The past year has produced some fascinating US case law concerning the extent to which US search warrants have extraterritorial effect. In July 2016, a US appellate court held that a US based service provider (Microsoft) served with a search warrant did not have to produce data stored on servers located in Ireland.1 Earlier this year, however, a US district court declined to apply the same reasoning when it ordered Google's US service provider to hand over foreign-stored account data pursuant to a search warrant.2 A number of US lawyers have argued that the question of whether search warrants have extraterritorial effect is now ripe for examination by the US Supreme Court.
What is the equivalent position under UK law?
This article considers whether compulsory document production powers available in UK criminal investigations have extraterritorial effect.3 All major criminal law enforcement bodies (including the SFO, FCA, NCA, HMRC, CMA and police) are vested with a statutory power to compel a person, upon receipt of a notice issued pursuant to the power, to produce documents relevant to the subject matter of an investigation.4 These notices compel the production of documents held inside the UK. But do the powers compel the production of documents outside the UK? In assessing extraterritoriality, does it matter whether the overseas documents sought under the notice exist in hard or soft copy?
These questions may be unimportant to a company which, on receiving a notice, seeks to cooperate with an investigation. Subject to foreign laws restricting disclosure (such as data protection or banking confidentiality laws), a cooperating company intent on securing the most lenient outcome in a criminal investigation may well be willing to comply with the notice, regardless of whether it is obliged to do so. However, for the company that wishes to comply only insofar as the relevant statute requires, resolving these questions is necessary.
Why wouldn't the powers have extraterritorial effect?
At first blush, it may seem implausible to contend that these powers do not operate extraterritorially. Organised crime crosses borders. So does the evidence. Many offences, such as those under the Fraud Act 2006, are triable as long as a single "relevant event" occurs in the UK.5 Moreover, Parliament has created offences which can be committed entirely extraterritorially – such as offences under the Bribery Act 20106 and the substantive money laundering offences under the Proceeds of Crime Act 2002 ("POCA 2002").7 If a UK law enforcement body is investigating a suspected offence the evidence of which is located overseas, it might seem counter-intuitive to suggest that it could not compel a person to produce that evidence.
Furthermore, if the notice is served on the UK office of a multinational company, the company, by virtue of its international presence, arguably "possesses" or "controls" the overseas documents sought under the notice. The company could easily bring those documents into the UK – indeed they are probably accessible via its computers in the UK. In this digital age, it might seem anachronistic to suggest that the company could not be compelled to produce this overseas evidence.
The presumption against extraterritoriality
The problem with these arguments is that they ignore the legal axiom that English criminal jurisdiction is territorial. Reflecting this is a principle of statutory construction that, in the absence of clear words to the contrary, conduct occurring overseas is incapable of being tried as an offence by an English court.8 This presumption against extraterritoriality also applies to court orders made in English criminal proceedings. In deference to international law and the comity of nations, such orders are ordinarily of no legal effect outside the jurisdiction – whether the order is made in personam (i.e. against a person) or in rem (i.e. against property).
For example, domestic restraint orders, which prevent a suspect from dealing with his assets at a pre-conviction stage, are in personam orders. Under Part 2 of POCA 2002, they typically apply to "any realisable property" held by the addressee of the order.9 The location of such property is immaterial; the order applies to property "wherever situated."10 This statutory language displaces the presumption against extraterritoriality, but only to the extent that it permits the court to exercise a worldwide in personam jurisdiction over the addressee of the notice in his dealings with his assets. Thus, if he breaches the order by dissipating his overseas assets, or by failing to comply with an obligation to repatriate his overseas assets, he is in contempt of court. But restraint orders are not extraterritorial in the sense that they restrain the overseas assets. The order is only capable of restraining overseas assets to the extent that it is recognised by the authorities in the foreign country where the assets are located. This is why Part 2 of POCA 2002 provides for a mechanism designed to secure its enforcement in other jurisdictions.11
Now consider an in rem order. In Perry and others v Serious Organised Crime Agency [2012] UKSC 35, the Supreme Court examined the jurisdictional scope of SOCA's (now the NCA's) powers under Part 5 of POCA 2002 to make property freezing orders ("PFOs"). At first instance, SOCA obtained PFOs over eight respondents, including Mr Perry's wife, her daughters and entities thought to hold assets on Mr Perry's behalf. Lord Philips noted that PFOs operate in rem because they are concerned with freezing specific property. He held that Part 5 of POCA 2002 did not displace the presumption against extraterritoriality: it did not vest a UK court with a power to make orders concerned with transferring ownership of property situated outside the jurisdiction. He also noted that, in contrast to restraint orders, Part 5 of POCA 2002 does not provide any mechanism for the foreign recognition and enforcement of the PFO in the country where the assets are situated. Primarily for these reasons, the Supreme Court held, on a majority, that the jurisdiction to make a PFO was limited to property located in the UK.
The situation considered by the Supreme Court in Perry (whether a PFO can freeze assets situated outside the UK) is different from the one posed at the beginning of this article (whether a person can be compelled to produce documents situated outside the UK). However, when considering the statutory basis of the power to compel documents, the question is the same:: does the statutory language displace the presumption against extraterritoriality?
Section 2(3) CJA 1987 notices in SFO investigations
Consider the power vested in the SFO to compel the production of documents. This is found in section 2(3) CJA 1987, which provides that:
"The Director may by notice in writing require the person under investigation or any other person to produce at such place as may be specified in the notice and either forthwith or at such time as may be so specified, any specified documents which appear to the Director to relate to any matter relevant to the investigation or any documents of a specified class which appear to him so to relate".
Section 2(18) CJA 1987 defines "documents" as including:
"[...] information recorded in any form and, in relation to information recorded otherwise than in legible form, references to its production include references to producing a copy of the information in legible form [...]."
This statutory language provides no basis for contending that Parliament intended the power to operate in respect of documents situated overseas. For example, there is no mention of the power applying to documents "wherever situated." Nowhere does the statute seek to displace the presumption against extraterritoriality.
However, in Hamilton v Naviede [1995] 2 AC 75, Lord Browne-Wilkinson made the following obiter observations on the SFO's power:
"Section 2(3) of the Act of 1987 does not expressly limit the documents in relation to which production can be demanded to documents which are in the possession or under the control of the recipient of the notice. But it must be clear that, if the recipient of the notice cannot, directly or indirectly, procure the production of a document he must have a "reasonable excuse" for not producing them."
These observations suggest that an addressee of a notice is obliged to take steps to procure the production of responsive documents which are not necessarily in its possession or control. If that is correct, it means that, for example, an employee of a company served with a notice would have to seek the consent of his employer to produce documents which are in the employer's (but not the employee's) possession or control. But the obligation to take steps to procure documents does not displace the presumption against extraterritoriality – and does not therefore obligate the addressee of the notice to procure the production of documents situated overseas.
Moreover, if the SFO executed a search warrant at the recipient's premises instead of serving a compulsory document production notice, it is uncontroversial that the search warrant could not compel the handing over of hard copy documents situated outside the UK. It follows by analogy that an inherently less coercive measure – such as a compulsory document production notice – should not operate in a more coercive fashion so as to compel the production of such documents.
So are the powers purely territorial?
For the above reasons, and subject to the two provisos outlined below, it is submitted that a person served with a notice under section 2(3) CJA 1987 compelling the production of only overseas documents is not obliged to comply with it.12 If the person refuses to produce overseas documents sought in the notice, the SFO would need to consider making a mutual legal assistance request to the law enforcement bodies in the country where the documents are situated.13
The same logic applies to compulsory document production notices issued by all other criminal law enforcement bodies (including the FCA, NCA, HMRC, CMA and the police). Their equivalent statutory powers are drafted in a materially identical fashion to section 2(3) CJA 1987.14
Is the FCA in a unique position?
There are two provisos to the argument outlined thus far. The first concerns the unique position of the FCA.
For the reasons outlined above, a person served with a section 171(2) FSMA 2000 notice could lawfully refuse to provide documents held overseas to the FCA. However, if such a notice is served on an authorised person, that person would be unwise to consider the notice in isolation from its regulatory obligations. This is because a refusal to produce overseas documents is arguably inconsistent with the obligations on authorised persons to be open and to cooperate with the FCA by voluntarily providing documents in their "possession and control".15 Principle 11 of the FCA's Principles for Businesses states that:
"A firm must deal with its regulators in an open and co-operative way, and must disclose to the appropriate regulator appropriately anything relating to the firm of which that regulator would reasonably expect notice."
The FCA's view of what is meant by being "open and co-operative" in Principle 11 is set out in the FCA Handbook. SUP 2.3 in the FCA Handbook provides that Principle 11 includes the requirements that the authorised person:
"give representatives or appointees of the FCA reasonable access to any records, files, tapes or computer systems, which are within the firm's possession or control" and "produce to representatives or appointees of the FCA specified documents, files, tapes, computer data or other material in the firm's possession or control as reasonably requested."
These regulatory obligations do not explicitly suggest that the requirement to provide documents in the authorised person's "possession" or "control" should operate extraterritorially. However, by not providing overseas documents in response to a notice under section 171(2) FSMA 2000, the authorised person would arguably be perceived as uncooperative in the eyes of its regulator.
Clearly this dilemma would only be faced by authorised persons served with a notice under section 171(2) FSMA 2000 – they are trapped between the statutory scheme, which does not operate extraterritorially, and the obligations owed to their regulator. This dilemma, which arises from the FCA's dual role as investigator and regulator, would not be faced by a non-authorised person served with such a notice by the FCA, nor by an entity (including an authorised person) served with a notice by a law enforcement body other than the FCA.
What about electronic documents?
The second proviso concerns electronic documents. Determining whether hard copy documents are inside the UK is straightforward; determining the location of electronic documents is less so. Electronic documents could be accessible on a computer in the UK but stored on a server (or through a cloud technology data centre) outside the UK. Owing to their antiquity and the speed of technological change, none of the statutes referred to in this article, nor any case law, provides guidance in interpreting the compellability of electronic documents located in a virtual location overseas.
There are two principal ways of analysing this conundrum. The first argument proceeds as follows. If the London office of company X is served with a notice from HMRC purporting to compel electronic data held on a server in Tokyo, company X could no doubt access that data on a computer in London. The data could be brought into the UK quickly and easily. But documents cannot be compelled unless they are in the UK at the time the notice is served. The fact that the electronic data could be accessed via a UK computer is irrelevant to its location, which is Japan. The data is outside the UK when company X receives the notice; ergo company X is not obliged to produce it. This first argument has the virtue of clarity, and accords with the wording of the relevant statutes which, as noted above, do not displace the presumption against extraterritoriality.
The alternative argument – that the electronic data on the Tokyo server must be produced in response to the notice – presupposes that electronic data does not have a fixed location. Such data is constantly shared across borders in contemporary multinational business. It would be artificial to suggest that data on the Japanese server is not in company X's hands. If a London-based executive of company X can use her iPhone to access emails sought under the notice, those emails are, in a real sense, in her pocket in London, even if the server on which the email data is stored is in Tokyo. Indeed, if company X is being investigated by HMRC for alleged tax evasion which took place entirely in the UK, but the servers of that company just happen to be overseas, it would seem to offend common sense to suggest that data held on those servers could not be compelled in the UK.
This alternative argument is attractive. The recipient of the notice exercises a greater degree of control over the overseas documents if they are stored electronically (and accessible via the click of a button) than if they are held in hard copy. Moreover, it is uncontroversial that a search warrant can compel the production of overseas electronic documents if those documents are accessible on a device in the premises where the search warrant is executed.16 If overseas electronic documents can be compelled under a search warrant, why shouldn't they be compelled under a document production order?
These are difficult questions. If they came to be considered by a UK court, there would need to be a technical analysis of precisely how the electronic data is stored. How easily can it be accessed by the recipient of the notice? Does the recipient of the notice require the consent of a third party before releasing the documents? Are there any restrictions under foreign law which would prevent the disclosure of the data in the UK? Answering these questions might suggest that the data is within the possession or under the control of the recipient. It would also be important to ask: is the data held in multiple locations? Or does the company's storage network automatically shift the data from one overseas virtual location to another (for efficiency or data security reasons)? Answering these questions may suggest that the data does not have a fixed location, such that mutual legal assistance is wholly impractical to implement. Moreover, if the overseas data has been accessed historically in the UK, was cached or temporary files replicating the data stored locally on the hard drives of the UK computers? If so, this might provide a basis for arguing that the data is in the UK, even though it is stored on an overseas server.
Conclusions
Compulsory document production powers in UK criminal investigations are largely territorial in nature. A UK law enforcement body can only compel the production of documents situated in the UK at the time the notice is issued, subject to (a) the dilemma faced by an authorised person in receipt of a notice from the FCA, and potentially (b) certain types of electronic data.
The remedy for a UK law enforcement body seeking overseas documents (and certainly hard copy overseas documents) is to make a mutual legal assistance request to the country where the documents are located. This allows the authorities in that country to decide whether there is any restriction under their law which might prevent disclosure. This pays deference to international law whilst ensuring that the public interest in investigating cross-border crime is not frustrated.
There are strategic reasons why, in practice, a company might not want to force a UK law enforcement body to pursue mutual legal assistance. First, the company might not want an overseas prosecutor or regulator to be notified about the UK investigation, because it might lead to a mushrooming of investigations around the world into the same or related conduct. Voluntarily providing overseas documents might limit cross-border contagion.17
Second, and more important, if the recipient of the notice is a multinational company or financial institution, forcing the law enforcement body to pursue mutual legal assistance runs the risk of being viewed as uncooperative. This might reduce the prospects of the company receiving a deferred prosecution agreement (in an SFO investigation) or other forms of leniency.
There may be cases in which a company is advised that the only incriminating documents are held overseas, and should not be provided voluntarily because the law enforcement body will find it impossible to obtain them through mutual legal assistance. But the more typical case will be one in which the company is advised that the gold standard of cooperation can only be achieved by giving the law enforcement body these overseas documents, even though it has (or might have) no power to compel them. The prospect of a DPA or other leniency can thus achieve benefits for both the corporate suspect and the law enforcement body. The corporate suspect can make a virtue of its willingness voluntarily to provide the overseas documents, whilst the law enforcement body can overcome the territorial limitations of the powers vested in it.
Footnotes
1 re Warrant to Search a Certain E-Mail Account Controlled & Maintained by Microsoft Corp., No. 14‐2985 (2d Cir. July 14, 2016).
2 re Search Warrant No. 16-960-M-01 to Google, In re Search Warrant No. 16-1061-M to Google, Memorandum of Decision (Feb. 3, 2017).
3 A second article will examine the question of extraterritoriality in the context of search warrants.
4 These powers include section 2(3) of the Criminal Justice Act 1987 ("CJA 1987") in respect of SFO investigations; section 62(3)(b) of the Serious Organised Crime and Police Act 2005 ("SOCPA 2005") in respect of NCA, HMRC and police investigations into specified offences; section 193(2) of the Enterprise Act 2002 ("EA 2002") in respect of CMA investigations into cartel offences; and section 171(2) of the Financial Services and Markets Act 2000 ("FSMA 2000") in respect of FCA investigations. The FCA has a similar power under section 165(1)(b) FSMA 2000 but this tends only to be used as an information-gathering tool by the Markets and Supervision teams before a case is accepted by Enforcement.
5 Section 2(3) of the Criminal Justice Act 1993.
6 Section 12 of the Bribery Act 2010. Before the Bribery Act 2010 came into force, section 109 of the Anti-Terrorism Crime and Security Act 2001 had already given extraterritorial application to the UK's existing bribery offences.
7 In relation to the extraterritorial ambit of the substantive money laundering offences in ss327-329 POCA 2002, see R v Rogers [2014] EWCA Crim 1680.
8 Air India v Wiggins [1980] 71 Cr App R 213.
9 Section 41(1) POCA 2002.
10 Section 84(1) POCA 2002.
11 Section 74 POCA 2002. This is in contrast to the position under the Proceeds of Crime Act 2002 (External Requests and Orders) Order 2005 ("the SI"), which enables the Crown Court to make an external restraint order at the request of a foreign state. In King v Director of the Serious Fraud Office [2009] UKHL 17, the House of Lords examined whether external restraint orders can apply to assets held overseas. Unlike domestic restraint orders which operate in personam against any assets of the suspect, external restraint orders operate in rem against specified assets, which Article 7 of the SI states must be assets located in England and Wales. Unlike Part 2 of POCA 2002, the SI contains no mechanism by which the external restraint order can be enforced against assets outside the UK. For these reasons, the Supreme Court held that an external restraint order is not capable of applying to assets outside the UK because Parliament, in drafting the SI, did not displace the presumption against extraterritoriality.
12 Such a person could assert that it has a "reasonable excuse" not to comply with the notice under section 2(13) CJA 1987, but in the author's view, that is the wrong approach, because asserting a "reasonable excuse" presupposes that the notice is valid.
13 Sections 7-9 Crime International Cooperation Act 2003.
14 See footnote 4 for a list of these powers.
15 It is true that section 171(2) FSMA 2000 can be exercised against any person, but in practice, given the nature of the FCA's work, authorised persons are most likely to be the target of a request.
16 Whether that is under the Police and Criminal Evidence Act 1984 or the Regulation of Investigatory Powers Act 2000.
17 However, overseas prosecutors or regulators could well find out about the UK investigation through other means – whether from the UK law enforcement body or from the company itself if, for example, it has to make disclosures in the foreign country.
First published on 29 June 2017
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
