In April the High Court in England approved the Deferred Prosecution Agreement (“DPA”) agreed between the Serious Fraud Office (“SFO”) and Tesco Stores Limited (“TSL”), a wholly owned subsidiary of Tesco PLC (“Tesco”), the UK’s biggest retailer, in connection with the much-publicised accounting scandal in 2014. Whilst the DPA itself has not been published because of reporting restrictions (due to the on-going prosecution of individuals by the SFO in relation to this matter), it was approved by Sir Brian Leveson, the same judge that has so far approved all of four of the SFO’s DPAs.

The case follows the discovery of a £263m black hole in Tesco’s accounts in 2014 (which later grew to £326m). The inflated profit was caused by Tesco booking payments from suppliers before they were due and the profit overstatement, and subsequent publicity and investigations, led to £2bn being wiped off Tesco’s value, with share prices remaining slumped.

TSL will pay £129m in respect of this DPA (a modest sum following the near-£500m agreed to by Rolls Royce earlier this year). This is in addition to the £85m that Tesco was ordered to pay in compensation to shareholders following the Financial Conduct Authority’s finding of ‘market abuse’ in respect of the inaccurate trading statement released in August 2014, and the $12m paid to settle an action by US shareholders.

Whilst TSL is currently protected against criminal liability under the DPA, the DPA does not cover any liability of Tesco or the three senior Tesco individuals that are currently charged with fraud by abuse of position and fraud by false accounting. All three have pleaded not guilty and will stand trial in September. They face a maximum of ten years’ imprisonment if convicted. The DPA also does not have any bearing on the continued investigation by the Financial Reporting Council into PwC who acted as TSL’s external auditors at the relevant time.

Whilst this is the SFO’s fourth DPA, it is the first for an offence other than bribery, marking a broadening of their use and supporting recent comments made by Ben Morgan of the SFO “for those that behave responsibly, this [DPAs] is the new normal].1” The SFO continues to encourage cooperation, placing emphasis on not only the capacity to reduce financial liabilities, but also to avoid criminal prosecution altogether, something that seems to be attracting a lot of interest from companies. However, in addition to harbouring a cooperative environment, the SFO has recently beefed up its stance against ‘uncooperative’ companies, successfully litigating against a company who had asserted legal privilege in respect of an internal investigation.  Whilst the SFO oscillates between the carrot of DPAs and the stick of litigation, it seems likely that there will be more DPAs in the coming months.