Water firm fined £2m for lying about leaks
Tuesday 01 July 2008
Severn Trent Water, Britain's second-biggest water company, was fined £2 million at the Old Bailey today for lying about water leaks.
The Serious Fraud Office, which prosecuted the case, had reportedly hoped for a fine in the region of £70 million in line with the level of fines levied by water regulator Ofwat.
Judge Jeremy Roberts was asked to make an example of the utility provider to deter others.
But he had to comply with criminal court precedents for fines, particularly comparing them to health and safety offences which involved loss of life.
Last year, such fines included £175,000 for the shooting of Jean Charles de Menezes by the Metropolitan Police and £4 million against Network Rail following the Paddington train crash in which 31 people were killed.
Severn Trent Water, with eight million consumers, which covers an area from the Bristol Channel to the Midlands, was the first company prosecuted for making false statements about its leaks.
The firm agreed to pay the £200,000 costs of the Serious Fraud Office in bringing the case.
It pleaded guilty to two offences under the Water Industry Act of making false returns to Ofwat concerning 2001 and 2002.
The lying came to light from emails and board meeting minutes.
The court was told the company reported an estimated yearly water loss of 340 million litres per day to meet targets, while the true figure was around 514 million litres.
This was to stave off having to carry out millions of pounds-worth of repairs until they could be covered by future water bills, and to avoid bad publicity.
Severn Trent had an operating profit of between £308 million and £318 million at the time and shareholders benefited from the lies.
Severn Trent was fined a record £35.8 million by Ofwat this year for separate offences involving deliberately providing false information and poor customer service.
Although companies can still be prosecuted in the courts, Ofwat now has powers it did not have during the water leak scandal.
Judge Roberts said: "This is where the real deterrents lie, I suspect.
"I think I have to approach this on the basis of traditional criminal procedures."
Edmund Wilson QC, defending, said three directors who denied criminal behaviour, and other senior staff, had left the company.
He promised that consumers would not be saddled with higher bills to pay for the fine and court costs.
Mr Wilson said: "Current shareholders will bear the brunt of the punishment. There will be no contributions coming from any third party."
Sentencing the company, Judge Roberts said: "I consider this to be a serious case.
"The sorry saga of this case reveals a lack of honesty and transparency in dealing with the regulator.
"Persons at a senior level, namely members of the board, were involved over an extremely long period of time in the deliberate concealment of the true position as shown by the information in the company's own possession."
He said it was impossible to say what, if any, financial advantage had been gained by the company or what the true leakage was.
After the case, Severn Trent chief executive Tony Wray said: "We deeply regret the mistakes of the previous regime.
"On behalf of our customers and staff we deplore the breach of the essential trust between Severn Trent and all our stakeholders.
"We are already repairing that trust with the root and branch reorganisation of Severn Trent undertaken since 2005.
"No one who was responsible is with our organisation now and we have already ensured that Severn Trent did not profit from these failures by crediting customers' accounts and altering bills appropriately."
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