Out-Law / Your Daily Need-To-Know

SFO's foreign investigatory tools curbed by UK Supreme Court

Out-Law News | 05 Feb 2021 | 3:26 pm | 2 min. read

The UK's Serious Fraud Office (SFO) cannot rely on powers it holds under the Criminal Justice Act 1987 to compel foreign companies to disclose documents held overseas to aid its investigations into serious or complex fraud, the Supreme Court has ruled.

Natalie Sherborn, expert in the white collar crime investigations team at Pinsent Masons, the law firm behind Out-Law, said the judgment will be disappointing for the SFO. The decision does not mean law enforcement agencies are now powerless to investigate companies based overseas, but it will require agencies to use the existing mutual legal assistance routes to gather overseas documents from foreign entities.

Under section 2(3) of the 1987 Act, the director of the SFO can issue a notice to "require the person under investigation or any other person to produce … any specified documents which appear to the Director to relate to any matter relevant to the investigation". 

The SFO issued a section 2 notice against KBR Ltd, the UK subsidiary of KBR Inc. as part of an investigation opened in 2017 concerning suspected offences of bribery and corruption. The investigation arose initially out of the SFO's ongoing investigation into allegations of corrupt activities at the Unaoil Group.

Subsequently, the SFO issued a section 2 notice again KBR Inc. which sought relevant documentation wherever held, whether by KBR Ltd or KBR Inc. While documentation held by or under the control of KBR Ltd was produced, KBR Inc. refused to produce anything further and applied for a judicial review of the SFO's request and for the section 2 notice to be quashed. KBR Inc. submitted that section 2 notices did not operate extra-territorially and the SFO should seek the production of documents via mutual legal assistance, with the associated safeguards that this mechanism provided.

KBR's legal challenge was considered at first instance by the High Court in London, which held a section 2 notice can compel a foreign parent company of a UK subsidiary to provide information relevant to an investigation, provided the foreign company has a "sufficient connection" to the UK. However, in a unanimous ruling, the Supreme Court has reversed this decision.

Natalie Sherborn said: "Whilst this ruling will be a disappointment to the SFO, it does not mean law enforcement agencies are now powerless to investigate companies based overseas. The SFO will still have available the existing mutual legal assistance routes to gather overseas documents from foreign entities and, with the recent introduction of Overseas Production Orders, where there is an international co-operation arrangement in place the SFO can compel overseas companies to produce electronic data."

"It remains to be seen how impactful this decision will be in practice. The SFO's corporate co-operation guidance explains that the SFO will consider the extent of a company’s cooperation when making corporate charging decisions. One such hallmark of cooperation includes going beyond what is required by law; compliance with compulsory process is not enough. Corporates will therefore likely continue to grapple with difficult questions about how best to engage with the SFO in order to secure the most favourable outcome," she said.