UK Supreme Court Limits the Reach of the SFO’s Investigatory Powers

February 15, 2021, Covington Alert

On 5 February 2021, the UK Supreme Court handed down its judgment in an appeal by KBR, Inc. (KBR) against the High Court’s refusal to quash a document production notice served on it by the Serious Fraud Office (SFO). Among other grounds, KBR—a U.S.-incorporated company that has UK subsidiaries but does not itself have a place of business or carry on business in the United Kingdom—had sought to quash the notice on the basis that the SFO did not have the jurisdiction to request the production of documents held outside the United Kingdom by a non-UK entity. The Supreme Court ruled in KBR’s favour, holding that Section 2(3) of the Criminal Justice Act 1987, which gives the SFO the power to issue notices compelling the production of documents, does not confer a unilateral power on the SFO to demand documents from overseas entities under the threat of criminal sanction, and that the request for evidence should have been handled through international mutual legal assistance channels.

This alert provides a brief overview of the most important aspects of the judgment.

In its judgment, the Supreme Court emphasised the presumption that domestic legislation is not generally intended to have extra-territorial effect. As KBR had never carried on business in the UK and did not have a registered office (or any other presence) in the United Kingdom, the Court held that the presumption against extra-territorial effect applied. The Court further held that the language of the statute did not rebut that presumption.

The Court observed that reciprocal arrangements with other countries, such as mutual legal assistance treaties, are an existing means through which the SFO can obtain evidence from overseas entities and found it “inherently improbable” that Parliament had intended to create two parallel systems for gathering overseas evidence—one based on mutual legal assistance agreements with judicial safeguards and another giving the SFO the unilateral power to demand evidence from non-UK entities under the threat of criminal sanction.

• This judgment places limits on the SFO’s ability to act unilaterally in obtaining evidence from abroad and will therefore create obstacles for the agency in cross-border investigations. The SFO will in many cases be required to use formal mutual legal assistance channels, which can be notoriously time-consuming, to obtain evidence held by non-UK entities outside the United Kingdom—including those that, like KBR, have UK subsidiaries. The decision serves as a further blow to the SFO, which, following the end of the Brexit transition period, recently lost access to various EU evidence gathering and cooperation tools.
• The judgment does not, however, constrain the SFO’s ability to seek evidence that is held outside of the United Kingdom by a UK entity, and it leaves some doubt as to the position with respect to a non-UK entity that carries on business in the United Kingdom (though the decision includes some language suggesting that the Section 2(3) powers likely would not be found to extend to such an entity).
• Although the judgment limited the reach of the powers under Section 2(3), once fully operational the SFO will be able to use Overseas Production Orders (OPOs) to obtain evidence held outside the UK. At least presently, OPOs face difficulty with their territorial reach as a person against whom the order is sought must be in a country that has, or participates in a designated international co-operation agreement with the UK.
• Notwithstanding the judgment, companies under investigation may still be incentivised to provide documents to the SFO that are held overseas by non-UK entities to obtain co-operation credit. The SFO Operational Handbook chapter on Corporate Co-operation Guidance states that co-operation means “providing assistance to the SFO that goes above and beyond what the law requires.”
• The judgment may impact current SFO investigations in which documents and other evidence have been obtained via the use of Section 2 notices from non-UK entities. As a result of this decision, the SFO may need to assess whether it can rely on overseas evidence obtained pursuant to a Section 2 notice.
• It is possible that the Director of the SFO will seek legislative reform on this issue, alongside other legal reforms she has publicly advocated for in recent months, including an extension of the “failure to prevent” model to a broader range of economic crimes, an expansion of the SFO’s ability to use Section 2 prior to the commencement of a formal investigation, and a new “tipping off” offence applicable to recipients of Section 2 notices.
• The decision may affect UK regulatory authorities other than the SFO. Powers similar to Section 2(3) of the Criminal Justice Act 1987 are available to enforcement authorities including the Financial Conduct Authority and the Competition and Markets Authority. If these and other UK authorities are concerned that their own powers may be curtailed following this judgment they may also support calls for reform. Parliament has notably acted quickly on previous occasions when the Supreme Court limited the scope of enforcement authorities’ powers; for example, the Proceeds of Crime Act 2002 was updated after the Court ruled against the Serious Organised Crime Agency in Perry v. SOCA.

If you have any questions concerning the material discussed in this client alert, please contact the following members of our White Collar Defense and Investigations practice.