Landmark decision holds that the SFO does not have the power to procure documents from foreign companies outside the jurisdiction.

On 5 February 2021, the UK Supreme Court handed down a highly significant judgment in R (on the application of KBR, Inc) v Director of the Serious Fraud Office [2021] UKSC 2. The Court unanimously ruled in favour of KBR, Inc in its appeal of a 2018 High Court judgment, which had permitted the Serious Fraud Office (SFO) to use its section 2(3) powers under the Criminal Justice Act 1987 (the 1987 Act) to require foreign companies that were sufficiently connected to the UK to provide documents and other information for the purposes of an SFO investigation.

This is the first case in which the UK courts have ruled on the extraterritorial reach of the SFO’s section 2 powers, which are its primary means of gathering evidence and factual information in support of its criminal investigations into bribery and corruption. 

Background

KBR, Inc is a company incorporated in the United States, with a UK subsidiary named Kellogg Brown and Root Ltd (KBR UK). The SFO issued KBR UK with a section 2(3) notice in April 2017, requiring the production of certain documents and information the company held. KBR UK complied with this notice, although it noted that certain other material would not be provided because said material was held in the United States by KBR, Inc. Following this response, representatives of the SFO and KBR, Inc met in London to discuss the investigation. At the meeting, the KBR, Inc representatives — who had flown into the jurisdiction for the purposes of this discussion — were presented with a section 2(3) notice requiring the outstanding materials that KBR UK had referred to in its response.

Ultimately, KBR, Inc refused to comply with this notice and sought a judicial review for it to be quashed on several grounds, including because:

• The notice had been issued ultra vires, as it requested material held outside the jurisdiction from a foreign company.
• The Director of the SFO had erred in law in exercising his section 2 powers on a foreign company if he had the power to seek mutual legal assistance from the US authorities instead.

KBR, Inc was unsuccessful in this application at the High Court, but permission was granted for appeal to the Supreme Court.

Judgment

The Supreme Court allowed the appeal and held that section 2(3) of the 1987 Act does not have extraterritorial effect. While the SFO can issue section 2(3) notices to UK companies requiring the production of documents they hold within the UK or overseas, the SFO does not have jurisdiction to issue such notices to foreign companies.

The Supreme Court noted that the 1987 Act does not address the question of extraterritorial reach, and emphasised the principle that — in the absence of an express indication to the contrary — UK criminal legislation should be presumed not to have such effect following international law, as well as the mutual respect and comity between states.

Counsel for the SFO argued that the 1987 Act must impliedly have extraterritorial effect as Parliament would not have passed legislation that could not achieve its purpose, and criminal investigations into bribery and fraud frequently have an international dimension. This argument was unsuccessful as Lloyd-Jones LJ (whose judgment was unanimously agreed upon by the Supreme Court) noted that the UK already has a “comprehensive domestic regime for international mutual legal assistance in criminal matters”, which importantly includes safeguards and protections to regulate international investigations. The judgment highlighted that it would, therefore, be “inherently improbable” that Parliament also intended to confer a parallel unilateral power on the SFO to obtain documents from foreign persons that were held outside the jurisdiction.

Lloyd-Jones LJ stated that analogies with judicial decisions concerning other statutory regimes were of limited assistance because they are likely to have been enacted for different purposes and in different contexts. However, the decision in Serious Organised Crime Agency v Perry [2012] UKSC 35 was of assistance, as it contained similar provisions for requesting information from “any person” in relation to criminal investigations. In Perry, the Court unanimously held that to allow the UK authorities to order information from a person outside the jurisdiction in that context would be “a particularly startling breach of international law”.

Finally, the Supreme Court overruled the High Court’s finding that the section 2(3) notice could be validly issued to KBR, Inc because KBR, Inc was “sufficiently connected” to KBR UK. Although this requirement for sufficient connection would provide a safeguard against the exorbitant exercise of powers abroad, Lloyd-Jones LJ stated that there was no legal basis for this requirement in the context of the 1987 Act. The ‘sufficient connection’ requirement was appropriate in the context of the Insolvency Act 1986, as that act conferred a power on a court, not on an agency such as the SFO. Further, the broad reading of the court’s power was compelled by the language of that act itself and it was not inconsistent with the Parliamentary intention of the Insolvency Act 1986. The same could not be said of the 1987 Act, and it would be “inherently uncertain” to confer such a power on the SFO to make orders on foreign addressees without defining what constitutes a sufficient connection.

Conclusion

This decision has the potential to significantly hamper the SFO’s ambitions to conduct timely investigations, which almost always involve an international element. The SFO will need to rely on the existing regime of mutual legal assistance, which can be slow and cumbersome. Further, the regime is already coping with adjustments brought about by Brexit, which have left the UK without the benefits of European Investigation Orders.

Although the UK has recently initiated Overseas Production Orders, which were not in force at the time the section 2(3) notice was issued to KBR, Inc, these require an application to the Crown Court for the production of documents stored outside the UK and only apply if a cooperative arrangement exists between the UK and the foreign jurisdiction. Legislative reform in this area is likely, as the 1987 Act — as interpreted by the Supreme Court — looks increasingly ineffective for investigations of international financial crime in the 21^st century.

Of more widespread significance, beyond the statutory interpretation in this case, the Court demonstrated an unwillingness to accept a public policy argument if doing so would stretch the natural interpretation of the language of the relevant statute. Practitioners should note that in doing so, the Court sought to place emphasis on the specific history and context of the statute in question, which it ultimately found to be a better indication of legislative intention than the public policy argument presented by the SFO.