United Kingdom Serious Fraud Office, in Latest Blow to Its Reputation, Handed “No Case to Answer” Judgment in Tesco Executives’ Retrial

On December 5, the Times reported that earlier that day, the Criminal Division of the Court of Appeal (England & Wales) upheld a November 26 judgment in Southwark Criminal Court in London that there was “no case to answer” in the fraud retrial of two Tesco executives, refused leave for the United Kingdom Serious Fraud Office (SFO) to appeal, and ordered an acquittal.  (“No case to answer” means that there was insufficient evidence for a jury to consider with respect to the individual defendants on trial.)

The United Kingdom Serious Fraud Office had begun its investigation of Tesco PLC in 2014, after Tesco publicly reported that its profit forecast had been overstated by £250 million ($328 million).  That disclosure, according to Reuters, “wiped 2 billion pounds off Tesco’s market value and plunged the company into the worst crisis in its near 100-year history.”

In 2016, the SFO charged three individual defendants – Christopher Bush, a former United Kingdom managing director of Tesco, John Scouler, Tesco’s former UK commercial food director, and Carl Rogberg, Tesco’s former finance director – with fraud and false accounting.  In 2017, the SFO concluded a deferred prosecution agreement (DPA) with Tesco, but a judicial contempt-of-court order postponed the disclosure of the terms of that DPA until the conclusion of the trial of Bush, Scouler, and Rogberg.

The first trial of the individual defendants was called off in 2018, shortly before the jury was to hear the trial judge’s summing up of evidence, because Rogberg had a heart attack.  In the retrial, from which Rogberg was severed due to illness, the SFO reportedly argued that Bush and Scouler were “generals” who “were aware that income was being wrongly included in [Tesco’s] financial records to meet targets and make Tesco look financially healthier than it was.”  After the conclusion of the prosecution’s case, however, the trial judge, Sir John Royce, told the jury on December 5 that he had dismissed the case because he had “concluded that in certain crucial areas the prosecution case was so weak.”  The judge further stated:

You may well come to the conclusion that there was fraudulent activity taking place between the buyers [at Tesco] and suppliers to provide documentation that purported to support the recognition of income in a period in which it should not have been recognised. However, one of the major issues in this case has been whether the prosecution could prove that these defendants were party to it and did they have knowledge that improper, unlawful recognition of income was taking place.

A critical portion of the prosecution case turned on a report “into the reporting of income from suppliers, dubbed the ‘legacy paper’, [that] was prepared by Amit Soni, a Tesco finance director, and submitted to the retailer’s legal department.”  The judge characterized Soni as a “gatekeeper,” along with others in Tesco’s finance department, who were responsible for ensuring that income was being properly recognized, but noted that Soni

admitted that he did not tell Mr Bush or Mr Scouler before the legacy paper was prepared that income was being improperly recognised because “he himself did not know”, adding: “If he [Mr Soni] is the gatekeeper and a qualified accountant did not know, how could it be safely assumed that the defendants knew? You would have to be sure, not just suspicious, that they knew.”

The “no case to answer” judgment is the latest blow this year to the reputation of the SFO, coming after the High Court’s refusal to reinstate charges against Barclays Plc and Barclays Bank Plc and the SFO’s obtaining convictions on only two of six bankers being tried this summer for manipulating the Euro Interbank Offered Rate.  While Lisa Osofsky, who took office as the new SFO Director in August, has no control over prior decisions by SFO staff or the vagaries of the trial process, she must now consider whether, as the SFO put it, “to pursue a retrial in light of the judgment.”

Given the strength of that judgment and Rogberg’s reported health problems, a quick decision to seek dismissal of the charges against Rogberg is less likely to fan the flames of media attention.  The larger issue of whether the SFO should be merged into the National Crime Agency – in which Prime Minister Theresa May has been keenly interested for some time – will likely remain sidelined unless and until the Prime Minister can find a way to untie or dissever the Gordian knot of Brexit.

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