Leading Lawyers Question The Impact On SFO Going Forward

The collapse of the Tesco fraud trial today could add to further pressure on the SFO, according to Sarah Wallace Irwin Mitchell’s  London Head of Regulatory and Criminal Investigations.

The case against Chris Bush, Tesco’s former UK head and John Scouler, former commercial food director, who had been accused  of concealing “improperly recorded income” and “bullying others” to falsify Tesco’s figures, ultimately misleading the stock market, fell to pieces today. The prosecution was unable to produce evidence that the defendants knew there was a serious and fraudulent problem with the accounts and that the “pulling forward” of income  into one financial period when it should have been booked later, was a “legitimate” practice used in many areas.

The collapse of the case four years after the accounting scandal first erupted is the second blow to the SFO this year. It recently lost its appeal to pursue Barclays Bank regarding its £12 billion bailout secured from the state of Qatar in 2008, after a five year investigation into the deal.

Expert Opinion

“Lisa Osofsky, Director of the SFO paints a positive future for the SFO, wanting to take on the ‘big guys’ but the reality is when a high profile case takes a dramatic nose dive it will be a blow. It exposes the difficulties in trying to prosecute household names and their senior executives. Although this case produced an outcome for the SFO in that Tesco entered into a DPA, there will be questions asked whether they, as both an investigator and prosecutor, have sufficient financial and human resources to investigate highly complex cases to the level required. They need to apply more rigor and scrutiny in gathering and assessing evidence, and more realism as to which people, if any, should be in the dock. Her team are still investigating a number of high profile historic cases so they will need to ensure that those are not evidentially flawed otherwise there is risk there will be renewed calls for the SFO to be dismantled.

“It is possible that the SFO’s focus could move to prosecuting smaller SMEs and their executives as they will be perceived as easier targets, although I don’t think at the moment the number of larger corporates wanting to self-report potential criminal liability and agree DPAs will dwindle just on this outcome. Whilst it is a big thing for a corporate to accept potential criminal liability, generally a corporate will not strategize in the same way an individual will. By agreeing a DPA, a company can draw a line under historical events more quickly, and manage their litigation risk, reputation risk and share price. This stance can be an effective commercial outcome when there is a huge financial, reputational and human resourcing cost in defending a criminal prosecution where acquittal is not guaranteed.

"However, if more cases against high profile corporates and CEOs collapse, the SFO will have to rethink their strategy as the big boys and their lawyers may be emboldened and deterred from conceding criminal liability if the prospect of actual criminal conviction is uncertain. That may be why Ms Osofsky is keen for Parliament to extend the failure to prevent corporate offence to other financial crime such as fraud or false accounting and import the US concept of corporate vicarious criminal liability for the actions of its staff as it will be make her job of getting large corporates accountable easier.”
Sarah Wallace - Partner