Firsts For UK SFO With In Principle False Accounting DPA, And For FCA With Market Abuse Compensation, Against Tesco

Following a two-year investigation, Tesco PLC has announced that its subsidiary Tesco Stores Limited (Tesco Ltd) had agreed in principle the terms of a Deferred Prosecution Agreement (DPA) with the UK Serious Fraud Office (SFO), subject to final judicial approval at a hearing scheduled for 10 April 2017 before Sir Brian Leveson PC. The DPA would result in Tesco Ltd paying a £129m fine to the SFO, together with the SFO's costs. It is also likely to include an admission of criminal liability and an agreed statement of facts, albeit publication of details may be withheld to avoid prejudicing the ongoing prosecution of former Tesco executives.

SFO investigation The SFO launched its investigation into Tesco Ltd's accounting practices in October 2014, after the company announced on 22 September 2014 that it had overstated its profits by £263m between February and September 2014, a figure which Tesco Ltd later revised to £326m.

In September 2016, the SFO charged three former Tesco executives with offences of fraud and false accounting. These defendants are due to stand trial at Southwark Crown Court in September 2017.

If approved by the court on 10 April, this DPA would be the fourth which the SFO has secured, following agreements with Standard Bank Plc, XYZ Limited, and Rolls Royce. The Tesco Ltd DPA, has once more confirmed the SFO's ability and willingness to pursue investigations into some of the largest corporate names, and exercise its powers to resolve them without prosecution.

This is the first UK DPA in which the offences did not relate to bribery or corruption, did not involve any foreign governments or government officials, and which appears to relate to purely commercial operations in the UK only. A further distinguishing feature of the DPA is that, given the relatively short four-month timeframe in which the conduct in question took place, the £129m fine appears significant and, as with the Rolls Royce fine, comparable to a US penalty.

FCA Enforcement Separately, Tesco PLC and Tesco Ltd agreed with the FCA that they committed market abuse in relation to a trading update published on 29 August 2014 which gave a misleading impression about the value of publicly traded Tesco shares and bonds, and have agreed to establish a scheme to compensate certain net purchasers of Tesco...