UK Supreme Court: Serious Fraud Office Cannot Compel Foreign Companies to Produce Documents Held Abroad

Case: R (on the application of KBR, Inc) (Appellant) v Director of the Serious Fraud Office (Respondent) [2021] UKSC 2

On February 5, 2021, the UK Supreme Court ruled that the Serious Fraud Office (SFO) cannot compel foreign companies with no presence in the jurisdiction to produce documents held abroad using its powers under Section 2(3) of the Criminal Justice Act 1987 (CJA 1987).

After losing its ability to use European Investigation Orders to obtain evidence located in other EU member states due to Brexit, the judgment is a further setback for the SFO in terms of the extraterritorial reach of its investigative powers and may in certain circumstances affect its ability to investigate fully cross-border serious fraud cases. When seeking documents or electronic data held abroad from foreign companies that are not registered in the UK or do not carry on business there, the SFO will now have to rely on mutual legal assistance or an overseas production order (where such mechanisms are available).

However, the Supreme Court’s ruling will provide foreign companies with greater certainty regarding documents that may have to be produced to the SFO, particularly where production could be resisted in their own jurisdiction on grounds of privilege.

The Facts

Background

On April 27, 2017, the SFO commenced an investigation into KBR Inc.’s (KBR) UK subsidiaries, including Kellogg Brown and Root Ltd (KBR UK), as a result of suspected corrupt payments made by KBR UK to Unaoil (itself the subject of a separate investigation). It appeared that the payments required the approval of KBR and the company’s compliance function and were processed via its treasury function in the United States.

KBR is incorporated in the United States, and its interactions with Unaoil were subject to a separate investigation by the U.S. Department of Justice and the Securities and Exchange Commission. However, KBR is not registered in the UK and had never conducted any business activities there.

On April 4, 2017, the SFO issued a notice to KBR UK pursuant to Section 2(3) CJA 1987 (“Section 2 notice”) requiring it to produce certain information and documents “held by KBR UK.” In its response, KBR UK informed the SFO that some of the documents sought were not in its possession or control but rather were held by KBR in the United States (to the extent such material existed). Accordingly, the SFO asked KBR to attend a meeting in London to discuss the investigation and insisted that KBR officers attend. KBR’s general counsel duly attended the meeting, where the SFO proceeded to serve a Section 2 notice on her requiring KBR to produce the material held in the United States under threat of criminal sanction if it failed to comply.

KBR contested the Section 2 notice on the grounds that it (i) unlawfully required the production of documents held outside UK jurisdiction by a company incorporated and situated entirely outside UK jurisdiction and (ii) had not been validly served on KBR’s general counsel.

The High Court’s Judgment

The English High Court found that the Section 2 notice was lawful on the basis that Section 2(3) was capable of extending to some foreign companies in respect of documents held abroad, provided that there was a sufficient connection between the company and the jurisdiction. ¹ The High Court was satisfied that there was such a connection in this case, in particular given the role KBR played in authorizing and processing the allegedly corrupt payments by KBR UK.² Although it expressed some criticism of the SFO’s approach, the High Court further found that the SFO validly served the Section 2 notice on KBR’s general counsel (a point that KBR did not appeal).³

The Supreme Court’s Judgment

The Supreme Court emphasized that the starting point in considering the extraterritorial effect of Section 2(3) was the presumption in domestic law that legislation is generally not intended to have extraterritorial effect. The key question was therefore whether the language, purpose, and context of the provisions of the CJA 1987 considered in light of the relevant principles of interpretation, international law, and comity rebutted that presumption.

In particular, the Supreme Court found that while the language of Section 2(3) was wide (allowing the SFO to require the person under investigation or “any other person” to produce documents), where the UK Parliament intended for legislation to have extraterritorial effect, it frequently made it explicit. However, there was no express reference in Section 2(3) or the other provisions of the CJA 1987 to extraterritorial effect.

Similarly, the Supreme Court was not persuaded that extraterritorial effect could be implied. A detailed examination of the history of the CJA 1987 and subsequent legislation supported the view that Parliament had developed structures in domestic law that permitted the UK to participate in international systems of mutual legal assistance. The Supreme Court found that Parliament could not have implemented such structures intending to leave in place a parallel system that allowed the SFO to obtain evidence from abroad unilaterally without the protections afforded by mutual legal assistance.

Conclusion and Practical Impact

The Supreme Court’s judgment in KBR has curbed the SFO’s powers to compel production of material held abroad by foreign companies that have no presence within the UK’s jurisdiction. The judgment may also cast doubt on the status of documents the SFO previously obtained from such companies in purported exercise of its Section 2 powers. The SFO will of course still be able to rely on mutual legal assistance to obtain documents from foreign companies subject to the safeguards contained in the relevant agreement or treaty, and may be able to seek overseas production orders in certain cases.

Accordingly, the judgment may have a particular impact upon the SFO’s ability to obtain documents such as witness interviews that may be privileged under the law of the foreign jurisdiction but not under English law.

For example, in the United States, witness interviews are typically privileged, but such accounts are unlikely to be privileged under English law unless the requirements for litigation privilege are satisfied. Before the Supreme Court’s judgment, using its Section 2(3) powers the SFO could have unilaterally sought to compel production of nonprivileged witness accounts held abroad from foreign companies that had minimal connection to the UK’s jurisdiction. That door is now closed — for instance, in the example of the United States, the SFO is unlikely to obtain such documents through mutual legal assistance given that the company will be able to resist disclosure to its regulators under its domestic law of privilege. Of course, organizations may still wish to disclose such documents to the SFO during an investigation given the importance the SFO places on corporate cooperation (see our previous update on the SFO’s Corporate Co-operation Guidance here).

It is also worth noting that the Supreme Court was careful to state that KBR did not concern a foreign company with a registered office in the UK or that carried on business in the jurisdiction, and the SFO may still be able to use its Section 2(3) powers in such cases. The Supreme Court also made it clear that the powers could be used to compel a UK-registered company to produce documents held overseas. At the outset of any investigation with a potential nexus to the UK, it is therefore critically important that organizations assess fully where particular documents are held and by which entities and whether those entities may have any connection to the UK; companies should seek English law advice at the earliest opportunity in this regard.

¹ R (on the application of KBR Inc.) v Serious Fraud Office [2018] EWHC 2368 (Admin), at [71].

² Ibid. at [79] to [83].

³ Ibid. at [99] to [100].