The US headquartered engineering Company KBR, Inc (KBR) today succeeded in its UK Supreme Court battle with the Serious Fraud Office (SFO). The case is interesting both in connection with the seizure of documents in SFO investigations and the sometimes criticised s.2 notice procedure. The Supreme Court has decided that the use of the s.2 procedure in this case was invalid.
What was this case about?
The case concerns a long-running UK bribery investigation into KBR (see here https://www.sfo.gov.uk/2017/04/28/kbr/).
The SFO invited representatives of KBR to a meeting in London on 25 July 2017. Two KBR representatives flew in for the meeting and the SFO served a notice on them under s.2(3) Criminal Justice Act 1987 (CJA 1987) requiring them to gather together material held abroad and produce it to the SFO. They risked a criminal penalty for failing to comply.
KBR did not have a fixed place of business in the UK and it was agreed that they had never carried on business in the UK. KBR sought to quash the notice on the grounds that s.2(3) CJA 1987 did not have extra-territorial effect. KBR said that the SFO had no jurisdiction to issue the notice requiring the production of material held by companies outside of the UK.
What is a s.2 notice?
The SFO can issue a notice requiring a person or entity under investigation or any other person to produce documents which appear to the SFO to relate to any matter relevant to the investigation. These are commonly called ‘section 2 notices’. Failure to comply with a section 2 notice without reasonable excuse can be a criminal offence leading to the possibility of a term in prison of up to 6 months, or a fine, or both. Destroying documents that might be relevant to a s.2 notice is also a criminal offence and in some respects this offence is similar to the offence in s.173 Data Protection Act 2018 relating to data relevant to a subject access request which we have written about here https://www.corderycompliance.com/client-alert-data-protection-act-2018/
Prosecutions are rare, however last year the Belgian daughter of an Israeli/Kazakhstani oligarch was successfully convicted for failure to comply with a notice to produce documents relating to her father’s business interests.
What was the KBR investigation about?
KBR, Inc is incorporated in the US and the US Department of Justice (DoJ) and the Securities and Exchange Commission (SEC) were conducting investigations in to the affairs of Unaoil, a Monaco based company. KBR were implicated in those investigations. KBR did have UK subsidiaries including Kellogg, Brown and Root Ltd (KBR UK) which was under investigation by the SFO. The SFO have also had a long-running investigation into Unaoil and we have written about that investigation previously here https://www.corderycompliance.com/sfo-secures-oil-execs-conviction/.
In April 2017 the SFO issued s.2 notices to KBR UK. These notices had 21 requirements for the production of information and documentation “held by KBR UK”. KBR UK provided some materials to the SFO in response to this notice and said that some material was not in its possession or control but could be held by KBR. A meeting was offered with the SFO to discuss the investigation and it was agreed that that would take place on 25 July 2017. The SFO insisted that the meeting should not just be attended by lawyers representing KBR but also by officers of the company. As a result KBR’s General Counsel and Chief Compliance Officer flew to the UK for the meeting.
During that meeting, the General Counsel was handed a s.2 notice. The notice had been prepared prior to the meeting but, when KBR said that it needed time to consider the production of documents following on from the meeting, the General Counsel’s name was inserted into the draft notice and it was handed to her. Some extensions of time were given for compliance with the notice and KBR’s UK counsel sought to clarify the notice and explained that in any event, KBR did not believe that the notice was lawful.
KBR argued that the notice could not have extra-territorial effect and they disputed whether it had been validly served. The SFO were invited to withdraw the July notice and told that, if they did not do so, KBR would seek a judicial review.
What did the High Court decide?
The case came before the Divisional Court (a special part of the High Court sitting with at least 2 judges) when they decided that the July notice was not ultra vires, the SFO had not made an error of law and that the July notice was effectively served by the SFO handing it to a senior officer of KBR since she was temporarily present in the jurisdiction. Only the first of these grounds was subject to this appeal i.e. that the July notice was outside the SFO’s powers as it requested material held outside the jurisdiction from a company incorporated in the USA.
The Supreme Court felt that the legislation was not clear enough to have extra-territorial effect. They stressed that they were not limiting the jurisdiction of the UK Bribery Act 2010 to deal with the conduct abroad of a UK national or a UK registered company which is clearly significant in bribery investigations given the wide reach of the UK Bribery Act 2010.
Both KBR and the SFO agreed that if the addressee had been a British registered company then the s.2 notice could have ordered that company to produce information even if that information was held abroad. Similarly, the court said that if KBR have or had a registered office or fixed place of business in the UK or carried on business in the UK, the notice could have been effective. They said that the fact that the General Counsel was temporarily in London did not give the SFO the jurisdiction to serve the notice. The Court thought that it was relevant that bilateral treaties existed between the UK and the US concerning mutual legal assistance which could have been used in this case (so called MLATs).
What are the lessons from this case?
Whilst the power of s.2 notices was limited in this case it is important to remember that s.2 notices are still an important weapon for the SFO. It is also important to remember that the court did not curb the jurisdiction of the UK Bribery Act 2010, just the way in which evidence can be gathered overseas. Since the s.2 notice was served in this case the SFO has also been given new powers to collect data from overseas. The Crime (Overseas Production Orders) Act 2019 came into force on 9 October 2019. The 2019 Act enables the SFO (and some other agencies) to apply to a judge for the production of stored electronic information located or controlled outside the UK, for use in the investigation and prosecution of some offences. This power can only be used where there is a designated international co-operation arrangement in place which covers the relevant jurisdiction. There is an agreement in place between the UK and the US and so in practical terms the new 2019 powers may simply be used to replace some s.2 notices for documents in the US. The new powers are not limitless however, and more difficult to set up and they too may be subject to challenge.
As we have seen from recent cases (including Airbus http://bit.ly/busbribe and Rolls-Royce http://bit.ly/rrdpa) mutual legal assistance is a key part of bribery investigations and those procedures also remain. Using the MLAT process could however slow some investigations down and may lead to difficulties in collecting evidence in some countries, for example where people close to that country’s regime are under suspicion.
Anecdotally at least, bribery is on the increase in the pandemic (see www.bit.ly/covbribe) and, despite this case restricting one of the SFO’s powers, bribery investigations are here to stay. Organisations will still want to take their compliance obligations seriously and investigate allegations of bribery despite the SFO losing this time around.
You can find out more about Cordery’s work in bribery and corruption here https://www.corderycompliance.com/bribery-corruption/. You can find out more about Cordery’s investigation practice here https://www.corderycompliance.com/internal-investigations/.
For more information about our work on bribery and corruption, please contact Jonathan Armstrong or André Bywater who are lawyers with Cordery in London where their focus is on compliance issues.
|Jonathan Armstrong, Cordery, Lexis House, 30 Farringdon Street, London, EC4A 4HH||André Bywater, Cordery, Lexis House, 30 Farringdon Street, London, EC4A 4HH|
|Office: +44 (0)207 075 1784||Office: +44 (0)207 075 1785|