February 05, 2021

Court Rules Serious Fraud Office Cannot Compel Foreign Companies to Produce Overseas Documents

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COURT RULES SERIOUS FRAUD OFFICE CANNOT COMPEL FOREIGN COMPANIES TO PRODUCE OVERSEAS DOCUMENTS

On February 5, 2021, the U.K. Supreme Court handed down its judgment in Regina (On the Application of KBR Inc) v Director of the Serious Fraud Office [2021] UKSC 2.[1] In a unanimous decision, the Court ruled that the Serious Fraud Office (SFO) cannot use its investigation powers under section 2(3) of the Criminal Justice Act 1987 (“the 1987 Act”) to compel a foreign company to produce documents it holds outside the U.K.—overturning an earlier High Court decision.

While the Supreme Court was at pains to point out that its decision was limited to the powers available to the SFO under section 2(3), several other U.K. enforcement authorities, such as the Financial Conduct Authority, the Competition & Markets Authority and HM Revenue & Customs, possess similar information gathering powers. As a result, the Supreme Court’s decision may be of far wider significance.

Many observers believe that the U.K. Government may introduce legislation to expressly permit the use of information gathering powers against those based outside the jurisdiction in certain circumstances.

Section 2(3) of the Criminal Justice Act 1987

The SFO’s primary powers of investigation are set out under section 2 of the 1987 Act—the statute that created the U.K. enforcement agency tasked with investigating and prosecuting serious fraud, bribery and corruption, and related offenses.

Section 2(3) permits the Director of the SFO (and those delegated by him) to require by notice in writing “[a] 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.” The Director may also require “the person producing them to provide an explanation of any of them.” If any documents are not produced, the Director may require “the person who was required to produce them to state, to the best of his knowledge and belief, where they are.” There are penalties (including imprisonment) for failing to comply with, or seeking to evade the terms of, a section 2(3) notice.

The SFO’s Investigation

KBR Inc is a U.S.-incorporated parent company. It does not have a fixed place of business in the U.K. (nor has it ever carried on business in the U.K.), but it does have U.K. subsidiaries, including Kellogg Brown & Root Ltd (“KBR Ltd”).

Having commenced an investigation into the activities of KBR Ltd, among others, on April 4, 2017, the SFO issued a notice under section 2(3) of the 1987 Act to KBR Ltd. In response, KBR Ltd provided various documents to the SFO, but made it clear that some of the requested material was held by KBR Inc in the U.S., if and to the extent that it existed.

During a meeting held in the U.K. on July 25, 2017, a further notice under section 2(3) was handed to KBR Inc’s Executive Vice President, General Counsel and Corporate Secretary requiring KBR Inc to produce documents held by it outside the U.K. KBR Inc’s Chief Compliance Officer and the company’s U.K.-based lawyers also attended the meeting.

Judicial Review

KBR Inc sought judicial review of the SFO’s decision to issue the July notice on three grounds. First, that the notice was ultra vires as it requested material held outside the jurisdiction from a company incorporated in the U.S. Second, that it was an error of law on the part of the Director of the SFO to issue the notice given he has the power to seek mutual legal assistance from the U.S. authorities. Third, that the notice was not effectively “served” by the SFO by handing it to a “senior officer” of KBR Inc who was temporarily present within the jurisdiction. In a judgment handed down on September 9, 2018,[2] the High Court rejected each of these arguments.

The High Court concluded that the 1987 Act contained no express limitation on the persons from whom document production could be sought. In the Court’s view, the mischief at which section 2(3) is aimed permits no doubt—the SFO is tasked with investigating and prosecuting serious crime, and such cases will invariably have an international dimension. Accordingly, the section 2(3) power must be capable of having extraterritorial effect, and there is a strong public interest in favor of it having such effect. As a result, a foreign company can be required to produce documents held overseas as long as there is a “sufficient connection” between the company in question and the U.K. On the facts, the Court held that KBR Inc had such a connection.

The Court also concluded that the fact that the Director—Sir David Green CB QC at the time—could seek mutual legal assistance from the U.S. authorities did not preclude him from exercising his discretion to issue a section 2(3) notice. Indeed, there may be practical reasons why the Director may prefer the latter course.

Finally, the Court concluded that the notice did not have to be “served.” Section 2(3) requires no additional formality beyond the giving of written notice, which was provided to a representative of KBR Inc.

Appeal to Supreme Court

The Supreme Court granted KBR Inc permission to appeal against the High Court’s ruling in relation to the first ground.

In considering section 2(3), the Supreme Court noted that the starting point must be the presumption that U.K. legislation is generally not intended to have extra-territorial effect—a presumption rooted in both international law and the concept of comity, which is founded on mutual respect between states. When the U.K. Parliament intends to displace the presumption, it often makes this clear through express wording. The Court concluded that there is nothing in the wording of the 1987 Act or the surrounding legislative context that indicates that the U.K. Parliament intended to displace the presumption. Indeed, the Court concluded that events surrounding the statute’s enactment pointed the other way.

The Court also concluded that there is no basis for implying a “sufficient connection” test into section 2(3). In its view, such an approach is inconsistent with the intention of the U.K. Parliament and would involve illegitimately rewriting the statute. The Court cautioned against drawing analogies with other statutory powers that have potential extra-territorial effect, as they operate in different contexts, for different purposes. However, it found the fact that the Supreme Court had ruled in 2012 that a similar power under section 357 of the Proceeds of Crimes Act 2002 could not be used against persons outside the U.K. supported the conclusion that section 2(3) does not have extra-territorial effect.

It is important to bear in mind that the Supreme Court was considering a particular set of circumstances. As a result of this judgment, the SFO is precluded from using its section 2(3) investigation powers to compel a foreign company to produce documents held overseas. However, as the Court noted, there are other mechanisms through which the SFO may obtain such material, such as mutual legal assistance. It is also important to note that the Court did not determine the extent to which the SFO may require a U.K. company or a foreign company with a presence in the U.K. to produce documents held overseas.

Of course, we do not know how hard the SFO pushed KBR Ltd to obtain documents held by KBR Inc outside the U.K. before issuing KBR Inc with a notice under section 2(3). Many will be waiting to see whether the SFO adopts a more aggressive approach in trying to obtain documents from U.K. companies held overseas by foreign related entities in an attempt to circumvent the effects of the Supreme Court’s ruling, and more importantly, what the SFO may accept as a “reasonable excuse” for not complying.

What Next?

The Supreme Court’s decision is undoubtedly a setback for the SFO. As the High Court noted, it is tasked with investigating and prosecuting cases that invariably have an international dimension. As a result, it is unlikely to want to be restricted to seeking mutual legal assistance, which is often a slow and cumbersome process.

Also, while the Supreme Court made clear that its decision was limited to the powers available to the SFO, several other U.K. enforcement authorities, such as the Financial Conduct Authority, the Competition & Markets Authority and HM Revenue & Customs, possess similar information gathering powers, which may be impacted by this decision. Those other agencies may well support legislative efforts to overturn the effect of the Supreme Court’s decision.

When the Supreme Court delivered a similar blow in Serious Organised Crime Agency v Perry [2012] UKSC 35—ruling that disclosure orders made under the Proceeds of Crime Act 2002 could not be imposed on persons outside the U.K.—the U.K. Government moved quickly to introduce legislation to reverse the effect of the Court’s decision. As a result, many believe that legislation will be introduced to expressly permit the use of information gathering powers against those based outside the jurisdiction in certain circumstances. However, we must wait to see if the U.K. Government feels compelled to act in this instance and, if it does, the nature and scope of any legislative provisions it introduces.

脚注

[1]  Notwithstanding the fact that KBR Ltd and other KBR entities are no longer the subject of investigation in the U.K. or U.S., KBR Inc. decided to continue with its appeal – a decision welcomed by many given the importance of the matters in issue.
[2]  [2018] EWHC Admin 2368

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Jonathan Swil

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Mathew Orr

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