Julia Irvine 11 Apr 2017 03:29pm

High Court approves Tesco DPA

The High Court has agreed the deal between the Serious Fraud Office (SFO) and Tesco under which the supermarket chain agrees to pay a fine of £129m to settle criminal charges relating to the 2014 accounting scandal

Sir Brian Leveson, president of the Queen’s Bench Division, approved the deferred prosecution agreement (DPA), which was announced last month, bringing to an end the SFO’s investigation into the retailer and its subsidiary, Tesco Stores.

However, as the SFO makes clear in its statement following the High Court decision, the agreement only relates to the potential criminal liability of Tesco Stores. It “does not address whether liability or any sort attaches to Tesco Plc or any current or former employee or agent of Tesco Plc or Tesco Stores Ltd”.

The SFO also said that it would not be making any further statements on the matter or giving any details of the agreement because strict reporting restrictions have been imposed until the trial of three former Tesco UK senior executives – finance director Carl Rogberg, managing director Chris Bush and food commercial director John Scouler – is concluded.

The British supermarket giant was engulfed in scandal in October 2014 when it revealed it had overstated its profits by a quarter of a billion pounds. It suspended four senior members of staff and called in Deloitte to investigate.

The subsequent investigation found its accounting irregularities were worse than first feared. It revealed that Tesco had overstated its profits by £263m for at least two years, not six months as was previously thought, and by £13m more than the initial estimate.

The issue related to when payments received from suppliers who pay to run in-store promotions on their behalf are booked.

The SFO added that Tesco had taken a total exceptional charge of £235m in its 2017 financial statements in respect of the DPA plus the expected costs of a Financial Conduct Authority (FCA)compensation scheme of £85m and related costs. The charge has been recorded in the statements as an adjusting post balance sheet event.

DPAs were introduced in the 2010 Bribery Act (s7) as a way in which companies can account for alleged criminality to a criminal court. They work in a similar fashion to suspended sentences, binding the company not to commit any other offences for a certain length of time.

They are not effective until a judge confirms in open court that they are in the interests of justice and that their terms are fair, reasonable and proportionate.

The first one was issued in November 2015 against Standard Bank over charges that it failed to prevent bribery. Since then DPAs have been used in three other cases, against an unnamed SME, Rolls Royce, and now Tesco.