UK: Deferred Prosecution Agreements - Should They Be Taken Off The Shelves?

Last Updated: 30 January 2019
Article by Mark Sutton and Karen Boto

DPAs are appealing to both corporates and the Serious Fraud Office (SFO). They allow corporations to escape criminal prosecution by paying a fine and improving compliance. This avoids lengthy, expensive and often complicated trials, spares the corporation concerned and can assist with the SFO's publicly reported resourcing issues.

The Tesco DPA

In March 2017 we saw one of the largest fines being imposed in the UK under the DPA system. This was imposed against Tesco Plc who agreed to pay a fine of approximately £129m in order to suspend the prosecution of allegations relating to false accounting by its subsidiary, Tesco Stores Ltd.

At the same time the Financial Conduct Authority (FCA) announced that Tesco had also agreed to a redress scheme to compensate its investors (to the tune of £85m).

Three former Tesco executives were then accused of wrongdoing over the alleged £250m accounting scandal and were criminally prosecuted.

As a result of the criminal proceedings, the exact terms of the DPA, including the agreed Statement of Facts, was not made public so as not to prejudice those prosecutions.

The acquittals

The last of the three former executives was cleared of wrongdoing by a criminal court on 23 January 2019; the other two being cleared of charges in December 2018. In both cases the executives were acquitted based on the prosecution's "weak" evidence and it being established that there were no cases to answer.

The Statement of Facts

Following the collapse of the criminal trial, on the very same day that the final executive was acquitted, the terms of DPA agreed between Tesco and the SFO was published for the first time.

Unlike the other three DPAs signed in the UK to date, the Tesco DPA is the first to publicly name individuals (which is not a requirement).

The Statement of Facts clearly ascribes wrongdoing to the former executives. It says that the three former executives were "aware of and dishonestly perpetuated the misstatement [of figures]" leading up to market disclosures in August and September 2014, "thereby falsifying or concurring in the falsification of accounts or records made for an accounting purpose". It also stated that one of the individuals "signed off false numbers in Tesco's accounting system" and that they all failed to alert others to the issue and "instead concealed the true position".

Who has really benefitted from the Tesco DPA?

It is difficult in the current circumstances to see who the real winner is, if anyone is.

Although the former executives applied to Lord Justice Leveson, (the judge who approved the DPA in April 2017), to redact their details in the light of the acquittals, this was not successful.

Under the legislation he held 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."

However, this analysis does not assist the former executives who, having been cleared via the criminal court process, have now been labelled as dishonest persons in a private document, which has been released to the public. This is clearly a prejudicial and distressing outcome for those concerned.

Also, with some pretty scratching comments being levelled at the SFO over its apparent lack of evidence, its credibility maybe impacted.

The inconsistent court rulings also raise serious questions for Tesco as to whether it concluded its own investigations, and the DPA, too quickly (paying a hefty fine) in circumstances where no individual has been convicted.


There is no doubt that this decision raises important concerns about the DPA process. Is it adequate for a DPA to be agreed by a Court before a thorough examination of all the evidence has taken place? Is it right that there are no powers to prevent a subsequent publication? It will be interesting to see if DPAs now undergo urgent reform.

From an insurance perspective, it demonstrates the importance of the severability language commonly found in D&O policies in the London market. This example highlights the dangers that would exist if statements and admissions of wrongdoing, which have perhaps been made for commercial and reputational reasons, could be imputed to the directors and officers for the purposes of analysing the coverage position. In the absence of this language, such statements might allow insurers to deny liability for a claim by relying on the conduct exclusion (to the extent it triggers upon a written admission) and/or the prior consent requirement (to make an admission) which would be unjust if those admissions and statements subsequently turned out to be incorrect.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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