The Serious Fraud office has now published its Deferred Prosecution Agreement ("DPA") with Tesco Stores Limited alongside the accompanying statement of facts. The publication follows the collapse of attempts to prosecute three of Tesco's directors on charges of fraud by abuse of position and false accounting.
The DPA was agreed following allegations that Tesco had encouraged illegal practices to reach accounting targets contrary to the Theft Act 1968. It was approved by the Court in April 2017. The penalty levied under the DPA, totalling £235m, comprises the imposition of a financial penalty of £129m, the expected costs of an FCA compensation scheme of £85m, and related costs. All other detail were embargoed until reporting restrictions were lifted following the acquittal of Carl Roberg, the former Tesco UK finance director, on 23 January 2019.
The DPA itself now appears strangely perverse in light of the acquittals of the three former Tesco directors. Given that no individuals were found to be criminally responsible for charges of false accounting, the DPA (which states that Tesco had dishonestly engaged in false accounting) sits very awkwardly alongside (and effectively contradicts) those acquittals. It puts the DPA regime itself into question where companies may take the risk of arguing its case in court rather than strike a deal at an early stage with the SFO. Tesco's shareholders may certainly feel aggrieved that the company agreed to pay a significant fine and admit liability only for individuals prosecuted for the same allegations to be acquitted.
This apparent inconsistency between the DPA reached with Tesco and the acquittal of the directors may drive the SFO to prosecute corporations and agree DPAs under 'failure to prevent' offences. Currently there are two 'failure to prevent' offences in statutes under which corporate bodies can be prosecuted: the failure to prevent bribery in the Bribery Act and the failure to prevent tax evasion in the Criminal Finances Act 2017. Under both statutes it is a defence for a corporate body to show that it had in place reasonable procedures to prevent bribery and tax evasion. By contrast, other economic crimes require prosecutors to identify a "controlling mind" directing the wrongdoing within the organisation in order for the organisation to be criminally liable. Concluding a DPA on the basis of failure to prevent offence (effectively a negligence standard) would avoid the dichotomy of individuals within the organisation later being acquitted if prosecuted. For example, if a DPA is agreed on the basis of a company's failure to prevent bribery, subsequent prosecution for bribery of certain directors of that organisation resulting in acquittal would have no bearing on the failure to prevent finding. The SFO director, Lisa Osofsky, has called for wider "failure to prevent" offences in order to increase UK prosecutors' abilities to bring criminal charges against companies.
Finally, it is interesting to note that Tesco agreed a limited waiver of privilege over relevant material. The SFO's DPA Code of Practice lists a number of factors that a prosecutor may take into account when deciding whether to enter into a DPA. The key factor is the investigated organisation's co-operation with the prosecutor, but waiver of privilege is not specifically mentioned. Following the publication of the Tesco DPA, it would appear that waiver of privilege by an organisation could be an important factor when negotiating a DPA, particularly in circumstances where the organisation did not self-report. If the requirement for co-operation envisaged a waiver of privilege there must be a question as to whether or not this should have been expressly mentioned within the Code, given the absolute nature of privilege.
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