On 6 September 2018, following hot on the heels of the important decision on the application of litigation privilege in internal investigations in ENRC v Serious Fraud Office (read our recent summary here), the Administrative Court handed down its judgment in R (KBR Inc.) v Serious Fraud Office concerning the Serious Fraud Office’s (SFO) powers to compel the production of documents held outside of the United Kingdom by companies incorporated outside of the United Kingdom. The Administrative Court held that where there is a “sufficient connection” to the United Kingdom, the SFO can compel the production of such documents.
Kellogg Brown & Root Limited (KBR Ltd), which is a UK subsidiary of KBR Inc., is currently being investigated by the SFO in connection with its links to Unaoil and other commercial agents. KBR Inc. is also being investigated by the US Department of Justice and the US Securities and Exchange Commission, but these investigations only pertain to KBR Inc.’s links to Unaoil. At the outset of the SFO investigation, KBR Ltd and KBR Inc. informed the SFO that they would fully cooperate with the SFO investigation.
In April 2017, the SFO issued KBR Ltd with a Notice under Section 2(3) of the Criminal Justice Act 1987 (CJA 1987) requiring the production of 21 categories of documents. From around the middle of June 2017, the SFO became concerned that the KBR group was attempting to draw a distinction between documents that were held by or in the control of KBR Ltd, and those that were held by the KBR group outside of KBR Ltd’s control.
At the instigation of KBR Ltd’s lawyers, a meeting was arranged with the SFO in July 2017 to discuss the progress of the investigation. As a condition of agreeing to meet, the SFO required the attendance of representatives of KBR Inc. During the course of that meeting, the SFO served a further Notice under Section 2(3) of the CJA 1987 on KBR Inc., requiring the production of documents held by KBR Inc. outside of the UK.
KBR Inc. contended that a Notice under Section 2(3) of the CJA 1987 could not apply to a company incorporated outside of the United Kingdom. It sought judicial review of the SFO’s decision to issue the Notice.
Section 2(3) of the CJA 1987 states:
“The Director [of the SFO] may by notice in writing require the person under investigation or any other person to produce … any specified documents which appear to the Director to relate to any matter relevant to the investigation or any documents of a specified description which appear to him so to relate…”
These so-called “Section 2 Notices” are used frequently by the SFO and are a key tool in its investigative box.
In applying for judicial review of the SFO decision to issue it with the Notice, KBR Inc. contended that:
1. As Section 2(3) does not state in terms that it is to have extraterritorial effect, it can only apply to entities within the UK;
2. The SFO has the means to obtain documents from companies outside of the United Kingdom through the mutual legal assistance (MLA) process and should have done so here; and
3. The Notice was not validly served on KBR Inc. in accordance with the principles of English law.
Extraterritorial effect of Section 2
The Court considered analogous provisions in UK insolvency, revenue and proceeds of crime laws. It held that although Section 2(3) did not expressly apply outside of the jurisdiction, it did in fact have extraterritorial effect where there was a “sufficient connection” to the United Kingdom. The SFO’s remit is to investigate and prosecute serious and complex cases of fraud and corruption, and these often have an international element. To deny Section 2(3) any extraterritorial effect would be to stymie the SFO’s ability to fulfil its purpose, which, in their own words, is to deal with “top end, well-heeled, well-lawyered crime”. It is clear that there was already some element of extraterritorial application of Section 2(3); a UK company could not refuse to comply with a Notice if the documents sought were held by it outside of the United Kingdom. The Court held that a Notice could equally well require the production of documents held outside of the United Kingdom by a non-UK company in certain circumstances.
What would constitute a “sufficient connection” so that a non-UK company could be required to comply? It would be a fact-specific issue. However, a mere parent-subsidiary relationship would not be sufficient. Nor would the fact that representatives of the parent company were engaging with the SFO throughout the investigation, or, indeed, merely in the country to attend a meeting. Referencing Re Paramount Airways, the Court suggested that the mere presence of a defendant in the country would not necessarily mean that a sufficient connection would be established. Further, in this case the Court was particularly mindful of the apparent involvement of KBR Inc. in the conduct being investigated by the SFO. It was alleged that KBR Inc. approved payments by KBR Ltd to Unaoil, and that those payments were processed by KBR Inc.’s treasury function in the United States.
The Court also held that the fact that there were other methods of obtaining the documents from outside of the jurisdiction, such as using the MLA route, was not relevant to the lawfulness of a Notice under Section 2(3). The SFO has discretion to use these methods, but they do not have to.
Finally, the Court held that there was no formal “service” process that was required for a Notice given under Section 2(3). Requirements set out in the Civil Procedure Rules do not have any applicability here, and simply handing the Notice to an officer of the overseas company within the jurisdiction of the UK would be sufficient. However, the Court did comment that it found it “unappealing” that the SFO had insisted that a representative of KBR Inc. come into the jurisdiction to attend the meeting, intending that, if the meeting did not go the SFO’s way, a Notice would be served on the company representatives.
It is a rare occurrence that an SFO investigation does not involve an international element. Many of the companies investigated are part of a larger multinational group, and this case suggests that where that is so, the parts of the group outside of the United Kingdom could also be susceptible to compelled production of documents to the SFO. But the devil will be in the details. The SFO does not have carte blanche to request documents from overseas companies and fishing expeditions will not be allowed. It will be for the SFO to show “sufficient connection” and it will be for the companies and their lawyers to scrutinise the SFO’s position and to consider if that requirement is made good on the evidence.