Stop in the name of the Law: Supreme Court curtails SFO’s power
February 10, 2021
Executive summary
On 5 February 2021, the Supreme Court handed down its judgment in the much-anticipated case of R (on the application of KBR, Inc.) v Director of the Serious Fraud Office1 in which it unanimously held that section 2(3) of the Criminal Justice Act 1987 (the “CJA”) does not give the Serious Fraud Office (the “SFO”) the power to compel a foreign company to produce documents held abroad. The ruling overturned the decision at first instance which had held that the SFO could use section 2(3) of the CJA to compel a foreign company to produce documents held outside the UK where there was a “sufficient connection” between the foreign company and the UK. Importantly, however, the decision does affect the SFO’s power to compel UK companies to produce documents held overseas which are deemed to be under their care and control. Similarly, the SFO will also be able to compel a foreign company to produce documents held in the UK.
The ruling makes clear that the SFO must rely on the UK’s evidence-gathering powers under relevant mutual legal assistance treaties to obtain materials held overseas by foreign companies, or rely on the voluntary cooperation of the entity concerned. Accordingly, this ruling will mean that the provision of information and evidence from overseas entities through a voluntary cooperation process is likely to weigh heavily in favour of a deferred prosecution agreement (“DPA”) under the relevant guidance.
Background and the first instance decision
In February 2017, the SFO commenced a criminal investigation into, among others, a UK subsidiary of KBR, Inc. (Kellogg Brown & Root Ltd (“KBR UK”)) in connection with allegations of bribery and corruption. In April 2017, the SFO issued a notice (the “April Notice”) under section 2(3) of the CJA to KBR UK for the production of 21 separate categories of documents. There was initially cooperation by KBR, Inc. with the production of documents in connection with the April Notice. However, the SFO subsequently became concerned that KBR UK was trying to draw a distinction between documents it held and controlled and those documents outside the jurisdiction and controlled by others in the KBR Group. A meeting was subsequently arranged in July 2017 between the SFO and the KBR Group and the SFO insisted that representatives from KBR Inc. (rather than its lawyers) should attend the meeting. Accordingly, KBR Inc.’s General Counsel and Chief Compliance Officer both attended the July meeting with the SFO in the UK. At that meeting, the SFO asked whether the KBR Group would provide the remaining documents under the April Notice that were held outside of the UK. The SFO did not receive a response which it considered satisfactory and, as such, it handed a notice under section 2(3) of the CJA addressed to KBR, Inc. (the “July Notice”) to KBR Inc.’s General Counsel.
KBR, Inc. subsequently brought judicial review proceedings challenging the July Notice on the following three grounds: (i) the July Notice was ultra vires as it requested documents held outside the UK by a foreign company; (ii) it was an error of law for the Director of the SFO to issue such a notice in circumstances where the SFO had power to seek mutual legal assistance from the relevant authorities in the US; and (iii) the July Notice was not validly served as it was merely handed to an officer of KBR, Inc. whilst that officer was temporarily in the UK.2 The Administrative Court dismissed all three challenges to the July Notice. Much of the Administrative Court’s focus was on the issue of whether section 2(3) of the CJA could compel a foreign company to produce documents held outside of the UK. On this issue, the Court held that section 2(3) "extends extraterritorially to foreign companies in respect of documents held outside the jurisdiction when there is a sufficient connection between the company and the jurisdiction.”3
KBR, Inc. appealed the Administrative Court’s decision only in respect of the first ground of challenge to the July Notice (i.e. whether it was ultra vires for the SFO to use a notice under section 2(3) of the CJA to compel documents held outside the UK from a foreign company).
The Supreme Court’s findings
Lord Lloyd-Jones gave the judgment in a unanimous decision of the Supreme Court which allowed KBR, Inc.’s appeal, with the result that KBR, Inc. will not be required to produce documents held outside the UK that were requested by the SFO pursuant to the July Notice. The judgment highlighted the general presumption that legislation is not intended to have extraterritorial effect and noted that this presumption can only be rebutted based on the provisions, purpose and context of the statute in question. Accordingly, the judgment sets out an analysis of the history of the CJA and the establishment of the SFO and concludes that Parliament clearly intended that evidence should be secured from foreign jurisdictions pursuant to international cooperation rather than by a broad and unilateral power conferred on the SFO. On this point, the judgment states:
“…It is to my mind inherently improbable that Parliament should have refined [the legislative framework around mutual legal assistance in relation to both criminal proceedings and investigations] 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.”4
Lord Lloyd-Jones’ judgment also considered the Supreme Court’s decision in the case of Serious Organised Crime Agency v Perry.5 That case concerned whether a disclosure order issued pursuant to section 357 of the Proceeds of Crime Act 2002 (“POCA”) was enforceable against individuals based outside of the UK. The unanimous verdict of the Supreme Court in Perry was that section 357 of POCA did not allow a disclosure order to be enforced against individuals out of the jurisdiction. Lord Lloyd-Jones noted that there are striking similarities between section 357 of POCA and section 2(3) of the CJA and, as such, Perry is “strongly supportive of the view that section 2(3) of the [CJA] was not intended to confer a power to require disclosure by a foreign person abroad.”6
Other issues arising from the Supreme Court’s judgment
Other options available to the SFO and the potential impact on future investigations
It is clear from the Supreme Court’s decision that the expectation is that absent corporate cooperation, where the SFO wishes to obtain documents held by a foreign company outside the UK, it should submit a request for mutual legal assistance to the relevant authorities in the foreign company’s home jurisdiction. In light of the decision, the SFO may also consider lobbying Parliament to amend the CJA so that the scope of section 2(3) is expanded to cover foreign companies holding documents outside the UK.7 It should also be noted that the Crime (Overseas Production Orders) Act 2019 gives the SFO the ability to apply for an order compelling communication service providers (“CSP”) to provide electronic data stored outside the UK, provided there is a Designated International Cooperation Agreement in place between the UK and the country in which the CSP is based (limited to the USA as at the date of writing).8
The SFO is likely to react to the decision in this case by focusing further on the benefits for a corporate in proactively cooperating with any investigation. In particular, as we have previously highlighted,9 a company’s cooperation will be a central consideration when the SFO determines whether a company should be invited to enter into negotiations for a DPA. However, the decision may result in tensions within multinational groups where a foreign group company has to determine whether to produce documents voluntarily that it holds and controls outside the UK in connection with an investigation by the SFO into actions occurring in the UK or committed by a UK company in the same group and where that foreign company is not otherwise required or compelled to produce those documents. Much will depend on the corporate structure and the ability of the UK company to require the overseas entity to provide material. In the event that the UK entity is the head office, it is likely that any materials held overseas by subsidiary entities will be within the care and control of the parent.10
Potential insight into the meaning of “carrying on a business” under the UK Bribery Act
One perhaps unforeseen consequence of the case is its potential impact on the practical jurisdictional reach of the Bribery Act 2010 (“Act”). Foreign entities are subject to UK jurisdiction under section 7 of the Act, where they are found, on the facts, to be “carr[ying] on a business, or part of a business, in any part of the United Kingdom”. 11 The UK Ministry of Justice guidance confirmed that a “common sense approach” should be applied to this question:
“…applying a common sense approach would mean that organisations that do not have a demonstrable business presence in the United Kingdom would not be caught…Likewise, having a UK subsidiary will not, in itself, mean that a parent company is carrying on a business in the UK, since a subsidiary may act independently of its parent or other group companies.”12
The “extraordinary scope” of section 7 was highlighted in the Ministry of Justice’s Bribery Act 2010: Post Legislative Scrutiny Memorandum published in June 2018:
“The [section 7] offence catches bribery anywhere in the world on behalf not only of UK companies but foreign companies carrying on a business in the UK, even if the bribery relates to a business transaction that has no connection to the UK…
…Given, that an offence is committed under this section no matter where the relevant conduct take place, the section 7 offence is endowed with extraordinary scope. The section would catch, for example, a bribe paid in Sweden, by a Philippine national on behalf of a Brazilian engineering company, that carries on a lift maintenance business in the UK, in respect of a contract relating to an infrastructure project in New Zealand. The extent to which such a case could be prosecuted in a UK court in practice is of course an entirely different matter.”13
The SFO has stated that section 7 provides a wide jurisdictional reach to the actions of overseas companies, where “carr[ying] on a business” in the UK has been deemed to include companies which have strategic and operational management of UK subsidiaries. Interestingly, it appears to have been accepted by the SFO that, for the purposes of this case, KBR, Inc. was not “carrying on business” in the UK.14 This is despite the Administrative Court judgment referring to various connecting factors between KBR, Inc. and the UK (e.g. (i) KBR, Inc. had UK subsidiaries; (ii) KBR UK required the approval of KBR, Inc’s compliance function to make certain payments; (iii) an officer of KBR, Inc. operated out of a KBR Group office in the UK; and (iv) some of KBR UK’s payments were processed by KBR, Inc.’s treasury function in the US).
Although in this case the SFO was considering a slightly different phrase in the context of different legislation,15 this may provide some insight into how the issue of strategic and/or operational management will be considered when determining whether a foreign company is “carr[ying] on a business, or part of a business, in any part of the United Kingdom” for the purposes of section 7 of the Act.
The Supreme Court’s explicit rejection of the Administrative Court’s “sufficient connection” test also appears to suggest that the SFO will be unable to compel a foreign company to produce documents held outside the UK even in circumstances where the company has a business presence in the UK. One of the Supreme Court’s reasons for rejecting the “sufficient connection” test was: “a statutory rule which empowers the SFO to demand the production of documents by foreigners outside the jurisdiction when there is a sufficient connection between the addressee and the jurisdiction, without defining what would constitute such a connection, would be inherently uncertain.”16
This may leave the SFO in the position where it has jurisdiction to pursue an entity under section 7 of the Act, but has limited practical tools to do so under domestic law such that it must instead rely on the more cumbersome mutual legal assistance mechanisms or corporate cooperation.
Conclusion
The Supreme Court decision highlights the need for companies (foreign and UK-based) to carefully consider, at an early stage of an investigation, where their documents are located and which entity has control or ownership of them. Strategic consideration should be given to the risks and benefits of cooperation and the weight of any positive cooperation credit which may be applied to the voluntary provision of materials from overseas. Further, foreign companies facing potential Bribery Act issues, should conduct a detailed analysis of the likely jurisdictional reach of the UK courts and authorities to the structures and conduct under review.
Footnotes
1) [2021] UKSC 2.
2) Although the Administrative Court dismissed KBR, Inc.’s challenge to the service of the July Notice, the judgment certainly disapproved of the SFO’s approach in the circumstances: “Before leaving this Ground, I cannot help observing that there are unappealing features of the SFO’s decision to give the July Notice to [KBR, Inc.’s General Counsel] in the course of attending a meeting to discuss the investigation – but however those features might impact on the willingness of others to attend such meetings in the future, they do not serve to invalidate the giving of the July Notice here.” ([2018] EWHC 2368 (Admin), at paragraph 100).
3) [2018] EWHC 2368 (Admin), at paragraph 71.
4) [2021] UKSC 2, at paragraph 45.
5) [2012] UKSC 35.
6) [2021] UKSC 2, at paragraph 53.
7) Following the Supreme Court’s decision in Perry, POCA was subsequently amended to include a specific mechanism for obtaining evidence abroad for relevant UK proceedings.
9) https://www.dechert.com/knowledge/onpoint/2019/8/new-sfo-guidance-on-corporate-cooperation.html.
10) The Supreme Court ruling addressed the position of obtaining documents held abroad by a UK company in a couple of places: “…Indeed, it was common ground between the parties that if the addressee had been a British registered company section 2(3) would have authorised the service of a notice to produce documents held abroad by that company” and “…However, first, it is questionable whether in the hypothetical situation the legislation is given any material extra-territorial effect. A UK company would be required to produce here a document it holds overseas. It would simply be required to bring that document into the jurisdiction in order to produce it” [2021] UKSC 2, at paragraphs 26 and 30.
11) Section 7(5) of the Act.
12) https://www.justice.gov.uk/downloads/legislation/bribery-act-2010-guidance.pdf (at paragraph 36).
13) https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/713454/bribery-act-2010-post-legislative-scrutiny-memorandum-print.pdf (at paragraphs 16 and 58).
14) E.g. paragraph 4 of the Administrative Court judgment and paragraph 1 of the Supreme Court judgment.
15) In this case the SFO was considering the phrase “carrying on business” (the phrase in section 7 of the Act is “carr[ying] on a business” (emphasis added)) in relation to the scope of its powers under section 2(3) of the CJA, albeit that the CJA does not contain the phrase “carrying on business”.
16) [2021] UKSC 2, at paragraph 65.
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