On 5 January 2021, the U.K. Supreme Court (the U.K.’s highest Court) handed down its judgment in the case brought by the Houston-based engineering, procurement, construction company, KBR, Inc., challenging the right of the U.K. Serious Fraud Office (the SFO) to compel the production of documents located overseas. The Supreme Court unanimously ruled that the SFO cannot compel the production of documents held outside the U.K., and the SFO’s notice issued under section 2 of the Criminal Justice Act (the Section 2 Notice) demanding that KBR, Inc., produce files stored in the U.S. be quashed. In short, a Section 2 Notice has no extraterritorial reach.
Section 2 of the Criminal Justice Act 1987
Section 2 of the Criminal Justice Act 1987 (the CJA) is the principal mechanism used by the SFO to obtain information relevant to its investigations. Under section 2 of the CJA, the SFO can compel a person being investigated or any other person that has information relevant to an investigation to answer questions or otherwise furnish information (section (2)(2) of the CJA), or to provide information or documents relevant to that investigation (section (2)(3) of the CJA).
Section 2 carries a criminal sanction for non-compliance. Under section 2(13) of the CJA, a person convicted of failing to comply with a Section 2 Notice – without a reasonable excuse – is liable on summary conviction to imprisonment for up to six months or a monetary fine. Stricter sentences can be imposed for making false or misleading statements in response to a Section 2 Notice or for falsifying, concealing, destroying or disposing of relevant documents.
There is a defence to prosecution if the recipient can show that it had a reasonable excuse for non-compliance. Of particular note in this regard is that a Section 2 Notice cannot compel the production of material subject to legal professional privilege.
SFO Investigation of KBR
In April 2017, the SFO announced that it had opened an investigation into KBR, Inc.’s U.K. subsidiaries, their officers, employees and agents for suspected offences of bribery and corruption.
As is usual in the SFO’s investigations, in April 2017, the SFO issued a Section 2 Notice to KBR Ltd (the U.K. entity) for the production of various categories of material. This was followed by a further Section 2 Notice addressed to the US parent, KBR, Inc. (the Second Section 2 Notice). The Second Section 2 Notice was issued to one of KBR Inc.’s officers during a meeting with the SFO in London in July 2017. The Second Section 2 Notice sought the same materials as requested in the first notice, as well as an additional six new categories of information.
By way of judicial review, KBR, Inc. applied for the Second Section 2 Notice to be quashed to the extent that it purported to compel the production of material held outside of the U.K. KBR Inc. argued that section 2 of the CJA did not operate extraterritorially. In contract, the SFO said that section 2 of the CJA had no territorial limit.
At first instance, the High Court of England and Wales noted that section 2 of the CJA was silent on the issue of territoriality: it neither expressly displaced the presumption against extraterritoriality nor did it contain words of jurisdictional limitation. The High Court reasoned that section 2 of the CJA must, however, have an “element” of extraterritorial application since to suggest otherwise would be to frustrate the SFO’s ability to conduct effective investigations into offences committed internationally, particularly in the modern context of large global organisations where documents are increasingly likely to be held overseas by foreign companies in the same group.
The High Court held that section 2 of the CJA should extend to foreign companies where there is a “sufficient connection” between the company and the U.K. In the case of KBR, Inc., it found that there was a “sufficient connection” between KBR, Inc. and the U.K. on the basis that payments central to the SFO’s investigation of KBR Ltd required the approval of KBR, Inc. and were paid by KBR, Inc. through its US-based treasury function.
KBR Inc. appealed the decision of the High Court to the Supreme Court. The Supreme Court has unanimously held that the “sufficient connection” standard is not supported by the language of section 2 of the CJA, and that the intention of the U.K. parliament was that information outside of the U.K. should be obtained by established international information sharing arrangements, such as mutual legal assistance systems. The Supreme Court found that:
“The presumption against extra-territorial effect clearly applies in this case because KBR Inc is not a UK company, and has never had a registered office or carried on business in the UK”
The SFO’s Wings have been Clipped but Other Mechanisms Exist to Obtain Overseas Documents
The decision of the Supreme Court is a welcome clarification for recipients of Section 2 Notices and those advising them. The SFO has likewise welcomed the clarification “of the extent of the SFO’s powers…, including its confirmation of [the SFO’s] power to compel UK companies to repatriate documents which they hold overseas”.
The decision doubtless has an effect on the way in which the SFO can conduct cross-border investigations which require the production of documents and information which are not ordinarily accessible in the U.K. The decision should also be seen in the context of the U.K.’s departure from the European Union (the EU), which as a result means that the U.K. is no longer a member of the EU’s primary law-enforcement groups, including Eurojust (an agency allowing EU-member states to gather and exchange information on crime) and Europol (an intelligence and data-sharing centre).
The SFO’s powers are not, however, completely thwarted. The SFO has a number of options available to it in order to gather information located overseas, including:
- Seeking information via the mutual legal assistance (MLA) process. This is a process where law enforcement agencies cooperate in criminal investigations and proceedings, including to request the production of information and materials. The U.K. has signed bilateral MLA agreements with 40 other countries and is a party to a number of multilateral agreements.
- Overseas production orders (or OPOs). As set out in our previous blog “Data Transfer Considerations in Investigations,” the Crime (Overseas Production Orders) Act allows the SFO to obtain data directly from communications service providers located abroad – provided there is a cooperation agreement between the U.K. and the country where the provider is based – by applying to access evidence based overseas which is potentially relevant to U.K. indictable offences that carry a potential sentence of at least three years’ imprisonment. To date, the U.K. has, however, only signed such an agreement with the U.S.
As well as the impact on the SFO’s ability to obtain overseas’ information in future investigations, the Supreme Court’s judgment does not provide any guidance as to what should happen to investigations for which the SFO has already compelled – and had produced to it – documents that were held overseas.
Whilst the SFO’s powers to compel the production of documents located overseas have undoubtedly been limited by the judgment of the Supreme Court, there are other ways in which the agency can obtain their production. In addition, for those companies wishing to obtain maximum credit for cooperating with the SFO including by being invited to negotiate a Deferred Prosecution Agreement, the option to produce documents voluntarily (subject to the applicable data protection and secrecy rules) will remain a key consideration in deciding whether (or not) to produce to the SFO documents which are located overseas.