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Dr. Costantino Grasso�Associate Professor in Business and Law, Manchester Law School�Expert for the Council of Europe for Corruption and Good Governance

Solicitor in England and Wales; Lawyer in Italy

Exploring Potential Conflict of Interest in Anti-Tax Abuse Policy-Making

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Over course of the last four years, through our research we have identified a significant area of concern in the realm of Anti-Tax Abuse, especially regarding corporate tax abusive practices. Our findings reveal that this area appears to be potentially influenced by substantial conflicts of interest, which severely hinder the efficacy of introducing, implementing, and enforcing anti-tax abuse regulations. Despite various authors delving into specific topics within this field, particularly from a criminological perspective, several socio-legal aspects remain underexplored and a more consistent and holistic research approach needs to be adopted. This presentation aims to shed light on these problematic aspects, advocating for a more comprehensive approach to addressing the systemic issues that allow tax abuses to persist, especially in the corporate sector.

Dr Costantino Grasso

Exploring Potential Conflict of Interest in Anti-Tax Abuse Policy-Making

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This presentation delves into the complexities of anti-tax abuse policymaking, focusing on two scenarios:
Italy's implementation of Legislative Decree 231/2001.
The UK's approach to corporate liability under the Bribery Act 2010 and the Criminal Finances Act 2017.
Exploring these two scenarios, we may observe the challenges and potential conflicts of interest involved in creating and enforcing legal frameworks to effectively hold corporations accountable for tax abuses. They highlight the tensions between the imperative for strong legal measures and the reality of implementing and enforcing them.

Dr Costantino Grasso

Exploring Potential Conflict of Interest in Anti-Tax Abuse Policy-Making

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Although the two scenarios may seem entirely different, they are both connected to an ongoing concern within the realm of economic and corporate crime. This concern revolves around the challenge posed by large corporations, whose scale and influence can hinder or complicate punitive legal actions against them.
The essence of the conflict of interest (Prof. Garrett brilliantly referred to it as “too big to jail”) stems from the paradox that jurisdictions may aim to enforce strict measures against corporate misconduct to maintain integrity and fairness. However, doing so could de facto place domestic companies or those operating within their borders at a competitive disadvantage on the global stage.
This paradox, which generates an unfavorable equilibrium at the national level, has prompted international discussions aimed at aligning corporate accountability with economic competitiveness at the global level (e.g., the advocacy for establishing a minimum effective tax rate).

Dr Costantino Grasso

Exploring Potential Conflict of Interest in Anti-Tax Abuse Policy-Making

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In Italy, the main limit in the recognition of a corporate criminal liability derived from the former interpretation of Art. 27, par. 1, of the Italian Constitution, which states that “criminal liability is personal.”
For a long time, both scholars and jurisprudence were interpreting the term “personal” as solely referable to the natural persons, as the only ones able to think, to reflect, to will and consequently, to act (societas delinquere non potest).
However, between the late '80s and early '90s, both the European Union (then the EEC) and other international institutions (such as the UN and OECD) encouraged countries to adopt appropriate measures to prevent and combat crimes committed by corporations. This push led to the development of various instruments, including the Convention on the Protection of the Financial Interests of the European Communities (1996), the Convention Relating to the Fight Against Corruption Involving EU Officials (1997), and the OECD Anti-Bribery Convention (1997).

Dr Costantino Grasso

Exploring Potential Conflict of Interest in Anti-Tax Abuse Policy-Making

ATTRIBUTION OF CORPORATE LIABILITY: THE ITALIAN SYSTEM

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As a result, Legislative Decree no 231 of 2001 introduced in the legal system a liability regime for corporations involved in criminal conducts. Before such an innovation, it was not possible to find a legal person liable for a criminal conduct (https://sherloc.unodc.org/cld/document/ita/2001/legislative_decree_8_june_2001_no._231_english.html).
Since its adoption Decree no 231 has raised a vexed question that is still under intense debate. It concerns the very nature of the corporate liability regime introduced by the statute. As a matter of fact, Decree no 231 is formally entitled “Regulations concerning the administrative liability of legal persons.”
Notwithstanding that, several key elements suggest that the rules introduced by the statute have criminal nature: the circumstance that the liability is assessed by criminal courts using the rules laid down in the Code of Criminal Procedure and that it derives only form the commission of certain predicate offences.

Dr Costantino Grasso

Exploring Potential Conflict of Interest in Anti-Tax Abuse Policy-Making

ATTRIBUTION OF CORPORATE LIABILITY: THE ITALIAN SYSTEM

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Under the mechanism introduced through Decree no 231 of 2001 a corporation can be held liable only for the commission of specific predicate offences.
The list (set out in Articles 24 to 26) appears extremely heterogeneous including a variety of offences not connected to a central thread (e.g., Article 25 ter focuses on financial crimes, Article 25 quater (1) includes the offence of female genital mutilation). Moreover, the legislature has constantly expanded the range of predicate offences lately including in the list significant new crimes. Whilst the original version provided only two predicate offences (i.e. fraud and corruption), now it includes seventeen articles each of which comprises more than a single offence.
Although the list of covered offenses was extensive, the legislature excluded tax evasion and other tax crimes, which are well-recognized and recurring categories of corporate misconduct.

Dr Costantino Grasso

Exploring Potential Conflict of Interest in Anti-Tax Abuse Policy-Making

ATTRIBUTION OF CORPORATE LIABILITY: THE ITALIAN SYSTEM

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The legislature’s decision to exclude tax crimes from the list of predicate offenses was openly criticized by Italian prosecuting authorities.
[…] the choice made by the legislator regarding [corporate] administrative liability needs to be addressed, as it leaves ample room for the discretion of inclusion, particularly in the categories of the so-called underlying offenses (taking into consideration bid rigging, unlawful financing, and tax fraud). Milan Public Prosecutor Office 2017.
It is important to note that:
In Italy, as provided by Article 112 of the Constitution, criminal prosecution is mandatory.
While subject to debate, the Italian legal system does not incorporate any specific provisions for corporate settlement agreements; only a plea-bargaining procedure is applicable.

Dr Costantino Grasso

Exploring Potential Conflict of Interest in Anti-Tax Abuse Policy-Making

PERPETRATION OF A RELEVANT OFFENCE

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Ultimately, the EU obliged all Member States to attribute liability for such crimes to corporations (at least in situations where the EU budget may be affected); however, even then the Italian legislature was very selective and did not include all tax crimes in their revised predicate offense list.
In these contexts, the implementation of a supranational check, as exemplified by the situation Italy faced with the European Union (EU), can serve as a valuable mechanism to address and potentially overcome impasses resulting from conflicts of interest or other forms of political capture.
In Chile, corporations can be liable for several economic crimes such as bribery, money laundering, and terrorist financing; they cannot be punished for tax crimes. Similarly, in the Republic of Georgia, legal persons cam be criminally liable for commercial bribery but not tax evasion.

Dr Costantino Grasso

Exploring Potential Conflict of Interest in Anti-Tax Abuse Policy-Making

PERPETRATION OF A RELEVANT OFFENCE

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Under the "identification principle" the corporate liability arises only where the offence is committed by a natural person who is the “directing mind or will of the organisation.”
As a result, under this criterion corporations are liable only for criminal conducts authorised, endorsed, or committed by top corporate members such as the CEO, board of directors, or shareholders in a general meeting.
Owing to the narrow approach to the notion of identification and given the difficulty of providing evidence for the subjective element, this criterion proved highly inefficient for the purpose of prosecuting corporations.

Dr Costantino Grasso

Exploring Potential Conflict of Interest in Anti-Tax Abuse Policy-Making

ATTRIBUTION OF CORPORATE LIABILITY: THE UK SYSTEM

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The UK signed the OECD Anti-Bribery Convention in 1997 - OECD Report no 2bis of 2008 (excerpts)

Dr Costantino Grasso

Exploring Potential Conflict of Interest in Anti-Tax Abuse Policy-Making

ATTRIBUTION OF CORPORATE LIABILITY: THE UK SYSTEM

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Dr Costantino Grasso

Exploring Potential Conflict of Interest in Anti-Tax Abuse Policy-Making

ATTRIBUTION OF CORPORATE LIABILITY: THE UK SYSTEM

To respond to the harsh criticisms received by the United Kingdom from the OECD due to the impasse created by the practical implementation of the identification principle in corruption matters, a second criterion for attributing responsibility to legal entities was adopted. This time, based on a form of strict liability.
However, it is important to note that this choice was made selectively and initially applied only to cases of bribery through the introduction of the offence of “failure of commercial organisations to prevent bribery” as provided by s.7 of the Bribery Act 2010.

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Dr Costantino Grasso

Exploring Potential Conflict of Interest in Anti-Tax Abuse Policy-Making

ATTRIBUTION OF CORPORATE LIABILITY: THE UK SYSTEM (2)

It does not replace or remove direct corporate liability for bribery under the identification principle but is conceived as a new form of corporate liability for omission that does not require knowledge, intention or recklessness (strict liability).

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Dr Costantino Grasso

Exploring Potential Conflict of Interest in Anti-Tax Abuse Policy-Making

ATTRIBUTION OF CORPORATE LIABILITY: THE UK SYSTEM

In a speech at the Royal United Services Institute on October 8, 2020, the former Director of the Serious Fraud Office (SFO), Lisa Osofsky, revealed a list of measures that would, in her view, help to improve the SFO’s crime-fighting capabilities.
“So, what would be on my wish list for the SFO, if I had a magic wand?�Unsurprisingly, a failure to prevent offence still tops it. The need for change in this area became more acute in light of the Barclays Qatar judgment, which confirmed a narrow application of the controlling mind test, making it very difficult to hold companies with complex governance structures to account for their fraudulent conduct.” https://perma.cc/89KC-7LM4

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Dr Costantino Grasso

Exploring Potential Conflict of Interest in Anti-Tax Abuse Policy-Making

ATTRIBUTION OF CORPORATE LIABILITY: THE UK SYSTEM

In the UK, there has been a significant push to expand the scope of corporate criminal liability beyond the existing framework established by the Bribery Act 2010. The call for expansion is driven by the perceived limitations of the current legal framework to effectively hold corporations, especially large ones, accountable for a broader range of economic crimes beyond bribery, such as fraud. The Law Commission, an independent body responsible for reviewing laws and recommending reforms, has been at the forefront of these discussions. It published proposals for reforming corporate criminal liability, highlighting the need for laws that ensure corporations can be held accountable for a wider array of offenses.

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Dr Costantino Grasso

Exploring Potential Conflict of Interest in Anti-Tax Abuse Policy-Making

ATTRIBUTION OF CORPORATE LIABILITY: THE UK SYSTEM (2)

Following these discussions, two new offenses have been introduced and, in particular, a similar structure was applied to tax evasion with the introduction of the offence of “failure to prevent the criminal facilitation of tax evasion” that entered into force on September 30, 2017 (s44 - s52 of the Criminal Finances Act 2017).

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Dr Costantino Grasso

Exploring Potential Conflict of Interest in Anti-Tax Abuse Policy-Making

ATTRIBUTION OF CORPORATE LIABILITY: THE UK SYSTEM

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Dr. Costantino Grasso�Associate Professor in Business and Law, Manchester Law School�Expert for the Council of Europe for Corruption and Good Governance

Solicitor in England and Wales; Lawyer in Italy

FIGHT AGAINST CORRUPTION IN THE USA: THE FCPA