Tesco fraud trial collapse puts deferred prosecution deals in the dock

The last of three former Tesco executives was cleared of wrongdoing over Tesco’s £250m accounting scandal by a criminal court on Wednesday, in a ruling that raises serious questions about why the company agreed a £129m plea bargain with the Serious Fraud Office since no one has been convicted.

There are also questions for Tesco and its chief executive Dave Lewis about whether the retailer was too quick to conclude its investigation into the scandal in 2014 and sign the DPA. This allowed Tesco and Mr Lewis to draw a line under the issue and make £7bn of writedowns.

Carl Rogberg, former UK finance director, Christopher Bush, who was managing director of Tesco UK, and John Scouler, ex-UK food commercial director, have been cleared after a judge ruled the prosecution was “so weak” there was no case to answer.

However, a Deferred Prosecution Agreement between Tesco Stores Ltd and the Serious Fraud Office, published for the first time on Wednesday, ascribed wrongdoing to the same three men. The DPA allowed Tesco to escape criminal prosecution in return for a £129m fine and £85m compensation for investors.

The DPA says that the three men were “aware of and dishonestly perpetuated the misstatement [of figures]” leading up to market statements in August and September 2014, “thereby falsifying or concurring in the falsification of accounts or records made for an accounting purpose”.

This is an unfair and extraordinary outcome and one that calls for urgent reform of the DPA process

The incongruity between the men’s very public acquittals and the DPA has raised serious doubts about the process. Imported from the US in 2014, DPAs allow corporations to escape criminal prosecution by paying a fine and improving compliance.

For Tesco to obtain a DPA in a fraud case, it had to be able to attribute wrongdoing to senior managers as the “controlling will and mind” of the company. Mr Bush and Mr Rogberg are described as “controlling minds” of Tesco Stores in the DPA.

Just four DPAs have been signed, but the Tesco DPA is the first to publicly name individuals; under the process there is little legal recourse for those who have been named and later acquitted.

Ross Dixon, lawyer at Hickman & Rose who acted for Chris Bush, said: “This is an unfair and extraordinary outcome and one that calls for urgent reform of the DPA process.

“We now have two contradictory outcomes: that of the criminal trial in which the allegations were dismissed for lack of evidence, and the DPA, based on the same allegations, which tells a different story,” he added.

Mr Rogberg’s lawyer Neil O’May, head of the corporate and white-collar crime team at Norton Rose Fulbright, said the DPA was “deeply prejudicial and distressing” to his client.

“A bystander may well question the adequacy of the process by which a DPA is agreed by a court before the examination of the evidence has taken place,” he added.

Speaking to the FT, Mr Rogberg urged changes to the process: “It is too late for me. I hope in the future, in other cases, it can be put right so that other people do not have to suffer.”

Richard Sallybanks, lawyer at BCL who defended John Scouler, added: “Despite his acquittal, Mr Scouler finds himself labelled as culpable in a private agreement, but one which is now made public, which the SFO concluded with Tesco before the SFO’s evidence was heard.”

One former Tesco executive said it “was counter-cultural for Tesco to do what they did. You don’t throw someone under the bus like that after 30-odd years of service.”

Another person familiar with Tesco said the company was “perhaps a bit too quick to rush to this settlement . . . They did the wrong thing for the right reasons.”

The SFO had alleged that the defendants had used their managerial authority to “pressurise” junior employees into “unorthodox” practices, which led to “false accounting on an industrial scale”.

The agency claimed the men did nothing to alert senior management to incorrect figures in September 2014, even after they saw copies of a report, which set out the alleged scale of the overstatement, complied by Tesco accountant Amit Soni — whom the SFO described as a whistleblower.

Sir John Royce, the trial judge, halted the second trial because the prosecution case was “so weak”. (The first had been halted after Mr Rogberg suffered a heart attack.)

He said the SFO had failed to produce any evidence that the defendants knew of the alleged offences and said “one of the problems was the testimony of Mr Soni”. He noted Mr Soni did not tell the defendants before his report was prepared because he did not know himself until then that income was being recognised in that way.

“If he, the gatekeeper and a qualified accountant, did not know, how could it be safely asserted that the defendants knew . . . you would have to be sure, not just suspicious,” Sir John told the jury.

The men had unsuccessfully applied to Brian Leveson, the judge who approved the DPA in April 2017, to redact their details in the light of the acquittals.

However, Sir Brian said that under the legislation he had no jurisdiction to do this but noted that the DPA “related only to the potential criminal liability of Tesco Stores Ltd and did not address whether liability of any sort attached to Tesco Plc or any employee, agent.”

Cleared at trial

Carl Rogberg, former UK finance director

Carl Rogberg, 52, was Tesco’s former UK finance director and was the only defendant to testify in the first trial. He suffered a heart attack during the judge’s summing-up, which halted proceedings.

Born in Sweden, he graduated from the Stockholm School of Economics and worked as a finance analyst at Kraft Foods in Sweden before moving to the UK and joining Tesco, where he worked as chief financial officer for the company in Thailand. During his trial he was supported in court by his wife Amanda, a vet. He is now consulting with a fintech business in the field of open banking.

Chris Bush, former UK managing director

Chris Bush, 53, worked his way up from being a 16-year-old store worker to UK managing director of Tesco during a 32-year career. He was the most senior executive of the three but did not give evidence during his first trial.

He wept in the dock as a witness statement from his daughter Emily was read out.

“There were two things my dad cared about — Tesco and life with us. I do not believe he would choose to do anything to put those things at risk,” she said in her statement, adding he was “deeply hurt” by the allegations against him.

John Scouler, former food commercial head

John Scouler, 50, the former food commercial head of Tesco, is now managing director of the consumer business at TalkTalk. He also chose not to give evidence in his first trial.

Instead, the court heard a series of high-profile character witnesses testify on his behalf — including ex-Tesco executive John Gildersleeve, chairman of British Land, who said he had no doubt about Mr Scouler’s “integrity, morality and honesty”. A statement was also read from ex-TalkTalk chief executive Baroness Dido Harding, in which she praised his “professionalism and integrity”.