The Supreme Court has today handed down its much anticipated judgment in the case of R (on the application of KBR, Inc) v Director of the Serious Fraud Office (SFO).
The unanimous ruling overturns the Divisional Court decision and confirms that a notice served under section 2 of the Criminal Justice Act 1987 ("s.2 CJA") does not have extraterritorial application. The ruling constrains the SFO's attempt to use this power to compel, under penal sanction, foreign companies to hand over materials stored overseas.
KBR, Inc v SFO
As part of a 2017 investigation into suspected bribery and corruption offences relating to payments made by UK company KBR Ltd, the SFO served a s.2 notice on a senior executive of the US parent company, KBR, Inc, who was briefly in London. The notice required the US company to provide material held in the US to the SFO despite there being no express statutory wording giving s.2 notices extraterritorial effect.
KBR, Inc initiated a judicial review of the SFO's actions. This challenge has now been upheld by the Supreme Court on the basis that it was not the intention of Parliament that s.2 notices should be used to compel overseas companies to share information with the threat of criminal proceedings for non-compliance, and that to uphold the ruling would create an issue for the principle of international comity.
Under s.2 CJA, any person who fails to comply with the notice "without reasonable excuse" may be subject to criminal penalties including imprisonment or a fine. The SFO had argued that it must be able to force foreign companies to hand over materials stored overseas in order to combat corporate crime in the modern, digital age. The Divisional Court had taken a purposive approach to the interpretation of the legislation to allow for this, but the Supreme Court based its ruling on the presumption that UK legislation isn't extraterritorial and that any purposive interpretation is not supported by the legislative history of the Criminal Justice Act 1987.
Today's judgment also refers to the "comprehensive domestic regime" for international mutual legal assistance ("MLA") which it describes as "fundamental to the mutual respect and comity" between states, particularly as the MLA process has safeguards for using and returning documents which the judgment describes as "of critical importance".
The Supreme Court has also clarified the "sufficient connection test" applied by the Divisional Court, which does not feature in the legislation, "would involve illegitimately rewriting the statute". Although the Supreme Court's judgment avoids clarifying how the issue would be dealt with for individuals, rather than companies, based overseas it now appears unlikely that the courts would be willing to accept any extraterritorial effect for s.2 notices.
Impact of the Supreme Court's judgment
The SFO's powers under s.2 CJA are already seen by many as far reaching and draconian as their exercise is not subject to prior judicial oversight. The SFO argued that there is significant public interest in s.2 notices having extraterritorial reach due to the fact that almost all modern complex criminal investigations involve multinational companies and electronically stored evidence, often held on US based cloud platforms.
The MLA process, which is reliant on cooperation with overseas agencies in accordance with international treaties, can be slow and cumbersome: for instance, the current average wait for the provision of information pursuant to an MLA request to the US is 12 months and this varies per state. Consequently, the SFO has expressed frustration that its efforts to prevent corporate crime are hampered by the current provisions and this latest ruling will compound that. They had sought to short circuit the process by use of s.2 CJA.
The Divisional Court ruling had recognised the MLA process as an "additional power" available to the SFO, and accepted that there are "good practical reasons" to prefer to rely on s.2 notices, including "delay, the risk of being ignored and the burden on the requested state of dealing with a request". Should the SFO choose to now petition Parliament to expand the reach of s.2 notices through a change in legislation, we expect to see these reasons and the public interest argument being relied on.
Next steps
It will take a change in the law for s.2 notices to be used in the way the SFO would like. Parliament has already recognised a need to improve the speed and efficiency of international cooperation in investigations and has introduced the Crime (Overseas Production Orders) Act 2019 to bridge this gap. However, given that there is no penal sanction associated with non-compliance with an Overseas Production Order ("OPO") and the SFO would not be able to require electronic data to be decrypted, it remains to be seen how effective these are for obtaining useful documents and information from overseas companies. To date, the only agreement in place for the purposes of the act is with the US, and due to the limiting mutual assurances included in this agreement and the untested nature of it, we can still expect the SFO to petition Parliament to expand the reach of s.2 notices.