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Clifford Chance

Clifford Chance

Regulatory Investigations and Financial Crime Insights

UK Supreme Court rebalances Serious Fraud Office's extra-territorial evidence gathering powers

The SFO has suffered a further setback in its ability to gather evidence held overseas following a ruling by the Supreme Court that its "Section 2" powers do not extend to allowing it to compel the production of documents held outside of the UK by a foreign company.

At the turn of the year, upon the expiry of the transition period following the UK's exit from the EU, the SFO lost its ability to obtain evidence held in EU member states by means of a European Investigation Order ("EIO"). Now, following the Supreme Court's ruling in R (on the application of KBR, Inc) v Director of the Serious Fraud Office, a further avenue for obtaining evidence held overseas has been closed to the SFO.

The KBR case

One of the SFO's primary evidence gathering tools is the "Section 2 Notice", so called after Section 2(3) of the Criminal Justice Act 1987 (the "CJA"), which gives the SFO the power to serve a written notice requiring the provision to it of documents of relevance to its investigations. Failure to comply with a Section 2 Notice without a reasonable excuse is a criminal offence punishable by a term of imprisonment and/or fine.

KBR, Inc is a USA incorporated company, which has no place of business, and has never carried on business in, the UK. KBR, Inc's UK subsidiaries were under investigation by the SFO for suspected offences of bribery and corruption, and as part of this investigation one of the UK subsidiaries was served by the SFO with a Section 2 Notice. The UK subsidiary provided certain documents to the SFO in response to the notice, but identified that it was unable to provide other documents requested because, to the extent these existed, they were held outside of the UK by its USA incorporated parent company, KBR, Inc.

Subsequently, at the SFO's request, officers from KBR, Inc attended the SFO's offices for a meeting relating to the SFO's investigation into its UK subsidiaries. During this meeting, a Section 2 Notice was served on one of the officers requiring that KBR, Inc produce the documents that its UK subsidiary had previously been unable to provide. KBR, Inc sought to quash this notice by means of a judicial review, alleging (among other things) that the notice was ultra vires as Section 2(3) of the CJA did not operate extraterritorially so as to require the provision of documents held outside of the UK by a company that had no place of business, and had never carried on business in, the UK.

The High Court held that a Section 2 Notice could oblige a foreign company to produce documents held outside of the UK, as long as there was a "sufficient connection" between the company and the UK. On the facts of the KBR case, the High Court found that this test had been satisfied and KBR, Inc was obliged to produce the documents requested. The Supreme Court, however, has now overturned the High Court's decision in a unanimous judgment, finding that implying a sufficient connection test into Section 2(3) of the CJA "would involve illegitimately re-writing the statute" in a manner inconsistent with Parliament's intentions. As such, Section 2 Notices cannot be used to compel foreign incorporated companies, which have no place of business in the UK and have never carried on business in the UK, to produce documents to the SFO.

Where does this leave the SFO?

Many of the SFO's cases have an international dimension to them and require evidence to be obtained from foreign jurisdictions. In the year ending 31 March 2020, the SFO issued 78 Letters of Request and EIOs to overseas authorities.

In a previous blog post, we highlighted how delays in the SFO identifying and seeking evidence from overseas jurisdictions has been identified as one of a number of factors hampering the SFO's ability to progress cases in a timely fashion. The fact that EIOs are no longer available to the SFO will not have helped its efforts to progress cases more quickly, as the SFO is now more reliant than ever on obtaining overseas evidence by sending formal Letters of Request via mutual legal assistance procedures agreed bilaterally between the UK and individual countries. This is often a cumbersome, time-consuming process. Indeed, EIO's were introduced specifically so that EU member states no longer had to rely on these "fragmented and complicated" frameworks when requesting evidence from other member states.

The High Court's original decision appeared to sanction an alternative, more convenient means by which the SFO could obtain overseas evidence, allowing it to bypass the mutual legal assistance process and obtain materials directly, as long as the sufficient connection test was satisfied. This is now an avenue that the Supreme Court has firmly closed to the SFO.

This is not to say that traditional mutual legal assistance channels are now the only means open to the SFO to obtain overseas evidence. The Supreme Court's decision does not appear to prevent the SFO using its Section 2 powers to compel the provision of documents held outside of the UK by a UK incorporated company, or even documents held outside of the UK by a non-UK incorporated company, if the company carries on business in the UK. The judgment also does not specifically address the question of whether a Section 2 Notice can be used to compel a UK incorporated company to produce documents held outside of the UK by a non-UK incorporated subsidiary. Section 2 Notices may therefore continue to play a role in the obtaining of evidence held outside of the UK, albeit in a more limited way than envisaged by the SFO prior to the Supreme Court's decision.

Furthermore, new powers that the SFO has to apply for Overseas Production Orders ("OPOs") may become an increasingly important tool in the SFO's armoury when obtaining documents held overseas. For this to be the case, the UK will need to expand the reach of OPOs beyond the arrangements that have recently been concluded with the USA, and reach similar agreements with other countries.

Given, however, the importance of existing mutual legal assistance arrangements to the SFO, it will need to continue its focus on ensuring that these arrangements work as effectively as possible if further delays to its often already lengthy investigations are to be avoided. This will mean not only ensuring that, once utilised, the arrangements run smoothly, but also identifying and actioning any need for overseas evidence as early as possible in its investigations, so that the at times bureaucratic process of international evidence gathering has sufficient time to run its course.