The Long Arm of the SFO: High Court rules that the SFO may compel a foreign company to produce documents held overseas where there is a “sufficient connection” to the UK
In July 2017, the SFO served a section 2 notice on the company secretary of KBR Inc while she was visiting the United Kingdom. The notice compelled KBR Inc, a US incorporated company, to produce documents held by the company in the US. KBR Inc is the parent company of UK company, KBR Ltd, who are currently subject to a SFO investigation.
KBR Inc filed for a judicial review of the notice and the legislative provision giving effect to it, namely, s.2(3) of the Criminal Justice Act 1987. The matter was heard in the High Court of England and Wales.
During the hearing, counsel for KTB Inc submitted that s.2(3) has no extraterritorial effect as a matter of statutory construction, international law principles, and conflict of law rules. The notice was erroneously served based on the in personam jurisdiction established by the company secretary’s temporary presence in the UK, which was not to be confused with subject matter jurisdiction.
On the other side, counsel for the SFO submitted that “s.2(3) has extraterritorial effect as a matter of statutory construction, as SFO investigations are international by nature and frequently involve multinational groups operating in multiple jurisdictions.”
In his judgment (with which Mr. Justice Ouseley agreed), Lord Justice Gross first concluded that section 2 notices did have extraterritorial effect at least in relation to UK companies. Thus, the question was not of the existence of the extraterritorial effect, but its extent and application to foreign companies.
Drawing similarities to insolvency cases, Lord Justice Gross ultimately held that “s.2(3) extends extraterritorially to foreign companies in respect of documents held outside the jurisdiction when there is a sufficient connection between the company and the jurisdiction.”
On the facts of this case, Lord Justice Gross determined that a sufficient connection between between KBR Inc and the jurisdiction could be established, meaning that the section 2 notice was valid.
The factors which gave rise to this connection were as follows:
- Payments by KBR Ltd which were central to the SFO’s investigation were approved by the US parent company, KBR Inc, processed by its treasury office in the US, and subject to approval by its compliance function;
- A senior-level corporate officer of KBR Inc was based at the KBR Group’s offices in the UK and appeared to carry out his functions from the UK.
Lord Justice Gross also shed light on factors which would not give rise to a sufficient connection. These were:
- The mere fact of a company being a parent company of a UK company;
- Voluntary cooperation with the SFO (there being a policy reason to ensure that companies are encouraged to provide voluntary assistance, without thereby exposing themselves to the section 2 regime);
- The presence of senior company members in the UK.
Importantly, it was noted that a section 2 notice must still be served on a person within the jurisdiction of the UK.
KBR Inc’s judicial review was dismissed.
This case may be contrasted to the US approach in United States v. Microsoft, in which the US Supreme Court deferred to the legislative, which expressly provided for extraterritorial application of its law by enacting the Clarifying Lawful Overseas Use of Data Act (CLOUD Act). However, the result remains the same. Foreign companies may now be compelled to hand over information stored overseas to the UK investigatory authorities, if the company has a sufficient connection to the UK jurisdiction.
Whilst the decision will divide opinion, and many will take the view that this judgment drives a coach and horses through the MLA regime, it certainly provides some much-needed clarity. It remains to be seen whether the company will seek to appeal the decision.
The full judgment can be accessed here.