Last week the UK's Serious Fraud Office (SFO) announced that it was ending its bribery and corruption investigation into Kellogg Brown & Root Limited (“KBR Ltd”), a UK subsidiary of American engineering conglomerate KBR, Inc.
The sudden closure of the SFO's years' long investigation comes only weeks after KBR, Inc secured a unanimous Supreme Court ruling1 that the SFO could not lawfully compel KBR, Inc to hand over documents allegedly held in the United States.
The ruling, and the subsequent collapse of the SFO's case against KBR, will likely bring a measure of relief to multinationals with a presence in the UK. It also serves as a reminder of how corporates can effectively use judicial review to counter perceived government overreach.
The SFO investigates and prosecutes serious and high-level fraud, bribery and corruption on behalf of the UK government. Section 2(3) of the UK Criminal Justice Act 1987 gives the SFO power to compel “a person under investigation or any other person” to produce documents deemed relevant to an investigation. Unreasonable non-compliance with a section 2(3) notice, as it is known, can result in a six-month prison sentence, unlimited fine, or both.
In 2017, the SFO launched a criminal investigation into KBR Ltd, a UK subsidiary of KBR, Inc on suspicion that KBR Ltd had been making corrupt payments to the Monaco-based Unaoil Group. It served KBR Ltd with a section 2(3) notice, demanding various documents.
KBR Ltd provided some of the documents requested but noted that others, if they existed at all (of which they could not be certain), would be with KBR, Inc in the United States.
The SFO issued a second notice, this time addressed to KBR, Inc, demanding any US-based documents. KBR, Inc promptly applied for judicial review, pointing to the fact that it was a US-incorporated company with no operations or physical presence in the UK. The SFO's second request, it argued, was unlawful and should be quashed.
The SFO argued that although KBR, Inc did not operate in the UK, it had approved and processed (in the US) a number of KBR Ltd transactions. In its view, this constituted a “sufficient connection” to the UK which entitled it to seek documents outside the UK's jurisdiction. The Divisional Court at first instance agreed and held that the notice was valid.
KBR, Inc appealed.
The Divisional Court took as its starting point the premise that UK laws are not generally meant to apply outside the UK. This presumption against extra-territorial effect of domestic law is a fundamental feature of international law, underpinned by mutual recognition of and respect for State sovereignty.
The court held that the presumption “clearly” applied in this case as KBR, Inc is an American company with no UK operations. It allowed, however, that the presumption could be “displaced” such that section 2(3) could extend to “some foreign companies in respect of documents held outside the jurisdiction”. But this would only be allowed where the foreign company in question had a “sufficient connection” to the UK.
In the SFO's view, a sufficient connection existed where a foreign company carries on business in the UK; is, like KBR, Inc, in the same group as a company registered or carrying on business in the UK; or, again like KBR, Inc, performs functions “such as treasury functions, or document storage functions” on behalf of a company registered or carrying on business in the UK.2 With two-thirds of SFO's proposed definition made out, it not surprisingly concluded that there was a sufficient connection between KBR, Inc and the UK.
It's a dirty job
The SFO also argued that being prevented from using section 2(3) in this way would curtail its critically important fraud-fighting powers. To the extent that the SFO's work, which one former director described as “dealing with top end, well-heeled, well-lawyered crime”, frequently has an international element, its exercise of this power was arguably in the public interest. Moreover, and in the SFO's opinion, its director was better placed than the courts to determine whether the sufficient connection test was met in this or any other of its cases.
While the Divisional Court agreed that a “nuanced” approach was required, it held that in this case KBR, Inc could not “distance itself” from US-based transactions which constituted a sufficient connection to the UK. KBR, Inc's request for judicial review was denied.
Law is not an exact science at the best of times but the lack of clearly defined rules in international law can make for a migrainous level of complexity – and not just for lawyers.
At the very least, States ought to be able to rely on mutual respect for the presumption that domestic laws will not be applied extra-territorially; and where evidence is sought from abroad, recourse will be had to reciprocal cross-border arrangements, known as mutual legal assistance – that is, by asking nicely.
Reviewing the Divisional Court's decision, the Supreme Court unanimously concluded that Parliament did not intend section 2(3) to have extra-territorial application and that the sufficient connection test as formulated by the SFO lacked the necessary (or any) procedural safeguards against governmental overreach.
In their analysis, the Supreme Court pointed to other legislation which permits the UK to act extra-territorially, such as UK insolvency rules which have been interpreted as giving UK courts the power to wind up overseas companies where there is both a sufficient connection to the UK and a reasonable benefit for the creditors in doing so.
As far as the Supreme Court was concerned, no such safeguards were present here. The SFO was to be both judge and jury – deciding if and when the sufficient connection test applied, and proceeding accordingly. To make section 2(3) work in the way the SFO suggested would involve “illegitimately rewriting the statute” – and this the Supreme Court was not willing to do.
Quick and cost effective
The relative speed, efficiency and lower legal costs of judicial review compared to private law actions make it a potentially attractive option for corporates seeking to push back on perceived public law and regulatory encroachment. That said, not all public body decisions are open to challenge and not all would-be applicants will have the requisite “sufficient interest” to proceed with a claim.
In any event, permission to apply for judicial review must be sought no later than three months from the date when grounds for the application arose. So if you think you may have the makings of an application, don't delay.
Astraea Group is regularly instructed in cases at the interface between commercial, regulatory and public law and have used judicial review to successfully challenge tax and other legislation for our clients. If you need advice in relation to any of the legal issues discussed in this article, please give us a call or send an email.
Originally published 22 March 2021
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