The Supreme Court published its decision on R (on the application of KBR, Inc) (Appellant) v Director of the Serious Fraud Office (Respondent) this morning.
It found that the section 2(3) notice (CJA 1987) issued against a non-UK company was invalid. As a result, the foreign entity could not be compelled to disclose documents held outside of the jurisdiction to the SFO.
For further details on the facts of this case, please see our previous articles here and here
The original decision
The Criminal Justice Act (CJA) 1987 gives wide reaching powers to the SFO for the purposes of its investigations. Such powers include issuing notices under section 2(3) which can compel an individual / company to produce specific documents relevant to that investigation. Non-compliance with a "section 2 notice" has serious consequences and without "reasonable excuse", is a criminal offence.
In September 2018, the Administrative Court ruled on the international application of a section 2 notice. It was held that the notice was enforceable against a non-UK company and accordingly, it could be compelled to disclose documents to the SFO.
On the face of it, the decision gave clarity on the judicial reach of section 2 albeit with significant implications, particularly for foreign companies with functions within the UK: off the back of this decision, it seemed the SFO could both (i) require the production of documents held outside of the UK by a UK company; and (ii) require the production of documents held outside of the UK by a non-UK company, provided that a "sufficient connection" exists between the company and the UK.
The test was formulated to give "sensible effect" to the legislature's intention, however there remained uncertainty for non-UK companies as to the factual matrix which would meet the "sufficient connection" threshold and therefore trigger the ability of the SFO to request material.
As to the MLA regime, the court held that the procedure offers an "additional" route, but its availability did not prevent the Judge from "concluding that s.2(3) has an extraterritorial reach".
On 8 April 2019, the Supreme Court granted KBR Inc. leave to appeal the decision to extend the extraterritorial scope of the SFO's investigatory powers.
In the (virtual) Supreme Court hearing on 13 October 2020, counsel for the SFO argued that the challenge made by KBR Inc. threatened to create an imbalance in the SFO's powers if successful, arguing that: "there would be a disconnect if you could prosecute an overseas company but you couldn’t investigate it".
In turn, counsel for KBR Inc. submitted to the Court that in demanding the production of overseas-stored information from a foreign company (with the threat of criminal sanctions for non-compliance), the SFO's use of section 2 was not what parliament intended when it passed the CJA 1987.
KBR Inc. was successful in its appeal. The Supreme Court found that there was "no basis for the Divisional Court’s finding that the SFO could use the power in section 2(3) of the 1987 Act to require foreign companies to produce documents held outside the UK if there was a sufficient connection between the company and the UK. Implying a sufficient connection test into section 2(3) is inconsistent with the intention of Parliament and would involve illegitimately re-writing the statute".
With no further recourse for appeal, the Supreme Court has stymied the international reach of section 2 and the SFO's ability to scrutinise fraud involving non-UK entities.
Foreign companies with a presence in the UK can sleep a little easier in the knowledge that the section 2 powers have been curtailed, but for the SFO, this decision represents a serious blow. The SFO now faces an awkward gulf between its ability to prosecute overseas and its (arguably) inadequate powers to facilitate the underlying investigation.
The Mutual Legal Assistance regime of course remains open, but in a world of relentless technological developments where fluidity of documents and quick access to information is an essential component to global investigations, one can't help but wonder whether the CJA 1987 is in need of a re-vamp to reflect the reality of investigations today.
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