UK Supreme Court Limits Serious Fraud Office's Extraterritorial Powers
The Issue: The UK Supreme Court was asked to decide whether section 2 of the Criminal Justice Act 1987 granted the Serious Fraud Office ("SFO") powers to compel the production of documents held outside the United Kingdom.
Going Forward: The SFO cannot use its section 2 powers to compel the production of material held outside the jurisdiction by a non-UK citizen or registered company. It must use established international systems for mutual legal assistance to obtain evidence that is held overseas. This clear delineation of the territorial scope of the SFO's jurisdiction is welcome news for overseas companies with business in the United Kingdom.
R (on the application of KBR, Inc) v Director of the Serious Fraud Office
On 5 February 2021, the UK Supreme Court issued a judgment in the case of R (on the application of KBR Inc) v the Director of the Serious Fraud Office (2021) UKSC2 that limits the powers of the SFO to obtain documents from individuals and companies that are not within the jurisdiction.
In 2017, the SFO was conducting an investigation into suspected bribery and corruption committed by KBR Ltd, a UK-based subsidiary of KBR Inc., a U.S. company with no presence in the United Kingdom.
An executive of KBR Inc. was persuaded to travel to the United Kingdom for a meeting with the SFO. Once in the United Kingdom, the executive was served with a notice pursuant to section 2(3) of the Criminal Justice Act 1987 ("CJA") requiring her to produce company documents held in the United States. (Failure to comply with a section 2(3) notice creates criminal liability.)
As a practical matter, this course of events serves as a reminder that company executives based outside the United Kingdom should exercise extreme caution when considering a request to attend a voluntary meeting with the SFO in the United Kingdom. Indeed, there are typically limited circumstances where the legitimate questions of the SFO cannot be dealt with by the company's legal representatives. If a meeting in the United Kingdom is unavoidable, assurances and undertakings against arrest, search and service of production notices or summonses should be obtained in advance from the SFO.
KBR Inc. refused to comply with the notice and in 2018 appealed the issue of the notice by way of judicial review on the grounds that section 2(3) CJA 1987 did not give the SFO extraterritorial powers to require document production. The judge dismissed the appeal holding that the SFO could require the production of documents held by a company outside the jurisdiction if it could show a sufficient link to the United Kingdom. In the present case, the operation of a UK subsidiary provided a sufficient link.
Gross LJ, who heard the 2018 judicial review, was seemingly much swayed by the public interest grounds for construing section 2(3) CJA as having extraterritorial effect. Giving judgment, he noted:
For my part, putting to one side for the moment, any questions of MLA (mutual legal assistance), there would be a very real risk that the purpose of s.2(3) would be frustrated if, as a jurisdictional bar, the SFO was precluded from seeking documents held abroad from any foreign company.
Supreme Court Ruling
The ruling was received with a degree of surprise by established white collar practitioners. KBR Inc. appealed to the UK Supreme Court, which started from first principles when considering the scope of s 2(3).
There is a presumption in UK law that legislation is generally not intended to have extraterritorial effect. The Court noted that, for the UK Parliament to pass legislation affecting the subjects of other sovereign nations would be inconsistent with the comity of nations and international law.
The Court acknowledged the legitimate interest of states in legislating in respect of the conduct of their nationals abroad providing that the legislations do not offend against the sovereignty of other states. It was common ground between the parties that if the addressee had been a British registered company, s 2(3) would have authorized the service of a notice to produce documents held abroad by that company.
The Court found that there was no express language in the CJA conferring extraterritorial jurisdiction.
Rejecting the argument that had found favour in the lower court, that it must be implied that s 2(3) should have extraterritorial effect otherwise the purpose of the legislation could not be achieved, Lord Lloyd-Jones stated that successive acts of parliament have developed structures in domestic law which permit the United Kingdom to participate in international systems of mutual legal assistance in relation to criminal proceedings and investigations. He stated:
It is to my mind inherently improbable that parliament should have refined this machinery as it did, while intending to leave in place a parallel system for obtaining evidence from abroad which could operate on the unilateral demand of the SFO, without any recourse to the courts or authorities of the state where the evidence was located and without the protection of any of the safeguards put in place under the scheme of mutual legal assistance.
This judgment restores the position as it was widely understood prior to 2017 and means that in order to obtain documents held by companies outside the United Kingdom, the SFO must use MLA procedures.
It is reassuring that the UK Supreme Court has confirmed that in order to obtain evidence held overseas the SFO must utilise MLA procedures. The decision represents a recognition of sound legal principles and is good news for multinational companies that may find themselves embroiled in a SFO investigation. It should not, however, be thought that governments and law enforcement authorities have resigned themselves to operating at all times within the constraints of international MLA structures.
Two Key Takeaways
- The SFO cannot use its powers under section 2 of the Criminal Justice Act 1987 to compel the production of documents held by a company outside the jurisdiction.
- Company executives should exercise extreme caution when responding to a request to attend the United Kingdom for a meeting with the SFO. Invariably any questions that the SFO might want answers to can be provided by lawyers instructed by the company.
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