New Limits to the UK SFO’s Ability to Compel Production of Evidence from Overseas May Lead to Increase in DOJ Investigations

Overview


On February 5, 2021, in a unanimous decision, the UK Supreme Court held that the UK Serious Fraud Office (SFO) did not have the authority under Section 2(3) of the Criminal Justice Act 1987 (the 1987 Act) to compel a foreign company that does not have a registered office and does not conduct business in the United Kingdom to produce documents it holds outside the United Kingdom. (See: R (on the application of KBR, Inc.) v. Director of the Serious Fraud Office, [2021] UKSC 2 (Feb. 5, 2021).) The SFO is an agency that investigates and prosecutes fraud and corruption in England, Wales and Northern Ireland.

This landmark ruling significantly curtails the SFO’s reach and ability to investigate cross-border financial crimes, as it means the SFO cannot sidestep more conventional international evidence‑sharing procedures, such as the mutual legal assistance (MLA) process. MLA treaties allow prosecutors to recruit the assistance of another state to acquire and to share relevant evidence but are notorious for being time‑consuming.

Although the SFO’s authority to reach outside its territories has been limited, the US Department of Justice (DOJ) retains its ability during investigations to request the collection of documents from companies subject to the extraterritorial jurisdictional reach of the Foreign Corrupt Practices Act (FCPA) and other federal statutes. As many companies subject to violations of the UK Bribery Act (UKBA) also are potentially subject to investigations by the DOJ for violations of the FCPA, this new limitation imposed on the SFO may lead to increased prosecutions and investigations in situations with dual jurisdiction by the DOJ.

In Depth


Background

In 2017, the SFO began a criminal investigation into Kellogg Brown & Root Ltd. (KBR UK), a British subsidiary of US parent engineering company, KBR, Inc. (KBR, Inc.), for suspected bribery and corruption offenses. KBR UK cooperated and provided the SFO with various materials. KBR UK also made clear that certain material was not in its possession or control but, if and to the extent it existed, would be held by KBR, Inc. in the United States.

As part of this investigation, during a meeting in London, the SFO provided written notice to representatives of KBR, Inc. to produce documents held outside of the United Kingdom pursuant to the Section 2(3) notice provision of the 1987 Act.

This provision enables the director of the SFO to require persons under investigation to produce specified documents that appear to the director of the SFO to relate to any matter relevant to the investigation. Failure to comply with this request without a “reasonable excuse” is an offense under the 1987 Act punishable by up to six months’ imprisonment, a fine or both.

The UK Supreme Court Unanimously Reversed a Prior Divisional Court’s Decision

Although the Divisional Court initially denied KBR, Inc.’s attempt to quash the SFO’s notice, the UK Supreme Court rejected that decision, finding that Parliament did not intend for Section 2(3) of the 1987 Act to displace the presumption against extraterritoriality in English law. The Supreme Court stated that the Divisional Court’s “sufficient connection” standard is not supported by the language of the statute.

The Supreme Court acknowledged there is a public interest in ensuring effective investigation of serious crimes but stated these concerns are addressed by way of international agreements, such as the MLA Agreements between the United Kingdom and the United States, that allow foreign authorities to share evidence in compliance with principles of international comity.

The Supreme Court stated, “It is to my mind inherently improbable that Parliament should have refined this machinery as it did, while intending to leave in place a parallel system for obtaining evidence from abroad which could operate on the unilateral demand of the SFO, without any recourse to the courts or authorities of the State where the evidence was located and without the protection of any of the safeguards put in place under the scheme of mutual legal assistance.”

Conclusion (DOJ Stepping In)

In the wake of this decision, international companies that receive SFO Section 2 Notices (and those that advise these companies) should make sure to evaluate whether evidence falls within the scope of UK jurisdiction before responding to and producing documents to the SFO.

Another potential consequence of this decision may be an increase in DOJ-led investigations.  As noted above, it is usually the case that the DOJ also will have jurisdiction over alleged misconduct that is the subject of an SFO investigation. As anyone who regularly represents companies in these types of matters knows, the DOJ is no stranger to requesting that companies under investigation provide documents and records located beyond US borders to obtain cooperation credit. Indeed, over the past decade, DOJ attorneys have become well versed in the limitations of foreign law on fact-gathering in internal investigations as well as their impact on compliance programs.

The DOJ specifically addressed the latter in its June 2020 updated guidance to its “Evaluation of Corporate Compliance Programs,” which added a key endnote directing prosecutors specifically to consider how foreign law considerations affect the structure of a company’s compliance program. DOJ lawyers similarly expect sophisticated counsel to know these boundaries when representing companies before them. While the updated DOJ guidance was helpful in acknowledging how foreign law considerations can impact the design and implementation of companies’ compliance programs in different countries, it also made it clear that companies document these issues in real time and stand ready to explain how they affect compliance decisions.

In addition to more DOJ involvement, we also may see reliance on the new US-UK Bilateral Data Access Agreement as a mechanism for American and British law enforcement agencies, with appropriate authorization from each of their respective domestic courts, to obtain electronic evidence by going directly to a communication services provider based in the other country instead of through governments via the MLA channels.

The SFO also will no doubt look for other, perhaps more informal channels, to cooperate and share evidence with foreign law enforcement agencies in criminal investigations and proceedings. While it is possible that the SFO may seek to change the 1987 Act so it can have more tools at its disposal to investigate international crimes, that would in and of itself be a burdensome process, so we expect more informal information sharing to take place in the first instance.