The recent acquittal of three former members of Tesco senior management raises important questions for companies about the UK DPA process.
The SFO has also just decided to terminate the investigation into the Rolls-Royce managers after the company had entered into a DPA and accepted fines of $800 million based on the guilt of those same individuals. Such prosecutions must surely pass the test of being in the public interest, so the SFO decision is most likely based on the fact that there is insufficient evidence to prove corruption — an outcome that only accentuates the problems for companies considering a DPA deal.
The Tesco case arose after the company’s internal analysis in September 2014 suggested that income had been fraudulently recognised in the previous half year having been “pulled forward” from its “proper” place in subsequent years. As a result, Tesco issued a statement to the market that the profit for the half year to August 2014 had been “overstated by approximately £250m.”
After a two year investigation by the SFO, Carl Rogberg (Finance Director), Chris Bush (Managing Director), and John Scouler (Commercial Director) were charged with fraud and false accounting alleging they had knowingly encouraged fraud to inflate the profit in the first half of the year and had reported false figures for the profit announcement.
A few months before their trial, Tesco Stores Ltd entered into a DPA with the SFO. The basis of the DPA was contained in a “Statement of Facts” that named the three individuals and stated that they had committed fraud and false accounting. It detailed the manner in which the offences were said to have been perpetrated by them.
Although the fact of the DPA was made public, publication of the Statement of Facts was postponed until the conclusion of the individuals’ trial because it was so prejudicial to the individuals.
After the first trial was abandoned, at the retrial of the individuals, the trial judge ruled that “in certain crucial areas the prosecution case was so weak” that no jury could convict. The three were acquitted of all charges.
Before Mr. Rogberg was formally acquitted, and therefore before the DPA could be published, the three individuals sought to have their names anonymised in the Statement of Facts since it was flatly contradicted by the trial judge’s ruling that there was no case to answer. However, the DPA court found that it had no jurisdiction to revisit the DPA or the Statement of Facts under the statutory scheme and the DPA could be published as it stood when Mr. Rogberg was acquitted.
The result was that two contradictory judgments were published on the same day. Both cannot be right. In English law, a company cannot be guilty unless a person who is the “controlling mind and will” of the company is guilty. While the DPA court found “clear evidence of what amounts to a serious breach of criminal law and… implicates senior management” coupled to a Statement of Facts that set out the extent of the criminal actions of the three individuals, the trial judge, in contrast, found there was “no case to answer” having heard all the prosecution evidence in the forensic setting of a criminal trial.
There are several reasons how this may have arisen:
- at the beginning of the investigation, the SFO prohibited the company from interviewing key witnesses for its own enquiry. Unlike an individual, a company does not know if it is guilty of wrongdoing except by a thorough investigation.
- a DPA does not involve any adversarial process. The DPA court is in the hands of the two willing parties as to the assessment of the quality of the evidence and whether it exceeds the threshold to bring a prosecution. In this case, the DPA court was provided with only “two lever arch files” of evidence whereas at the individuals’ jury trial, there were several hundred volumes of evidence with all live witnesses tested in cross-examination.
For companies, the case of Tesco and Rolls-Royce demonstrates the difficulties in choosing the DPA route; a company paying a substantial fine and entering into the potentially onerous terms of a deferment, needs to be sure that such a step is taken on a correct basis. It should feel comfortable that it does not risk a revelation in a subsequent criminal trial that, far from being guilty of an offence, no case could ever have been brought against the company, nor could a DPA have been approved.
For individuals, the appearance of a DPA court naming and judging them before a full review of the evidence in a criminal trial is unfair and seriously damaging to their reputation.
Unless this is to happen again, companies should be given greater freedom to carry out their own investigation in parallel with the SFO; they should have access to all the material gathered by the SFO; the DPA court should step back from declaring there to be sufficient evidence to prosecute unless there is a greater quasi-adversarial review of the evidence; individuals should be anonymised unless or until there is a conviction; there should be mechanisms to protect the reputation of individuals by allowing the form of a DPA to be revisited where it has been shown to be wrong.
Neil O’May, pictured above, is a partner and head of the corporate and white collar crime team at Norton Rose Fulbright. He represented Carl Rogberg throughout the investigation and the proceedings. He can be contacted here.