COMMENT: R (on the application of KBR) v SFO – Implications for investigations

Last Friday, in R (on the application of KBR) v SFO [2021] UKSC 2, the Supreme Court unanimously reversed the decision of the Divisional Court and held that the SFO has no power, under section 2(3) of the Criminal Justice Act 1987 (‘the 1987 Act’), to compel foreign companies to produce documents located outside the UK. The decision is undoubtedly a blow to the SFO’s capacity to conduct cross-border investigations and, whilst a welcome clarification on the law in relation to section 2 notices and foreign companies, there remains some uncertainty as to the application of the territorial scope of the section 2 power more generally.

Fallback on MLA arrangements

The Court highlighted that successive Acts of Parliament had been passed in the wake of the 1987 Act, establishing detailed structures in domestic law for UK participation in international systems of mutual legal assistance (‘MLA’). The passage of these Acts, with their attendant procedural safeguards, could be used to infer Parliamentary intention. The Court concluded it was unlikely that Parliament would have intended these detailed structures to operate alongside a broad unilateral power to compel foreign companies to produce documents held outside the UK under threat of criminal sanction and without the protections built into the MLA regime. The SFO could and should have used that regime in this case.

A reversion to MLA requests will not be welcomed by the SFO. The MLA process is often time-consuming and, as noted by the Court, subject to more onerous safeguards. Further, from the perspective of the SFO, this decision could scarcely have come at a worse time, as, in relation to EU requests, the provisions of the Trade and Co-operation Agreement, which govern post-Brexit cross-border co-operation are as yet untested.

Parliament has made some attempts to address the cumbersome and slow nature of the MLA process in recent years. The Crime (Overseas Production Orders) Act 2019 (‘the 2019 Act’) allows UK law enforcement to obtain electronic evidence directly from communication service providers based outside the UK. This can be done on foot of an ‘overseas production order’ (‘OPO’), issued by a domestic court, where there is in place a bilateral agreement between the UK government and the government of the jurisdiction in which the electronic material is held. The exercise of this power differs from a section 2 notice in that an order can only be served on a communications service provider, not a company whose records the SFO is looking to obtain, so an OPO couldn’t have been served on KBR Inc.  However, with companies having increasing recourse to third-party cloud storage of their corporate records and communications, the power is nevertheless significant. The primary stumbling block in the OPO regime is that the power can only be exercised where a designated international co-operation agreement exists. As it stands, only one such agreement, between the UK and the US, has been so designated. Whether this decision results in a sense of urgency and a push to designate more agreements for the purpose of the Act remains to be seen.

Foreign companies with UK ‘presence’

In its analysis, the Court distinguished between UK companies, which clearly fall within the scope of section 2(3), and foreign companies, which are neither registered nor carrying out business in the UK (as in the case of KBR Inc). However, the judgment leaves it unclear whether section 2(3) could apply to foreign companies that did carry on some business or have some ‘presence’ in the UK. Considering comparative provisions in the Companies Act 1985 for the production of documents by bodies corporate, the Court considered that the express provision in the legislative language of those sections extending the power to foreign companies “carrying on business in [this jurisdiction]” did not lend any support for, and was in fact inconsistent with, the suggestion that section 2(3), should similarly apply to such foreign companies, but it did not rule definitively on the question. As it stands there remain no clear criteria against which the SFO and companies alike can measure the degree of ‘UK presence’ necessary to bring a company within the ambit of section 2(3).

UK companies and documents held overseas

The Divisional Court in its ruling below held that section 2(3) had to have an element of extraterritoriality as it was not credible that a UK company could resist a section 2 notice on the ground that the documents sought were held on a server outside the jurisdiction. It was common ground before the Supreme Court that section 2 would apply to such a case but KBR Inc’s status as a wholly foreign company meant the Court was not required to decide the issue. The Court did however question whether requiring a UK company to bring a document it holds overseas into this jurisdiction in order to produce it here in response to a section 2 notice would involve any material extraterritoriality at all. It further noted that the presumption against extraterritorial effect applies with much less force to legislation governing the conduct abroad of a UK company. As the Court was not required on the facts of the instant case to decide the matter, the question of whether a section 2 notice is in fact capable of compelling production by a UK company of documents held overseas remains open to future challenge in the courts.

Future developments

Whilst it is possible that we may see an increase in agreements designated under the 2019 Act for the purpose of OPOs, the Court’s decision leaves little room for legislative amendment to address the problem facing the SFO in this case. Given the Supreme Court’s analysis, any amendment which sought to plug the extraterritorial gap left by this judgment would surely be criticised as contrary to international law and comity.

Though there is little potential for legislative change, the residual questions surrounding the ambit of section 2 notices, discussed above, mean this is unlikely to be the last challenge we see in this area. In considering any such challenge, however, the existence of a credible argument of SFO over-reach is not the only consideration companies should have in mind if they find themselves on the receiving end of an SFO investigation. As the SFO’s Guidance on Corporate Prosecutions and the Deferred Prosecution Agreements Code of Practice (DPA Code) make clear, co-operation that goes “above and beyond” the requirements of the law remains highly relevant to charging decisions and the conclusion of DPAs. It will be a matter for individual companies in each case to assess which avenue, whether challenge or co-operation, holds the most promise.