Deloitte sees record FRC fine of £14m over MG Rover role slashed to £3m

DELOITTE has had its record £14m fine – imposed on it for its controversial role in the collapse of MG Rover – slashed to £3m after it successfully overturned a series of charges of misconduct laid against it by the profession’s watchdog.

Maghsoud Einollahi, the firm’s former partner, had his £250,000 fine reduced to £175,000, and had his three year exclusion from the profession completely overturned.

The Financial Reporting Council has published the long-awaited verdict of the appeal tribunal hearing on 30 January 2015, which overturned a series of charges against Deloitte, including that it acted against the public interest when advising the owners of MG Rover in two transactions, known as Project Platinum and Project Aircraft.

A spokesperson for Deloitte UK said: “Reducing the sanctions imposed by the original tribunal was never a motivation in our appeal. We welcome the decision to overturn the exclusion of our former partner and accept the revised sanctions outlined by the Appeal Tribunal.”

Both Deloitte and Einollahi still had severe reprimands issued against them. At the January hearing, the Big Four firm succeeded in overturning eight of 13 charges made against it in the MG Rover case.

The appeal upheld several findings in relation to Project Platinum but granted other findings, including those related to Project Aircraft. In total, eight of the original 13 findings were overturned.

In a statement, the FRC said: “The Appeal tribunal affirmed the need for accountants to act in the public interest and for accountants to take this into consideration in deciding whether to accept or continue an engagement. However, it identified a lack of clarity in how accountants should discharge these responsibilities. The FRC and the profession are addressing this issue.”

After the January 2015 hearing, Deloitte said it was “pleased” that findings of failing adequately to consider the public interest and deliberate serious misconduct were overturned.

“We take such responsibilities extremely seriously and these findings were entirely unreflective of the integrity and values of our firm,” said the spokesman in a statement. “However, we accept the tribunal’s findings that aspects of our client engagement processes could have been better.

“As part of the continuous review of our internal guidelines, which have been strengthened regularly in the 14 years since this project, we will consider whether any further action is required.”

All the findings in relation to the Project Aircraft scheme were quashed. Project Aircraft was designed to generate returns on tax losses incurred by MG Rover, which could be offset against profits made elsewhere in the company.

The Phoenix Four – a quartet of businessmen who led the purchase of MG Rover from BMW prior to its collapse – used the tax losses from MG Rover for their own company in which MG Rover had no interest. The four individuals – John Towers, Nick Stephenson, John Edwards and Peter Bealehad – decided that they personally should be HBOS’s joint venture partner in this transaction as opposed to a company in the MG Rover group.

Five charges against Deloitte relating to Project Platinum were upheld. Project Platinum related to the purchase of BMW’s loan book or amounts due to MG Rover under existing finance contracts from customers who had bought vehicles.

BMW originally planned to sell the loan book directly to MG Rover – which had £41m in an account as collateral. The Phoenix Four instead bought the loan book and sought to keep the profits for themselves.

Aircraft’s modus operandi effectively worked by generating returns from MG Rover’s tax losses which were then moved to a company indirectly controlled by the Phoenix Four and enabling substantial payments to be made for their own benefit.

The Phoenix Four paid themselves and MD Kevin Howe £42m before the manufacturer was plunged into administration with £1.4bn in debts five years later.

Deloitte billed more than £30m in fees for working on the doomed car manufacturer between 2000 and 2005.