Tesco will settle investigations by the Serious Fraud Office and Financial Conduct Authority into the 2014 accounting scandal that rocked Britain’s biggest retailer and will have to pay out £235 million to do so.
Although this deal requires court approval, as part of a deferred prosecution agreement (DPA) with the SFO, it will pay a fine of £129 million.
As compensation to investors affected by a trading statement on 29 August 2014 that overstated profits, the supermarket group has separately agreed with the FCA to pay about £85 million. Tesco said the total exceptional charge was expected to be £235 million for the payment of the legal costs associated with the agreements.
The settlement allowed the company to move on, Dave Lewis, the chief executive of Tesco, said. “I want to apologise to all those affected. What happened is a huge source of regret to us all at Tesco, but we are a different business now,” he said.
He said hat that the company was “committed to doing everything we can to continue to restore trust in our business and brand” after admitting that the Tesco brand had been damaged by the disclosure of the accounting scandal.
Lewis said he was “proud that we faced into it. We have undertaken a comprehensive programme of change” but conceded that it had been a very difficult period for Tesco.
Dedicated to working on resolving the accounting issue and cooperating with the investigations is a small team at Tesco.
In September 2014, Lewis took charge of Tesco. The proposed DPA relates to false accounting at Tesco Stores Limited, a subsidiary of the retailer, between February and September 2014.
It had overstated profits by £326 million, Tesco had admitted in 2014, and the settlements relates to that admittance. As a result of the overstatement, Tesco changed the manner it booked payments from suppliers.
It cannot be concluded that Tesco or any of its employees committed a criminal offence from the agreements between Tesco, the SFO and FCA as it is not an admittance by the company. It is not suggesting that the information in the company’s trading statement in August 2014 was false or misleading and that the Tesco board of directors knew, or could reasonably be expected to have known, the FCA has stated in a ruling.
Paying out to investors who bought shares or bonds between 29 August and 19 September 2014 is included in the compensation agreement with the FCA.
With oversight from the FCA, which has not imposed a penalty on Tesco, auditor KPMG has been appointed to administer the compensation scheme.
It had undertaken an “extensive programme of change” that involved overhauling leadership, structures, financial controls, partnerships with suppliers, and the way the business buys and sells and had fully cooperated with the SFO and FCA investigations, the company said.
In return for meeting specified conditions, such as paying a fine and demonstrating that its culture has changed, a company is allowed to suspend a prosecution under DPAs, which were introduced in the UK in February 2014. Judicial approval is required for the agreements, which have been used in the US for years.
(Adapted from The Guardian)