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Shopping Around With the collapse of High Street giant BHS attracting Serious Fraud Office (SFO) attention, Aziz Rahman explains why its investigators must tread carefully.

24 June 2016

If the SFO is looking at what has happened at BHS with specific intelligence at its disposal, it will be interesting to see how it proceeds.

If the SFO is looking at what has happened at BHS with specific intelligence at its disposal, it will be interesting to see how it proceeds.

Certainly, the company’s financial failings have seen the Insolvency Service sent in to examine what has happened, as would be expected. But for the SFO to be going in at the same time – reportedly, to examine the flow of money in and out of the retail chain - suggests that someone clearly suspects something.

The Insolvency Service can examine what has caused the company to crash and then decide whether the directors and senior officers involved can be apportioned any of the blame. But blame may be aimed at certain figures for errors of judgement, naivety or a general failing to keep their eye on the ball. It is only when criminal conduct is suspected that the SFO would be asked to investigate, which makes the early arrival of David Green’s men on the scene all the more intriguing.

Wreckage

When it comes to economic crime, a lot is uncovered when companies collapse. This is because it is only then that outsiders have a chance to take a close look at how the company was functioning. It is during this raking over of the wreckage that the evidence – should there be any – of wrongdoing is uncovered. Until a company crashes and is subject to such scrutiny, there is the potential for it to continue to function while some of its external activity is illegal: there is no one to investigate, detect and report wrongdoing unless a valiant whistle-blower comes forward.

While David Green is the man at the helm of the SFO as it looks into BHS, it is another Green – Sir Philip – who is the subject of much discussion in relation to the company.

It was Sir Philip who bought BHS for £200M in 2000. In subsequent years, a complex set of multi-million pound transactions involving property sales, rents and dividend payments between the Green family and various entities it owns saw bonds and loan notes issued; further complicating the High Street giant’s finances.

But as well as the parlous state of BHS’ pension fund, much of the recent furore has been over Philip Green’s decision to sell the company for £1 to Retail Acquisitions; run by twice bankrupt former racing driver Dominic Chappell.

Accusation

Now the accusation is that Sir Philip Green made a sharp exit before any trouble at the store became apparent to outsiders. There is little doubt that the retail guru shed BHS in a way that helped him get rid of a major financial headache. The issue, if there is to be a prosecution, is whether what was done by all parties involved was legal.

It is fairly certain that it will take some time for the full, detailed picture of what exactly happened (and who caused it) to emerge. But it would be wrong to jump to conclusions – especially if you are the SFO.

This is because the shadow of the Tchenguiz brothers still hangs over the SFO.

Tchenguiz

When Vincent and Robert Tchenguiz were raided five years ago, the SFO visited and took potential evidence from the brothers’ properties with the help of 135 police officers. But in the following years, the investigations were dropped and in judicial review proceedings the High Court overturned the search warrants used by the SFO to seize documents and files. The SFO was ruled to have used misrepresentation when applying for the warrants.

Vincent Tchenguiz then began an action for hundreds of millions of pounds in damages against the SFO; alleging trespass, false imprisonment and resulting business losses. His brother brought a similar action. The SFO eventually paid Vincent Tchenguiz £3M and another £3m towards his legal costs and then reached a £1.5M settlement with his brother.

The SFO was full of regret and assurances that similar things would never happen in the future after the Tchenguiz episode. But those statements will be in the minds of many observers as the SFO starts to examine the BHS fiasco.

Mistake

Much of the controversy surrounding BHS involves of money taken out of it – or at least moved around - in the years prior to its £1 sell off. Similarly, the SFO’s interest in the Tchenguiz brothers was sparked by the way large amounts of money went out of the doomed Icelandic Kaupthing bank days before it failed in 2008. Vincent Tchenguiz had borrowed £100m from Kaupthing and the SFO thought it smelled wrongdoing involving him and his brother. It proved to be a costly mistake.

It is possible that the Tchenguiz saga has helped the SFO remember that it needs to follow every letter of the relevant law. If they do this with the BHS case and they do find wrongdoing, anyone finding themselves under investigation will need expert advice as soon as possible.

But while there may, eventually, be people needing expert legal representation as a result of the SFO’s investigations into BHS, it would do the SFO’s case no harm at all if it also took all available advice to make sure it does not bring any legal problems on itself.

While the BHS saga looks set to rumble on and those involved make various statements absolving themselves of blame, the issue of guilt – if there is any – may take time to be established.

It is to be hoped that the SFO has learned lessons from the Tchenguiz episode on how to make sure it does not become the subject of accusations of wrongdoing itself.


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