The production of overseas evidence in criminal investigations

On 5 February 2021, the Supreme Court unanimously allowed the appeal of KBR Inc against the decision of the Divisional Court in 2018 that the SFO’s compulsory production power under section 2(3) of the Criminal Justice Act 1987 extended to foreign companies in respect of documents held outside the jurisdiction when there is a sufficient connection between the company and the jurisdiction. The Supreme Court held that section 2(3) had no extraterritorial application to foreign companies with no presence in the UK.

In this blog, we consider the implications of the Supreme Court’s judgment for the future use of section 2(3) notices and other statutory investigatory powers. We begin with a short summary of the facts of the case and the decision reached. Given that the Supreme Court narrowly refined the question certified by the Divisional Court, it is important to note from the outset that the ruling is confined to its facts and the particular circumstances in which the section 2(3) notice was issued.

The facts of the case

The appellant, KBR Inc, was a US incorporated parent company of a multinational group of companies collectively known as the KBR Group. The SFO was investigating a UK subsidiary of KBR Inc, KBR Ltd, in relation to suspected offences of bribery and corruption. The SFO identified a number of suspected corrupt payments in excess of US $23 million made by UK subsidiaries of KBR Inc, approved and processed by the US based treasury function of KBR Inc, to Unaoil.

On 4 April 2017, a section 2(3) notice was issued to KBR Ltd for the production of 21 categories of material held by “KBR UK”. KBR Ltd provided various materials to the SFO in response to this notice, but made it clear that certain material was not in its possession or control but, to the extent it existed, was held by KBR Inc, in the United States.

The SFO became concerned that the KBR Group were seeking to draw a distinction between documents held by KBR Ltd and documents held outside the jurisdiction. On 25 July 2017, at an arranged meeting in the UK with KBR Inc representatives to discuss the progress of the KBR investigation, the SFO issued a section 2(3) notice, addressed to KBR Inc and served on KBR Inc’s Executive Vice President, to produce the same 21 categories of material, and a further 6, held by “KBR”.

KBR Inc sought permission to apply for judicial review to quash the SFO’s July notice on the ground that section 2(3) could not be used extraterritorially to compel a foreign company to produce material outside the UK. The Divisional Court, dismissing KBR Inc’s claim, held that section 2(3) extends to foreign companies in respect of documents held outside the jurisdiction when there is a sufficient connection between the company and the jurisdiction. KBR Inc sought leave to appeal. The Divisional Court certified two points of law of general public importance: (1) does section 2(3) permit the Director of the SFO to require a person to produce information held outside England and Wales? (2) If so, does the Director of the SFO have power to do so by reference to the “sufficient connection test”?

The decision of the Supreme Court

The unanimous judgment of Lord Lloyd-Jones JSC began by making it plain that the presumption against legislation having extraterritorial effect applied to the circumstances of the case as KBR Inc had no presence in the UK. The question for consideration was therefore whether Parliament intended to confer on the SFO power to compel a foreign company to produce documents held abroad on pain of a criminal penalty in this jurisdiction.

The Supreme Court then turned to consider the territorial ambit of section 2(3). It was first noted that the section included no express provision conferring a power to compel a foreign company to produce documents held abroad. Nor could such an intention on the part of Parliament be implied from the scheme, context and subject matter of the legislation.

The legislative history revealed in fact that Parliament intended that evidence should be secured from abroad by international co-operation. Successive statutory provisions also provided support for the view that Parliament did not intend subsequent powers, operating as they do through reciprocal co-operation with foreign authorities and subject to statutory safeguards, to sit alongside a unilateral power of compulsion in the form of section 2(3).

The Supreme Court concluded by giving short shrift to the judicial interpolation of a sufficient connection test: there was no basis for finding that the SFO could use the power in section 2(3) to require foreign companies to produce documents held outside the UK if there was a sufficient connection between the company and the UK.

Implication for notices issued under s.2(3) of the Criminal Justice Act 1987

First and foremost, the decision makes clear that section 2(3) of the Criminal Justice Act 1987 does not permit the Director of the SFO to require a foreign company with no presence in the UK to produce documents held overseas. That the foreign company has a significant connection with the UK is irrelevant. The SFO has three options if it wishes to obtain overseas documents held by a foreign company:

• The SFO may seek voluntary disclosure from the foreign company, who may decide to cooperate with the SFO if it wishes to keep the prospect of a Deferred Prosecution Agreement on the table.
• The SFO may avail itself of Mutual Legal Assistance channels by issuing a letter of request to the foreign state to assist in obtaining the relevant documents. While a slow and cumbersome process, Mutual Legal Assistance was held by the Supreme Court to be the most appropriate avenue, affording as it does several safeguards and protections not available when exercising unilateral production powers.
• The SFO may soon apply for an overseas production order compelling a foreign company which operates, or is based, in the US to produce specified electronic data of which it has possession or control. The overseas production order regime is expected to be operational in the foreseeable future once the remaining practical issues are resolved. Once live, these orders will streamline the acquisition of overseas electronic data for use in criminal investigations and prosecutions.

It is not quite right, however, to describe section 2(3) as having no extraterritorial effect. Whether a section 2(3) notice can be served will depend on a number of variables:

• whether the legal person to be compelled is an individual or company;
• whether the legal person is a UK national or UK registered company;
• if the legal person is a company, whether it has a presence in the UK by way of having a fixed place of business or carrying on business in the UK;
• whether the documents sought are held in the UK or overseas;
• whether the s.2(3) notice is to be served on an individual within or outside the jurisdiction; and
• the mutual legal assistance channels which exist with the jurisdiction in question.

It was common ground between the parties that a section 2(3) notice could compel a UK company to produce documents held overseas. Modern means of document storage, including cloud computing, will not keep accessible documents outside the reach of a section 2(3) notice.

A foreign company with an actual presence in the UK could also likely be compelled to produce overseas documents. This is important for ensuring parity between substantive criminal offences and procedural investigative powers. By way of example, the corporate criminal offence of failing to prevent bribery can be committed by a foreign company which carries on a part of a business in the UK. The SFO could therefore still serve a section 2(3) notice on a foreign company suspected of committing an offence under section 7(1) of the Bribery Act 2010.

Implication for other statutory investigatory powers

A plethora of investigatory powers line the statute book. The police, National Crime Agency, HM Revenue & Customs, Financial Conduct Authority, and Competition and Markets Authority – to name but a few – all have compulsory production powers, and all of whom would no doubt welcome clarity as to the territorial scope of their powers.

The Divisional Court’s purposive interpretation of the extraterritorial ambit of section 2(3) was heavily influenced by public policy considerations. This, in turn, appeared to have emboldened other courts who have relied on the reasoning of the Divisional Court when making a finding that other investigative powers have extraterritorial application.

In the tax sphere, the Court of Appeal in Jimenez [2019] 1 WLR 2956 distilled from the Divisional Court’s ruling the bold proposition that service of a notice on a person resident abroad requiring the provision of information will not raise judicial eyebrows where the information sought serves to protect a sufficient national interest. The sufficient connection test was then utilised by the First-Tier Tax Tribunal in HMRC v PQ [2019] UKFTT 371 (TC) when holding that a third-party tax information notice could be served abroad on non-UK residents.

The Supreme Court was unimpressed with the Divisional Court’s approach to statutory construction; Lord Lloyd-Jones JSC warned that other cases must be approached with caution. Whether an investigative power applies extraterritorially is a question of the construction of the relevant statute. Particular emphasis was placed by the Supreme Court on comity as an underpinning concept of the presumption against extraterritoriality, which has often featured all too peripherally in the courts’ analysis of investigatory powers.

Conclusions

In the past, the SFO has sought to derive assistance in persuading witnesses and suspects of the “benefits” of cooperation by relying on authorities that were said to support their claims of extraterritorial reach. In fact, a proper analysis of those authorities would have revealed them to be of no assistance whatsoever to the investigator’s claims. The Supreme Court’s ruling provides welcome clarity, however, the fact that section 2(3) provided no express provision for extraterritorial effect was a strong indication that the SFO’s claims were investigative overreach.

Going forward, other investigative agencies should think very carefully before testing the territorial boundaries of their production powers. At the same time, defence lawyers should ensure that their clients do not feel pressurised to roll over upon receipt of aggressive correspondence from investigators who are pushing the boundaries of their powers.

Jim Sturman QC is joint Head of Chambers at 2 Bedford Row and ranked in band 1 of the Directories for Fraud and Investigations and Alex Davidson is currently a pupil in chambers.