Documents held overseas by a foreign company can be caught by the SFO’s compulsory powers

Alex Swan explores the significant judgments handed down by the High Court in R (KBR Inc.) v SFO.

On 6 September 2018 the High Court handed down judgement in R (KBR Inc.) v SFO which deals with whether a SFO request for documents, using their compulsory powers under section 2 of the Criminal Justice Act 1987 (“section 2”), can include documents held by an overseas company outside the jurisdiction.

The Court ruled that section 2(3) does have extraterritorial effect, meaning that foreign companies with a sufficient connection to the UK, if served in the UK with a section 2 notice, can be ordered to produce documents held outside the jurisdiction. Therefore the key question for any foreign company caught up in a SFO investigation is whether it can be said to have a sufficient connection to the UK such as to make it susceptible to the use of the SFO’s compulsory powers to obtain documents.

KBR Inc. (“KBR”), a US company, challenged the validity of a section 2(3) notice served on an officer of KBR who had attended the SFO for a meeting in relation to the SFO’s investigation of KBR Ltd (a UK company), a subsidiary of KBR. The notice sought to require KBR to produce documents held abroad.

The challenge was on three bases:

1) As a matter of statutory construction, section 2(3) did not operate extraterritorially;
2) Even if section 2 did operate extraterritorially, the Director of the SFO had erred in law by not considering the powers available under Mutual Legal Assistance (MLA) when deciding whether or not to use his section 2 powers; and
3) The section 2(3) notice was not effectively served on KBR.

The Court rejected all three grounds and ruled that: section 2 does have extraterritorial effect; that MLA is additional, and not primary, to the Director’s section 2 powers; and that section 2 did not require service but that in any event, KBR was “plainly present” within the jurisdiction when the notice was served.

Extraterritoriality of section 2(3)

Having considered the relevant case law and the provisions of section 2, the Court concluded that s2(3) CJA must have an element of extraterritorial application, with Gross LJ stating that “[i]t is scarcely credible that a UK company could resist an otherwise lawful s2(3) notice on the ground that the documents in question were held on a server out of the jurisdiction.” He further commented that “putting to one side for the moment any questions of MLA, there would be a very real risk that the purpose of s2(3) would be frustrated if, as a jurisdictional bar, the SFO was precluded from seeking documents held abroad from any foreign company.”

Gross LJ ultimately concluded “…that the extraterritorial ambit of s2(3) is capable of extending to some foreign companies in respect of documents held abroad. For my part, however, I would not go further and say that the reach of s2(3) extended to all foreign companies in respect of documents held abroad, subject only to the safeguards or limitations in ss. 1 and 2 of the CJA 1987…s.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.”

Whether there is a “sufficient connection” between the foreign company and the jurisdiction is necessarily fact specific. However, in the instant case the Court found that the following was not indicative of a sufficient connection between KBR and the UK: the mere fact of being a parent company of a UK subsidiary; voluntarily cooperating with the SFO (by, for example, offering to run SFO search terms across data held in the US); or the attendance of a senior corporate officer at a meeting with the SFO. What did, however, lead to KBR having a sufficient connection was its central involvement in transactions under the SFO’s investigation (suggesting that sufficient connection may be established by the dynamics of the alleged criminality) and the fact that one of KBR’s corporate officers had been based at a KBR Group UK office and carried out his functions from the UK.

MLA

The Court found that MLA is an additional power to that in section 2(3) and did not curtail the Director’s discretion to use that power. The Court noted, although obiter, that the MLA route may be preferable where compliance with a section 2 notice presents difficulties under the local laws of the jurisdiction where the foreign company is located.

Service of the section 2(3) Notice

It was held that there was no requirement of “service” under section 2(3), but that plainly, as required, KBR was within the jurisdiction when the section 2 notice was served through the presence of its corporate officer at the meeting with the SFO. However, Gross LJ noted that there were “unappealing features” of the SFO’s decision to give the notice in the course of the KBR officer attending a meeting to discuss the investigation, which may impact on the willingness of others to attend meetings with the SFO in the future.

 

Author:

BCL Solicitor, Alex Swan is an experienced lawyer who has worked on a variety of complex and high-profile criminal matters, ranging from serious sexual allegations to multi-jurisdictional bribery allegations. Alex specialises in business crime – including restraint and confiscation proceedings – and has extensive experience of advising clients both pre- and post-charge. Alex has dealt with matters prosecuted by the SFO, the CPS, HMRC, the NCA, and the Department for Business, Innovation & Skills (as was).