The Supreme Court spikes the SFO’s guns in KBC Inc judgement

The UK Supreme Court has robustly re-asserted the presumption against the extra-territorial reach of UK law in foreign jurisdictions, as well as championing the use of Mutual Legal Assistance requests over any parallel unilateral right for a law enforcement agency (in this case the SFO) to demand a foreign based company to provide information to assist in a UK criminal investigation.

In R (on the application of KBR, Inc) (Appellant) v Director of the Serious Fraud Office (Respondent) [2021] UKSC 2 the SFO sought to argue that their powers under s.2(3) Criminal Justice Act 1987 (‘CJA’) to demand the production of information in a criminal investigation extended to a foreign-based company which did not carry out any business in the UK. The request for information was made in the context of the on-going investigation into Unaoil. The foreign based company, KBC Inc, had UK based subsidiaries who did business with Unaoil. A notice under section 2(3) CJA was originally served on KBC UK who provided limited disclosure. The SFO then purported to serve the notice on an official of KBC Inc in London to force the production of further documents held in the USA. KBC Inc ultimately refused to comply with the notice on the basis that it unlawfully required the production by a foreign based company of documents held entirely outside of the UK and also that it had been invalidly served.

The Divisional Court had found in favour of the SFO at an earlier judicial review hearing. In essence, they found that the legislative purpose of the CJA was clear and that it was capable of applying to documents held in another jurisdiction. Where the documents were held by a foreign based company the issue would be one of establishing a “sufficient connection” between that company and the jurisdiction seeking the production of the documents (i.e. the UK).

Two questions were certified for resolution by the Supreme Court, namely:

(1) 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?
(2) If so, does the Director of the SFO have power to do so by reference to the “sufficient connection test”?

In a unanimous judgment Lord Lloyd-Jones ruled as follows:

1. The presumption against the extra-territorial effect of UK legislation applied to a foreign company which had never carried out any business and was not registered in the UK.
2. 2(3) CJA did not make any express provision justifying the extension of its provisions outside of the UK.
3. A clear distinction should be drawn between a UK company asked to produce documents held outside the UK and a non-UK based company holding such documents.
4. The extra-territorial reach of UK legislation might be implied where the purpose of the legislation could not be achieved without it. However, that required an analysis of the history of the legislation and whether parliament intended the purpose to be achieved by other means.
5. The legislation as currently drawn enabled the SFO to make an application for letters of request to foreign jurisdictions for the production of documents held abroad. This procedure under-pinned by the doctrine of comity of nations enshrined the international system of mutual legal assistance (MLA) in relation to criminal investigations which contained procedural safeguards and protections.
6. There was no basis for inferring that Parliament intended to leave in place a parallel procedure that enabled the SFO to make a unilateral demand to a foreign based company without any of the attendant safeguards preserved by the MLA procedures.
7. The case of Serious Organised Crime Agency v Perry [2012] UKSC 35 (which found that a s.357 POCA notice had no effect on a person residing outside of the UK) was strongly supportive of the proposition that s.2(3) CJA was not intended to confer a power to compel disclosure by a foreign person residing abroad.
8. The case of R (Jimenez) v First-tier Tribunal (Tax Chamber) (which found that a notice pursuant to Schedule 36 Finance Act 2008 could be served on a UK taxpayer residing abroad) was distinguished on the basis that there was a clear link between the purpose of the notice and the status of the recipient.
9. Similarly, adopting a purposive approach to the relevant legislation provided a clear basis for distinguishing extra-territorial powers provided for in Insolvency legislation.
10. The Supreme Court could find no basis for importing a “sufficient connection test” into the operation of s.2(3) CJA, such a test could not be inferred from the wording of the statute, lacked precision and could lead to exorbitant claims by the investigating agency that would not be subject to judicial scrutiny.

International enquiries by a designated prosecuting authority (DPA) are governed by s.7
Crime (International Co-operation) Act 2003. A DPA may only make an application for an
international letter of request if:

• It appears to the authority that an offence has been committed or that there are reasonable grounds for suspecting that an offence has been committed, and
• The authority has instituted proceedings in respect of the offence in question or it is being investigated.

The procedure has built into it a set legal criteria for the making and consideration of MLA requests. The CPS Code for Crown Prosecutors includes guidance on the procedure and the types of request that can be made. The SFO as a DPA is subject to the same procedural constraints.

However, the procedure is somewhat bureaucratic and time-consuming. Different
jurisdictions may approach MLA applications in a totally different manner. This can create
inconsistencies in outcome. The different methods of evidence collection in the responding state may create difficulties in securing the admissibility of evidence in the requesting state. To address these issues United Nations Office on Drugs and Crime has developed a Model Treaty on Mutual Assistance in Criminal Matters and Model Law on MLA in Criminal Matters.

It is therefore perhaps understandable that the SFO sought to argue that s.2(3) CJA
provided a more efficient and less bureaucratic method for obtaining information from a
foreign based company. However, it should also be borne in mind that there are other ways
in which information can be exchanged between states including:

• The preliminary exchange of information between investigators/prosecutors before a formal request for MLA is formulated.
• Parallel or joint investigations between agencies from different states.
• Exchange of information through other mechanisms operated by financial intelligence agencies, such as tax authorities and security regulators.

The investigation of serious and complex fraud in the twenty first century places huge
logistical demands on investigating agencies especially with the explosion of cyber-crime on
an international scale. One can therefore understand why agencies such as the SFO seek to
broaden their approach in order to gather evidence in as efficient a manner as possible.
However, the unfettered expansion of extra territorial law enforcement, circumventing
established law and procedures designed to protect the subjects of such investigations is
likely to be resisted on the grounds of preserving the comity of nations and the rule of law.