On February 5, 2021, the UK's Supreme Court confirmed the extraterritorial limits of the Serious Fraud Office's (SFO) investigatory powers under the Criminal Justice Act 1987 (the Act). This welcome clarity follows a challenge to the law that has been making its way through the UK courts since 2017; it is now confirmed that the SFO cannot rely on its ordinary powers of compulsion contained within Section 2(3) the Act to obtain documents held overseas by a non-UK company, and must instead proceed through the traditional mutual legal assistance channels.
The question regarding the extraterritoriality of SFO's investigatory reach arose in April 2017, following the SFO's issuance of a notice under Section 2(3) of the Act (a Notice) against KBR, Inc. (KBR). Under Section 2(3), the SFO can compel production of certain material in order to investigate a reasonable suspicion of serious or complex fraud; failure to comply with or respond to such a notice is a criminal offence.
In this case, the subject of the Notice was KBR, a company incorporated in the US with no fixed place of business in the UK. KBR does, however, have UK subsidiaries. KBR applied for judicial review to nullify the Notice, arguing that the SFO had exceeded its powers and could not use a Notice to force a foreign company to produce material held overseas.
The Divisional Court rejected KBR's argument and upheld the Notice, ruling that Section 2(3) permitted the SFO to compel material held abroad from a foreign company if there was a sufficient connection between the company and the UK. KBR appealed that decision to the UK Supreme Court in April 2019.
The sole issue before the Supreme Court was whether the SFO, through its compulsory powers, could compel the production of material held outside of the UK from a company incorporated in the US. The unanimous ruling in favour of KBR held the following:
- There is a presumption against extraterritorial application of UK legislation, a principle enshrined in international law and comity. In the absence of explicit wording rebutting this presumption, the language of the law in question cannot be construed to apply outside of the jurisdiction.
- The UK has available to it various international systems of mutual legal assistance to facilitate overseas criminal investigations. For example, and relevant to this case, the UK and the US entered into a bilateral treaty in 1994, and more recently, the Agreement on Mutual Legal Assistance in 2003, enabling either jurisdiction to request assistance and evidence from the other to investigate criminal matters. These legal mechanisms function within the bounds of appropriate safeguards and controls, fundamental to the furtherance of mutual respect.
- The "sufficient connection" between a foreign company and the UK, an argument relied upon by the SFO and accepted by the Divisional Court, is not set out in the Act and cannot be implied into that Act.
The Supreme Court confirmed that its judgment would not affect the SFO's ability to compel material held by foreign companies that did have a registered office or fixed place of business in the UK under Section 2(3). Equally, documents held overseas by UK companies can still be compelled under Section 2(3). However, the position in relation to foreign companies with no UK presence is unequivocal, and the fact that the decision was unanimous is telling. The bottom line is this: Without express statutory permission, the SFO can only conduct criminal investigations within national borders. International investigations, on the other hand, must take place through the appropriate diplomatic channels.
Originally Published by Arnold & Porter, February 2021
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