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 Britain's Serious Fraud Office (SFO) has opened a formal criminal
investigation into accounting errors at Tesco, raising the stakes in
a scandal that has hammered the reputation of the country's biggest
grocer.
Already battling challenges on multiple fronts, Tesco said on
Wednesday it had been notified of the SFO's new investigation into
the 263 million-pound ($424 million) overstatement of its first-half
profits that has led to the suspension of eight senior members of
staff.
Tesco is already facing one proposed investor lawsuit in the United
States over the accounting irregularities caused by booking deals
with suppliers too early.
Britain's accounting watchdog, the Financial Reporting Council, is
also examining how the error came about.
Shares in Tesco, which had been up about 2 percent all day, fell
initially on the news by half a percent before recovering to close
up 2 percent at 172 pence.
When the SFO launches a full criminal investigation against a
company or individuals it has to be satisfied that there are
reasonable grounds to believe that conduct might involve serious or
complex fraud or bribery.
Such investigations can take years to complete.
"The SFO confirmed today that the director has opened a criminal
investigation into accounting practices at Tesco plc," the
independent government department said in a statement.
Eight senior members of staff have been suspended by the company
since the accounting errors came to light. Tesco said they remain
employees and have been asked to step aside while the matter is
investigated, adding that there was no suspicion of wrongdoing.
The 95-year-old group, which has dominated the British high street
for years, is battling a severe slowdown in trading that has led to
a string of recent profit warnings and resulted in a near halving of
its market value this year.
Having only recently appointed a new chief executive and finance
director and now looking for a new chairman, Tesco revealed in
September it had found a 250 million-pound overstatement in its
first-half profits, prompting investors to dump the stock.
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Then last week the group said in its delayed first-half results that
it now believed the accounting hole stretched to 263 million pounds.
Chief Executive Dave Lewis, just seven weeks into the job, also said
he could no longer provide a full-year profit forecast because he
did not know how much it would cost to rebuild the firm, Britain's
largest private employer.
LENGTHY PROCESS
The SFO probe will replace one already being carried out by the
Financial Conduct Authority (FCA) which will now be closed.
The agency will take months sifting through vast quantities of
digital data and other evidence, while seeking to identify and trace
witnesses.
Some investigations might qualify for a so-called Deferred
Prosecution Agreement (DPA). This is effectively a suspended
corporate sentence and a new string to the SFO’s bow that has yet to
be tested.
But DPAs, the SFO has said, will only happen where it can persuade a
judge that it is in the interests of justice and where a company
cooperates fully and can show that it has put any misdemeanour
behind it and removed offending personnel.
(1 US dollar = 0.6206 British pounds)
(Additional reporting by Kirstin Ridley; Editing by David Goodman
and Greg Mahlich)
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