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DPAs and associated guilt: How the recent SFO case collapsed

After reporting restrictions were lifted, it was confirmed that the Serious Fraud Office’s (SFO) high profile fraud and false accounting trial against two former Tesco executives had collapsed after a submission of no case to answer by the individuals’ legal teams at the end of the prosecution case.

The former executives faced fraud and false accounting charges relating to a £250 million accounting scandal, the investigation of which had resulted in a Deferred Prosecution Agreement (DPA) between Tesco Stores Limited and the SFO in April 2017. As is now apparent, an admission of guilty by a corporate body does not necessarily result in guilt for individuals.

What is a DPA?

A DPA is an agreement reached between a prosecutor and an organisation which could be prosecuted; it is not available for individuals. The agreement allows a prosecution to be suspended for a defined period provided the organisation meets certain specified requirements. The SFO stipulates that an organisation would only be invited to enter into DPA negotiations if there was full co-operation with the investigation – this includes self-reporting – and the agreement to a number of terms including co-operating with future prosecutions of individuals.

The importance of the two stage test

It would be easy for the SFO to be of the view that by securing a DPA, the prosecution of individuals allegedly responsible for the criminal act would naturally follow, particularly if the organisation had agreed to co-operate with the prosecution of those individuals. However, the SFO, as a prosecuting body, is still required to follow the code for crown prosecutors which sets out the two stage test which must be met before any prosecution is undertaken:

  1. Realistic Prospect of Conviction: the evidence must be able to be used in court, be reliable and credible and there should be no other material that might affect the sufficiency of evidence;
  2. Public Interest: the public interest factors in favour of a prosecution outweigh those against.

The difficulty, it seems, in this case is that whilst the SFO decided to charge the individuals with reference to the two stage test, there has been a failure of the evidence and therefore, there was no realistic prospect of conviction. This should have been identified when the decision to prosecute was taken. In fact the trial judge, Sir John Royce said that “in certain crucial areas, the prosecution case was so weak that it could not be left for a jury’s consideration” and that the “real weakness” was of proving knowledge.

The case was dismissed and we now know that the SFO appealed this decision to the Court of Appeal. Leave to appeal was refused by the Court of Appeal and the original decision of the Sir John Royce was upheld.

What are the key learnings?

The SFO’s investigation and the trial process into the two individuals has taken four years and will have greatly cost not only the SFO but the individuals also. This is a significant defeat for the SFO and follows on from its failed pursuit of Barclays in respect of Qatar fundraising. The SFO will have to ensure that future proceedings brought against individuals (and corporates) are robust enough to be placed in front of a jury. The SFO should be wary of being seen to bring prosecutions against individuals for associated guilt as a result of securing a DPA.

Companies and individuals who believe they may be investigated by the SFO or other prosecuting authorities should obtain legal advice from the outset. It may be that an internal investigation undertaken by a company’s legal team concludes that there has been no wrongdoing or that self-reporting to a prosecuting authority would assist the company further in the process. Fraud and false accounting offences in particular are complex and lengthy investigations, and for individuals the financial and reputational impact of such proceedings can be huge. TLT LLP are experienced in defending allegations of this sort and in liaising with the SFO and other prosecutors from the outset and throughout the process.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at December 2018. Specific advice should be sought for specific cases. For more information see our terms & conditions.

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