This morning the Supreme Court handed down its judgment in the case of R (on the application of KBR Inc) v The Director of the Serious Fraud Office. It decided that the SFO does not have the power to compel a foreign company to produce material that it holds overseas. The clarity of the ruling will be welcomed by criminal and corporate practitioners alike.
KBR Inc is a Texas-registered company and the ultimate parent company of a group of subsidiaries including the UK-registered KBR Ltd, for whose business KBR Inc undertook some treasury and compliance functions. During the course of a criminal investigation into suspicions that KBR Ltd had made corrupt payments in the course of its business, the SFO served on an officer of KBR Inc, who was attending a meeting with the SFO in London, a notice under section 2(3) Criminal Justice Act 1987 compelling the production of documents relating to KBR Ltd which KBR Inc held in the United States of America. KBR Inc challenged the validity of that notice.
In 2018 the High Court rejected that challenge. It held that section 2(3) Criminal Justice Act 1987’s ambit extended to foreign companies, such as KBR Inc, which had a ‘sufficient connection’ to the United Kingdom. But the Criminal Justice Act 1987 is silent on the question of extraterritoriality generally, and many practitioners argued that the High Court had come to the wrong conclusion. KBR Inc appealed to the Supreme Court, which heard oral argument in October 2020.
Over the last 30 years we have witnessed rapid globalisation assisted by the creation of the worldwide web. Business operates in a truly international way and where business goes so fraud will follow. The courts have adapted, and taken an increasingly broad view of the scope of their jurisdiction, including their criminal jurisdiction. At the same time, we have seen steadily increasing co-operation between criminal justice agencies across the world and the development of mutual legal assistance relationships and mechanisms.
However, those mechanisms can be cumbersome, over-burdened and slow. In response, legislation has recently been introduced to speed up the process of obtaining electronic data stored overseas (see our commentary on the Crime (Overseas Production Orders) Act 2019). But that is not a complete answer to the problems the authorities face, and it was perhaps inevitable that the question of whether section 2(3) Criminal Justice Act 1987 has an extraterritorial effect would come before the courts.
The Supreme Court’s unanimous decision was straightforward. There was nothing in the legislation creating the SFO to suggest that Parliament had intended that it should have powers to compel a foreign company to produce materials that the company held overseas. The court noted that the SFO has the power to use mutual legal assistance mechanisms, procedures with built-in safeguards, to obtain such evidence. Parliament’s intent was therefore that the SFO should simply use these procedures to obtain overseas evidence.
The US Department of Justice (DOJ) was much quicker than the SFO in testing the extraterritoriality of powers of criminal investigation available to it. As long ago as 1984 a federal Court of Appeals upheld the use of a grand jury subpoena compelling a foreign bank that did business in the United States to turn over records it held in a branch outside the United States, even where production of those records would violate the secrecy laws of the country in which they were held.
Of course, establishing jurisdiction is one thing but deciding when to exercise it is another. The US experience has been that countries affected by the exercise of this power would frequently object and, in response, the DoJ has developed a system of checks and controls aimed at ensuring that this power is sparingly and carefully used. No doubt, had the SFO been successful, it would have ended up using its extra-territorial jurisdiction in a similarly controlled way. This reversal may not therefore have a significant practical impact on its operations.
Alun was also quoted in various sources following the decision of this case and stated the following:
Given almost all of its cases involve some element of overseas evidence gathering, this decision will be disappointing for the SFO – not least since, following Brexit, it no longer has access to European Investigation Orders."
States do not generally welcome the use by other states of extraterritorial powers within their borders, so a judgment in the SFO’s favour was never going to spell the end of conventional mutual legal assistance in its cases. It simply has to double down now on making those mechanisms work."
It’s the cornerstone of international law that you don’t exercise powers in someone else’s country without their permission . . . mutual legal assistance is the default route and it can be slow but . . . it is a system built by nation states that says they will not conduct investigation in each other's frontiers, it’s an expression of state sovereignty.”
For further information on any issue raised in this blog, please contact a member of our criminal litigation team.
About the authors
Alun Milford is a Partner in the Criminal Litigation team and specialises in serious or complex financial crime, proceeds of crime litigation and corporate investigations. He has particular knowledge and experience of issues surrounding corporate crime and deferred prosecution agreements. He joined Kingsley Napley from the public sector where, over a twenty-six year career as a government lawyer and public prosecutor, he worked in a wide variety of roles including General Counsel at the Serious Fraud Office, the Crown Prosecution Services’ Head of Organised Crime, its Head of Proceeds of Crime and Revenue and Customs Prosecutions Office’s Head of Asset Forfeiture Division.
Áine Kervick is an Associate in the Criminal Litigation team with a wide range of criminal litigation experience. She provides advice and representation to individuals and corporates from the initial stages of criminal investigations up to trial. Her experience spans a range of industries and she regularly carries out internal investigations in corporate matters where there are allegations of wrongdoing and/or suspected criminality.