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05 Nov 2020

The scope of “reasonable excuse”: when can a person lawfully withhold documents on receipt of a compulsory production notice in a criminal investigation?

Recent years have witnessed a spate of prosecutions of individuals accused of destroying documents. In 2016, the SFO successfully prosecuted Richard Kingston, a former managing director of the Sweett Group, for disposing of two mobile phones, knowing or suspecting that data stored on them would be relevant to the SFO’s investigation into corruption. The court sentenced him to 12 months’ imprisonment. Last month, a jury acquitted Konstantin Vishnyak in a prosecution brought by the FCA, which had alleged that he had deleted WhatsApp messages from his mobile phone minutes after his arrest for insider dealing. He argued that he had only deleted sensitive messages with prominent Russian politicians and business people, which he said were irrelevant to the FCA investigation.

Because these document destruction prosecutions tend to turn on their facts, it is difficult to extrapolate general principles from them. Indeed, it is little more than a statement of the obvious that a person who destroys documents, knowing they are a suspect in a criminal investigation, risks prosecution, even if he or she claims that the documents have no evidential value to an investigator. The more interesting legal conundrum concerns the person who does not destroy documents, but rather refuses to provide documents when compelled to do so in a criminal investigation. Are there general principles that determine when the recipient of a compulsory production notice can lawfully withhold the documents sought?

This is not an academic question. In this firm’s experience, agencies tasked with investigating white-collar crime not only remain wedded to the use of their statutory powers compelling the production of documents but are increasingly prepared to litigate a perceived failure to comply with these powers. In 2019, the SFO prosecuted Anna Machkevitch, the daughter of one of the owners of ENRC, the subject of the SFO’s long-running investigation into alleged corruption, for failing to comply with a notice requiring her to produce ten years’ worth of diaries and documents. Whilst the jury found her guilty, the court only ordered her to pay a modest fine of £800, on the basis that she had belatedly disclosed the material to the SFO after she was charged. Nonetheless, the threat of prosecution means that corporates and individuals embroiled in criminal investigations – whether as suspects or witnesses – should be familiar with the circumstances in which they are entitled not to disclose the documents specified in a notice.

Criminal investigators can compel any person to produce documents, regardless of whether or not they are under investigation. The SFO’s powers are found in section 2 of the Criminal Justice Act 1987 (’CJA’); the FCA has similar powers in the Financial Services and Markets Act 2000 (’FSMA’); and HMRC, the NCA and the police have similar powers in the Serious Organised Crime and Police Act 2005 (’SOCPA’). Each of these statutes makes it a criminal offence to fail to comply with a notice requiring the production of documents, unless the recipient of the notice has a “reasonable excuse”. As none of these statutes define “reasonable excuse”, what exactly does it encompass?

We can begin by identifying what it does not encompass. It is not a reasonable excuse to withhold documents on the basis that they incriminate (or might incriminate) a person. In River East Supplies Ltd v The Crown Court at Nottingham , the High Court heard a judicial review of a production order granted pursuant to a request for mutual legal assistance from the US Department of Justice. The recipient company argued that to produce the documents would violate its privilege against self-incrimination. The court rapidly dismissed this argument, holding that the privilege did not apply because the documents were independent of the will of the suspect, i.e. the documents had been created before any crime was suspected and did not come into being solely by virtue of the US criminal investigation. The court observed that whether a document should be considered independent was nearly always clear-cut, adding pointedly that the “scope for serious dispute is limited”. It will therefore be an extraordinarily unusual case in which the recipient of a notice can lawfully withhold documents by asserting the privilege against self-incrimination. Because the privilege against self-incrimination will rarely constitute a “reasonable excuse”, what does?

The first (and easiest) category of “reasonable excuse” to identify is legal professional privilege (’LPP’). As LPP is an absolute right, recipients of production notices never need to disclose documents protected by it, although there may be certain strategic advantages, particularly for co-operating corporates, in doing so. A valid assertion of LPP will always constitute a “reasonable excuse”.

The second category of “reasonable excuse” relates to overseas persons who receive a notice compelling the production of documents held outside the UK where the person has “insufficient connection” to the jurisdiction. This limit on the extraterritorial scope of such notices was outlined by the Admin Court in R (on the application of KBR Inc.) v Director of the Serious Fraud Office . It remains to be seen whether the Supreme Court will agree with the Admin Court’s expansive interpretation of extraterritoriality, but for the time being, certain foreign persons (whether individuals or companies) can continue to avail themselves of this category of “reasonable excuse”.

The third category of “reasonable excuse”, not specifically referenced in any case law because it is more a question of practice, arises where the notice identifies vast swathes of irrelevant documents and/or is so onerous that it would be impossible to collate the documents in a reasonable timeframe. In these circumstances, sensible discussions with the investigator should result in the withdrawal of the original notice and the issue of a new, more tightly drafted notice compelling the production of a smaller and/or more relevant set of documents.

The fourth category of “reasonable excuse” arises where the disclosure of documents to the investigator would breach other legal duties and/or compete with countervailing public policy considerations. This is the most nebulous – and therefore most interesting – category of “reasonable excuse”. Does the recipient of a notice have a “reasonable excuse” not to disclose the documents if the very act of disclosure exposes the recipient to the risk of criminal prosecution, or necessarily implicates the recipient in the violation of a competing legal obligation, whether in the UK or overseas?

Case law – all of which concerns the SFO’s powers under the CJA rather than the equivalent powers available to other investigators – provides some guidance in answering this question, and in defining the parameters of this fourth category of “reasonable excuse”. The starting point is that the courts have long acknowledged that the CJA is a draconian statute and that the specific power under section 2 to compel documents is wide-ranging. In Hamilton and Others Respondents v Naviede Appellant , the House of Lords held that where a statute (such as the CJA) criminalises the failure to disclose documents “without reasonable excuse”, and the purpose of the statute is to enable urgent intervention by an investigator, the requirement to disclose the documents overrides all competing obligations of confidence.

Having extrapolated this general principle, however, the House of Lords immediately identified an exception to it, based on an earlier analysis of the High Court in Re Arrows Ltd . The issue in this case was whether liquidators served with a section 2 notice were obliged to disclose documents (including transcripts of insolvency examinations) obtained in the course of their statutory activities. The High Court held that, in the exercise of its control over insolvency proceedings, the court has jurisdiction to order its officers and office-holders not to comply with a section 2 notice, and that such a direction would constitute a “reasonable excuse” for non-compliance. That is, “reasonable excuse” can encompass a case in which a person is required or entitled under some other rule of law to withhold the documents. The House of Lords in Hamilton interpreted this to mean that whilst section 2 of the CJA overrides statutory obligations of secrecy expressly imposed by statute, it does not override obligations arising under the general law on the grounds of policy.

In Omega Group Holdings Ltd v Kozeny , the Court of Appeal developed the analyses in Re Arrows Ltd and Hamilton, and provided further guidance on this fourth category of “reasonable excuse”. The issue was whether the fact that documents had been brought into the jurisdiction for the purposes of disclosure by a foreign defendant in civil proceedings constituted a “reasonable excuse” for non-compliance with an order to produce them to the SFO. The court acknowledged that, in these circumstances, two public interests had come into conflict: the public interest in the investigation of serious fraud versus the public interest in the administration of civil justice. The court disagreed with the SFO’s submission that a recipient of a notice would only have a “reasonable excuse” not to comply with it in the rare cases identified in Re Arrows Ltd as relating to “national security, diplomatic relations and the administration of central government.” However, on the facts of this case, there was no “reasonable excuse”, because the public interest in the investigation or prosecution of serious or complex fraud took precedence over the merely general concern of the courts to control the collateral use of compulsorily disclosed documents. In reaching this conclusion, the court noted that an important consideration was the absence of any special reason for fearing that disclosure would result in injustice.

The cases of Re Arrows Ltd, Hamilton and Kozeny thus demonstrate that there is genuine substance to this fourth category of “reasonable excuse”, albeit that its parameters remain unsettled. Competing legal and public policy considerations are clearly capable of giving rise to a “reasonable excuse”, particularly if complying with the notice would result in a special reason for fearing injustice. Indeed, there is no closed list of relevant legal and public policy considerations. Future cases may well identify considerations unrelated to national security, diplomatic relations and the administration of central government that are capable of constituting a “reasonable excuse”.

One potentially relevant public policy consideration that could give rise to the type of injustice contemplated in Kozeny – and therefore constitute a “reasonable excuse” – is where compliance with the notice would necessarily involve the commission of a criminal offence. Take the hypothetical example of the SFO serving a section 2 notice compelling the production of banking documents held in Switzerland. Article 47 of the Swiss Federal Act on Banks and Savings Banks makes it a federal crime for a person to intentionally disclose confidential information entrusted to them while working in a bank or acting as an auditor to third parties, and can attract a sentence of imprisonment of up to three years. This provision (which is not unique to Switzerland) is more than just a statutory obligation imposing secrecy, which according to the analysis in Hamilton, a compulsory notice would override. It is a legal obligation, the violation of which is a criminal offence. If the threat of prosecution for such an offence is genuine, the risk that the recipient of the notice may be subjected to criminal proceedings – and potentially even lose their liberty – would provide a strong foundation for arguing that he or she has a “reasonable excuse” not to disclose the documents pursuant to the notice.

To support the defence of “reasonable excuse”, it would be necessary for the recipient of the notice to explain to the investigator why a criminal prosecution is not simply theoretical. For example, he or she might obtain a legal opinion about the criminal offence; information about the discretion (or lack thereof) afforded to prosecutors when taking charging decisions concerning the offence; data concerning previous prosecutions for the same offence in similar circumstances; and evidence that prosecutors had been asked but declined to give an assurance against prosecution of the recipient if the documents were disclosed. The key would be to demonstrate that disclosure of the documents to the investigator in compliance with the notice would place the disclosing party in real jeopardy of criminal prosecution. As Lord Hoffman noted in Re Arrows Ltd, “the protection of the liberty of the subject […] is seldom outweighed by other considerations of public interest.”

This article has identified four categories of “reasonable excuse” that would entitle a recipient lawfully to withhold documents sought by a criminal investigator pursuant to a compulsory document production notice. Is the scope of the doctrine of “reasonable excuse” any different when the criminal investigator compels an individual to answer questions in an interview? In what circumstances could the interviewee lawfully refuse to answer questions in a compulsory interview? This will be the subject of a second article.

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