I am a non-UK company. Do I have to comply with a notice served by the Serious Fraud Office pursuant to section 2(3) Criminal Justice Act 1987?

12th February 2021 Business Crime

When a defendant or suspect in a complex fraud has a connection with transactions or assets outside the UK, what can the Crown do to investigate? The UK Supreme Court recently considered the issue in R (on the application of KBR, Inc) (Appellant) v Director of the Serious Fraud Office (Respondent) [2021] UKSC 2.

In accordance with section 2(3) of the Criminal Justice Act 1987 (“the 1987 Act”) the Director of the Serious Fraud Office (“SFO”) may issue a notice requiring persons to produce documents and other information for the purposes of an SFO investigation into serious or complex fraud. Failure to comply is a criminal offence.

However, can the SFO use section 2(3) to require a foreign company to produce documents it holds outside the UK?

In the above case, KBR (Inc) was incorporated in the US, but had UK subsidiaries including KBR (UK), the company under investigation. KBR (Inc) did not have any presence in the UK and had never traded there.

The SFO received documents from KBR (UK), but also served KBR (Inc) with a section 2(3) notice relating to documents held outside the UK by KBR (Inc). The company applied for judicial review to quash the notice. The Divisional Court refused the application. It held that section 2(3) extended extra-territorially to foreign companies in respect of documents held outside the UK if there was a sufficient connection between the company and the UK. It appeared on the facts that sufficient connection existed between the two companies in this case.

The Supreme Court disagreed. It is presumed as a starting point in international law and the concept of comity that UK legislation is generally not intended to have extra-territorial effect. KBR (Inc) had not carried out business in the UK and was not a UK company. The Supreme Court therefore had to consider whether Parliament intended section 2(3) to displace the presumption, having regard to international law and comity. The court noted that when Parliament intends legislation to have extra-territorial effect, it often includes express wording in the statutory provisions to that end. No such wording appeared in section 2(3).

The SFO argued that extra-territorial reach should be implied from the very nature of large fraud investigations, where the need for foreign enquiries often arises. The court referred to Parliament’s intention that evidence of fraud should be obtained from abroad by establishing reciprocal arrangements for co-operation with other countries [33-39].

For many years, the UK have developed structures in domestic legislation permitting the UK to participate in international systems of ‘mutual legal assistance’ in criminal proceedings and investigations. These systems are subject to particular safeguards. They regulate how documentary evidence may be provided, used and returned. These provisions are fundamental to the mutual respect between States.

The court found that Parliament would not have intended those systems to operate alongside a broad power under section 2(3), which carries a threat of criminal penalty. The court drew analogy from Serious Organised Crime Agency v Perry [2012] UKSC 35 in which the Supreme Court held that section 357 of the Proceeds of Crime Act 2002 did not permit a disclosure order to be imposed on persons outside the UK. Section 357 and section 2(3) are similar in their purpose and although the SFO made comparisons with other provisions suggesting extra-territorial reach, the court did not regard those references as providing sufficiently close analogy to shift the presumption.

The Supreme Court therefore disagreed with the Divisional court and found that introducing a ‘sufficient connection’ test into section 2(3) would involve re-writing the statute.

It would be interesting to investigate how many companies in KBR (Inc)’s position have erroneously complied with a section 2(3) demand from the SFO, to the company’s ultimate prejudice.

Evan Wright is a partner in JMW’s Business Crime and Regulation department.

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Evan Wright is a Partner located in Manchester in our Business Crime & Regulation department

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