The owner of Ladbrokes and Coral bookmakers has said it is likely to incur a “substantial financial penalty” from an investigation by UK authorities into possible tax and bribery offences by one of its former Turkish subsidiaries.

The gambling group Entain said in a statement to shareholders that it is negotiating a deferred prosecution agreement with the Crown Prosecution Service (CPS), and is working towards resolving an inquiry by HM Revenue and Customs.

Shares in the Isle of Man-based sports betting and gaming group fell by as much as 3.3% during morning trade on Wednesday after the announcement, briefly making it the biggest faller on the FTSE 100, before recovering some losses.

HMRC began examining “potential corporate offending” in late 2019 relating to a Turkish-facing online betting and gaming business that Entain owned between 2011 and 2017.

At the time, the group – which also owns the Gala, Foxy Bingo and partypoker brands – was ordered to provide the tax authority with information relating to the Turkish subsidiary.

Entain said it previously thought that HMRC was investigating some of its former third-party suppliers, which processed payments for its operations in Turkey, where internet betting is illegal.

However, Britain’s biggest bookmaker announced in July 2020 that HMRC was extending its investigation to look into potential corporate offending by “an entity (or entities) within the group”.

Entain, formerly known as GVC, said the offences under investigation include, but are not limited to, section seven of the Bribery Act 2010. The relevant section of the act relates to the failure of UK commercial organisations to prevent bribery anywhere that they carry out business.

It sold its Turkish business in December 2017, shortly before buying Ladbrokes Coral for £3.6bn. The company said in a statement that the HMRC investigation “includes a review of its former Turkish-facing business and acknowledges that historical misconduct involving former third party suppliers and former employees of the group may have occurred … The group continues to co-operate fully with HMRC and the CPS.”

The company said it was not possible to say how the investigation would conclude, and that prosecution of one or several entities within the group remained a possibility, although they could seek to defend the action or be convicted.

It said: “Negotiations remain ongoing and any resolution would be subject to judicial approval.” Entain added it could not reliably estimate the size of any financial penalty.

Since HMRC’s investigation began, the group said it had undertaken a comprehensive review of its anti-bribery policies and procedures and had taken action to strengthen its compliance programme and related controls.