UK Supreme Court limits the SFO’s extraterritorial reach

The long-anticipated judgment of the Supreme Court in R (on the application of KBR, Inc) v Director of the Serious Fraud Office [2021] UKSC 2 will have a significant impact on the SFO's powers to conduct multi-jurisdictional investigations. In a unanimous decision, the Supreme Court has held that s. 2(3) of the Criminal Justice Act 1987 ("CJA 1987") - by which the SFO can require documents relevant to its investigations to be produced, under threat of criminal sanction - does not have extra-territorial effect. As a result, the SFO cannot now use its s.2 CJA 1987 powers to require a foreign company to produce documents held outside the UK. The Supreme Court overruled the Divisional Court at first instance, which considered that s.2(3) CJA 1987 did have extra-territorial application, provided that there was a "sufficient connection" between the overseas company and the UK. 

The facts in KBR

The facts of the KBR case illustrate the sorts of tensions that have become commonplace in modern SFO investigations, in which suspected wrongdoing involving multi-national corporations frequently crosses borders, and relevant documents may often be held on servers outside the UK. Indeed, even though the SFO has now closed its investigation into KBR's UK subsidiaries, the Supreme Court was willing to hear the case given that it involved a principle of wide application.

KBR Inc. is the US-incorporated parent company of a global engineering, procurement and construction business. It does not have a fixed place of business in the UK and has never carried out business in the UK. However, KBR Inc. does have a number of UK subsidiaries, including Kellogg Brown & Root Ltd ("KBR UK"). In February 2017, the SFO commenced an investigation into KBR Inc.'s UK subsidiaries (among others) for suspected bribery and corruption offences, in connection with the SFO's wider investigation into the activities of Unaoil.

In April 2017, the SFO issued a notice under s.2(3) CJA 1987 to KBR UK, requiring the production of certain material "held by KBR UK". KBR UK responded to the notice by providing the SFO with documents already under its custody in the UK, responsive documents located outside of the UK (as directed by KBR Inc.), and also on a "voluntary basis" in respect of documents located outside the UK which KBR Inc. had disclosed to the US authorities as a result of their inquiries into Unaoil.

However, the SFO remained concerned that the KBR group was trying to draw a distinction between documents held by or under the specific control of KBR UK, and documents held outside of the jurisdiction and beyond that company's control. In July 2017, the SFO issued a further s.2 notice to a representative of KBR Inc., which requested the same material that was the subject of the previous notice to the extent that it was "held by KBR Inc."

KBR Inc. applied for judicial review to quash the July 2017 notice, on grounds (among others) that the notice was unlawful, because s.2(3) CJA 1987 does not permit the SFO to require a company incorporated in the USA to produce documents it holds outside the UK. KBR Inc also argued that the Director of the SFO made an error of law in issuing the notice instead of making use of mutual legal assistance ("MLA") procedures to request the relevant material from the US authorities.

The legal basis of the Supreme Court's judgment

The Supreme Court started with the established presumption in UK law that domestic legislation is generally not intended to have extra-territorial effect. The presumption reflects in part the principle of international law and comity that one State should not, by claiming or exercising jurisdiction, infringe the sovereignty of another State in breach of the rules of international law.

The question to be determined was therefore whether, as a matter of interpretation of s.2(3) CJA 1987, the presumption was rebutted in this case. Section 2(3) CJA 1987 does not expressly state that it should have extra-territorial application, unlike some other statutes such as s.12 of the Bribery Act 2010, by which the substantive bribery offences can be committed by UK nationals abroad. The Supreme Court was also not persuaded that an intention on the part of Parliament to give extra-territorial effect to s.2(3) CJA 1987 should be implied. Crucially, the Court recognised that Parliament had already legislated a solution for UK investigating authorities to obtain overseas evidence, by way of the MLA process of requesting such evidence from an authority in the target jurisdiction.

What this means

The Supreme Court's decision has the potential to make SFO investigations more time-consuming and laborious where documents are required from non-UK based companies. The judgment applies to non-UK companies with no presence in the UK but a UK-based company will still need to produce any relevant documentary evidence that it controls overseas by bringing them into the jurisdiction. The position is unclear in relation to non-UK companies with some presence in the UK. Most SFO investigations involve companies that are part of multinational groups conducting their business in multiple jurisdictions, with relevant documentary evidence held electronically on servers that can be located virtually anywhere. Section 2 notices provide a relatively straightforward and quick means to obtain such evidence directly from a party related to the investigation. MLA requests, by contrast, are controlled by governments and courts of the recipient state and can take months or even years to process (indeed, for some jurisdictions, there are no reciprocal arrangements in place).

Given the challenges presented by the MLA process, there has been a push to develop more streamlined solutions. In particular, in 2019, Parliament enacted the Crime (Overseas Production Orders) Act, which allows UK law enforcement to apply to the UK court for an order allowing data to be obtained from outside the UK, directly from foreign technology companies. This regime is, however, available only where an international cooperation agreement is in place with the target jurisdiction. The first such agreement, the UK-US Bilateral Data Sharing Agreement, came into force in July 2020, and further such agreements are being negotiated with the EU and Australia. (See our article on this UK-US agreement here.) Such developments are particularly timely now that, following the end of the Brexit transition period, UK authorities are no longer able to make use of European Investigation Orders to obtain evidence located in EU member states. In light of the KBR judgment, we may see renewed energy being devoted to such solutions going forwards. 

Beyond the SFO, other authorities may also be impacted by the Supreme Court judgment. For example:

• The Divisional Court's first instance decisionhas already been relied on in tax cases confirming that HMRC can issue information notices to UK nationals residing outside the UK, either about their own tax affairs (R (on the application of Jimenez) v First Tier Tribunal (Tax Chamber) [2019] EWCA Civ 51) or those of a UK-resident company (Revenue and Customs Commissioners v PQ [2019] UKFTT 371 (TC)), where there is sufficient connection with the jurisdiction. 

• The FCA's powers to require the production of documents under s.171(2) of the Financial Markets and Services Act 2020 are, like s.2(3) CJA 1987, not expressly given extra-territorial application and, whilst the Supreme Court made clear in KBR that the issue it determined is specific to the statute in question, the decision may encourage the FCA to follow MLA procedures to obtain overseas documents from foreign companies.

• Similar considerations apply to the CMA's powers in criminal cartel investigations to require document production under s.193 of the Enterprise Act 2002 ("EA 2002"). It is unlikely that the CMA's powers in the context of a criminal cartel investigation have wider extra-territorial effect than the powers available to the SFO in a cartel investigation. As with s.2(3) CJA 1987, s.193 EA 2002 does not expressly provide for extra-territorial application and also carries with it the threat of criminal sanction in case of non-compliance (s.201(1) EA 2002), meaning that the bar to rebut the presumption against extra-territorial effect is already set very high. In its role as a prosecutor in criminal cartel cases, the CMA is also able to utilise certain MLA procedures. It is therefore likely that KBR has similar implications for the extra-territorial effect of s.193 EA 2002.

• The CMA has similar powers under s.26 of the Competition Act 1998 ("CA98") to require the production of documents in relation to its civil (non-criminal) investigations. KBR will apply equally to the use of the CMA's powers to compel the production of documents under CA98. Historically, the CMA's investigations have focused on domestic UK issues, but this is likely to change following Brexit. To the extent necessary, the CMA may now make more use of any mechanisms under memoranda of understanding it has in place with other competition authorities under the "Multilateral Mutual Assistance and Cooperation Framework for Competition Authorities".

One of the Divisional Court's concerns was that, if s.2(3) CJA 1987 does not have extra-territorial effect, this could encourage foreign companies to transfer documents outside the UK to make them more difficult to obtain. Although such arrangements may not be so simple to effect in practice, including because the relevant documents would need to be put out of the "control" of the UK entity not simply transferred overseas, this is a risk resulting from the Supreme Court's judgment.

A further potential outcome would, of course, be for Parliament to amend s.2(3) CJA 1987 to make clear that it does have extra-territorial effect. As noted above, the Bribery Act 2010 is expressly extra-territorial as is, for example, the Proceeds of Crime Act 2002 (Part 2 restraint orders have worldwide personal jurisdiction). For such an amendment to succeed, however, Parliament would need to satisfy itself that there was no fundamental tension with the MLA regime. For the time being, however, the SFO (and, perhaps, other investigating authorities) will need to rely on MLA procedures, as well as other more flexible arrangements such as overseas production orders where available.