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09 Feb 2021

The Supreme Court’s decision in KBR v SFO: section 2 notices can still apply across borders

When the SFO loses a case, some journalists are quick to describe it as a “fresh blow” to the organisation’s reputation. When the SFO wins a case, they are equally quick to describe it as a “much-needed victory”. For them, when the SFO loses, it really loses, but when it wins, it still loses.

So it was with this month’s Supreme Court decision in KBR v SFO [2021] UKSC 2, which held that a notice issued by the SFO’s Director under section 2(3) Criminal Justice Act (CJA) cannot compel a foreign company to produce material held overseas. The SFO had not just lost, but really lost: it had reportedly had its “wings clipped”, its “fingers burned” and had been left to “lick its wounds”.

These metaphors make colourful headlines but they do not reflect the reality of the Supreme Court’s decision. Yes, the SFO lost, but to use a cliché beloved of lawyers that does not make colourful headlines, the decision was fact-specific. Change any of the facts only very slightly and there is no reason why the SFO’s power under section 2(3) cannot lawfully be exercised across international borders.

To illustrate my point, consider the question certified for the Supreme Court: “Does section 2(3) of the 1987 Act permit the Director of the SFO to require a person to produce information held outside England and Wales?” Having referred to that question near the beginning of the judgment, the Supreme Court quickly refined and narrowed it: “The question for consideration is whether Parliament intended to confer on the SFO power to compel a foreign company to produce documents held abroad” (my underlining). By replacing the word “person” with the words “foreign company”, the Supreme Court eschewed consideration of whether a UK company, or indeed an individual resident in the UK, can be compelled by a section 2(3) notice to produce documents held outside the jurisdiction.

The Supreme Court’s decision therefore only applies:

  1. To a foreign company;
  2. Which has never carried on business in the UK;
  3. Which does not have a registered office in the UK or any other presence here; and
  4. Where the documents sought are held overseas.

Change any one of (a)-(d) and the decision no longer necessarily holds.

Consider the following three scenarios, none of which the Court examined at length (or at all).

First, suppose the recipient of the section 2(3) notice is a UK company that carries on business in the UK. Would a section 2(3) notice compel it to produce documents held overseas? The Supreme Court observed, albeit obiter, that it would: “A UK company would be required to produce here a document it holds overseas.” Its reasoning was that compelling a UK company to bring documents from abroad is not, in itself, an exercise of extraterritoriality, but even if it was, any such extraterritoriality applies with much less force to legislation governing the conduct abroad of a UK company. Although it did not analyse this proposition in further detail, describing it as “common ground” between the parties, the Court seems to have accepted that section 2(3) can compel UK companies to produce overseas documents.

Had it undertaken a more detailed analysis of this proposition, the Court might have usefully focused on the verb “to hold”. The certified question uses this verb, and conjugations of it appear throughout the judgment. However, this is not a verb used, still less defined, in the statute. When the Court refers to a document the company “holds” overseas, what exactly does this ambiguous word mean?

Does “holds” mean that a person only has to produce a document it owns? Or does “holds” encompass a broader, civil law concept of “possession or control”? Or to borrow from the criminal law lexicon of PACE search warrants, is a recipient of the section 2(3) notice obliged to produce documents which are not only in its possession but which are “accessible” to it?  Absent case law defining what “holds” means for the purpose of section 2(3), the author’s view is that it probably would be construed as extending beyond mere possession into control or access. If that is right, and returning to our first scenario, the UK company would only be entitled to refuse to disclose overseas documents if it had no means either of accessing them and no means of compelling a third party to supply them.

Secondly, suppose the section 2(3) notice is served on a foreign company that carries out business in the UK and/or has a UK registered office, in respect of documents held overseas. What then? Logically, it would be odd if a foreign company with a substantial UK business presence could escape an obligation that bites on a UK company with a similarly substantial UK business presence. Such a result would give primacy to the label (the jurisdiction of the company’s incorporation) rather than the substance (the place of the company’s actual business). In these circumstances, the enforceability of a section 2(3) notice might well turn on the degree of the foreign company’s actual business presence in the UK. For example, if the foreign company’s UK registered office is no more than a post-box and there are no employees working in the UK or business conducted here, this is less likely to bring the foreign company within the scope of section 2(3), and vice versa.

Thirdly, suppose the section 2(3) notice is served on a foreign company, which does not carry out business in the UK, has no UK registered office, but where the documents are held in the UK. For example, an executive of a Brazilian company brings the documents into the UK on her laptop for a business meeting. The documents might be stored on a server situated in the company’s head office in Sao Paolo, but the executive can access them from her laptop, which is now in the UK. What then? In this scenario, all the SFO would be doing is compelling the production of documents held in the UK. It matters not that those documents are only here temporarily, nor that the documents are “stored” overseas, nor that the company is Brazilian. Because the documents are in the UK and can be produced by the foreign company whilst in the UK, this is not an exercise of extraterritoriality. Quite the opposite: anything that can be accessed from within the territory of the UK, whatever the reason for its being here, is fair game.

It would therefore be mistaken to characterise the Supreme Court’s judgment as inflicting a serious wound on the SFO. The judgment is only authority for the proposition that section 2(3) cannot be exercised extraterritorially on the specific facts of the case. It does not follow that section 2(3) is a purely domestic power. The judgment leaves untouched the other ways in which section 2(3) can oblige both UK and foreign companies to produce documents held in the UK and overseas. The section 2(3) power – and by implication the similar powers exercisable by other criminal law enforcement agencies such as the FCA, NCA and the police – retains an element of cross-border application.

Written by Partner Andrew Smith.

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