the corporate offence of failing to prevent bribery (as contained in section 7 of the Bribery Act 2010). Given that the Bribery Act primarily assigns responsibility for the investigation of bribery offences to the Serious Fraud Office, HMRC’s involvement means that there is likely to be a tax nexus to the alleged offences overall.
HMRC has a number of statutory powers to aid its investigation of economic crime, including the power to apply for and execute search warrants, make arrests, and apply for orders requiring information to be produced (also known as “production orders”). The investigation faced by Entain began in 2019 when a subsidiary received a production order from HMRC requiring it to produce information relating to the Turkish-facing business.
While HMRC has an important role to play in investigating economic crime, it does not have the power to independently prosecute offences. The Inland Revenue and HM Customs and Excise (HMRC’s predecessor) did have the power to prosecute, but criticisms of the handling of prosecutions and concerns over independence led to the establishment of a separate prosecuting body known as the Revenue and Customs Prosecutions Office (RCPO) in 2005. The RCPO was independent of HMRC but had responsibility for prosecuting cases investigated by HMRC. In January 2010, the RCPO merged with the CPS.
As HMRC has not had a designated prosecution authority since 2010, it now refers cases to prosecuting bodies such as – in Entain’s case – the CPS. It is the prosecuting body who ultimately makes the decision as to whether or not to prosecute a case – although in cases where HMRC have undertaken the investigation, it is likely to provide ongoing support and tax expertise as a case progresses.
The role of prosecuting bodies
The CPS prosecutes criminal cases on behalf of HMRC, as well as other enforcement bodies such as the National Crime Agency (NCA) and the Serious Fraud Office (SFO).
While the NCA, like HMRC, does not have its own prosecutorial powers and so is bound to refer cases to the CPS or other prosecuting bodies, the SFO will only delegate to the CPS those cases which it does not deem to be high-level enough in terms of the fraud, bribery or corruption involved.
The Financial Conduct Authority has its own prosecutorial powers, though will most frequently use its regulatory powers to take action.
While each body has its own specialism, referrals between specialist departments across the different authorities do happen, and it is often not clear cut from the outset which enforcing and/or prosecuting body will take conduct of a dossier.
When it comes to DPAs, only the Director of Public Prosecutions and the Director of the SFO have power to enter into them, and only offending companies (and not individuals) can avail of them. They are court-mandated agreements between a prosecuting body (either the CPS or the SFO) and an offending company, as an alternative to prosecution where this would be in the public interest. The offending company signs up to certain conditions (such as payment of compensation or a financial penalty) and in exchange avoids (or delays) prosecution.
While Entain’s offences were open to the SFO to investigate and prosecute under the Bribery Act, it is likely that these did not constitute “serious and/or complex fraud, including corruption” (being what the SFO is mandated to investigate per its founding statute, the Criminal Justice Act 1987) and the assumed existence of tax elements made it more suitable for HMRC to investigate and refer to the CPS for prosecution.
HMRC has recently faced criticism from the Public Accounts Committee for the relatively small numbers of prosecutions resulting from its criminal investigations compared with pre-pandemic levels. The concern is that such low figures will not act as a suitable deterrent to crime.
However, as noted in its annual report, HMRC’s strategy is to focus on cases that are sufficiently high value and high profile when deciding whether to refer a case for prosecution. Whether or not HMRC do increase the number of prosecutions they take, this recent announcement by Entain, a FTSE 100 company, must surely act as a potent reminder to other companies that HMRC will step in to act where necessary, and of who is likely to make a compelling target.
Companies should therefore ensure they monitor and update their suite of financial crime compliance procedures and, in the context of acquisitions of target businesses or the operation of overseas entities, ensure that policies and procedures are reviewed and adhered to. The substantial financial penalty anticipated by Entain is an effective demonstration of the risks involved in not having sufficient safeguards in place: in such circumstances, companies will face the combined investigatory and prosecutorial powers of the UK’s authorities.