The collapse of another high-profile fraud trial — with two former Tesco executives acquitted in a £250m case last week — is the latest setback for Britain’s Serious Fraud Office. It comes just weeks after the High Court upheld a decision to dismiss an SFO prosecution against Barclays Bank over its Qatari fundraising in 2008, though four former senior executives are still due to stand trial in January. It casts an unfavourable light on UK authorities’ ability to hold big corporations to account compared to counterparts such as the US Department of Justice.
In an embarrassment for the SFO, the judge threw out the Tesco case before it went to jurors for deliberation, deciding that in key areas “the prosecution case was so weak it should not be left for a jury’s consideration”. The SFO, he said, had failed to produce evidence that the two defendants knew of the alleged offence — of income being booked illegally, resulting in a £250m hole in the supermarket giant’s accounts in 2014. The Criminal Court of Appeal agreed and acquitted the former managers. But after such a lengthy investigation and trial process, their lives had been turned upside down.
For the SFO and its director Lisa Osofsky, a former US prosecutor and FBI lawyer, the Tesco failure was a specific blow. It was the first fraud trial of individuals after a company agreed a so-called deferred prosecution agreement, a type of plea bargain, to avoid a potential corporate prosecution.
DPAs were a US idea brought to the UK in 2014 to bolster enforcement. They encourage companies to self-report financial wrongdoing, agree a fine, co-operate with law enforcement and undergo monitoring, in return for avoiding a costly and damaging trial. Since authorities can struggle to win financial trials against deep-pocketed businesses, DPAs can suit both sides.
Three previous UK DPAs involved bribery cases. But the law on bribery changed in 2011 to make a company liable if an employee pays a bribe even if management did not know about it, unless it can convince a jury it had adequate procedures in place against the crime. Establishing corporate criminal liability in fraud cases, by contrast, still requires proving there was a “directing mind” — that senior executives knew of the crime. Such knowledge is what the SFO failed to demonstrate in the Tesco trial. Tesco’s UK stores arm agreed a DPA and £129m fine last year which did not address whether liability attached to Tesco Plc or any past or present employees.
The danger is the Tesco precedent may make other companies think twice about reaching DPAs. Why submit to fines and monitoring when there is no certainty prosecutors could secure convictions?
The SFO should not respond by returning to the kind of informal deals it struck in the past, when companies were encouraged to admit to overseas corruption in exchange for leniency in civil settlements. It would be better to boost the SFO’s resources and ability, with some DoJ-style dynamism from Ms Osofsky, to investigate and prosecute even the most complex cases.
The “failure to prevent” principle should also be extended beyond bribery and tax evasion — to which it was applied by last year’s Criminal Finances Act — to all forms of financial crime, including fraud, money laundering and false accounting. A consultation on the issue by the UK justice department last year has gone nowhere. Yet if the government is serious about improving Britain’s reputation for commercial probity — and avoiding future failed trials — such a law change would be a big step forward.
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