The SFO Has Judicial Review Success in Relation to Obtaining Documents Overseas

Posted on 06 September 2018

The SFO Has Judicial Review Success in Relation to Obtaining Documents Overseas

As well as being a party to the much publicised decision in the ENRC case (see elsewhere in this issue: Court of Appeal Hands Down Important Judgment on Privilege), the SFO has been involved in another, less publicised Court battle over disclosure of documents and which also has implications for other investigating authorities including the FCA and PRA.

In R (on the application of KBR Inc.) v Director of the Serious Fraud Office [2018] EWHC 2368 (Admin) the Court considered an application for judicial review by KBR Inc., a company incorporated in the United States.   KBR does not do business in the UK but does have UK subsidiaries including Kellogg Brown & Root Ltd ("KBR Ltd"), a company under investigation by the SFO.

KBR Inc. was in possession in the US of documentary evidence which the SFO sought to obtain by service of a notice under section 2 of the Criminal Justice Act 1987 ("CJA").  Section 2 provides the SFO with powers to require a person under investigation or any other person to produce documents which appear to the SFO to relate to any matter relevant to the investigation.

KBR sought judicial review of the notice on three grounds:

  1. The notice was ultra vires as it requested material held outside the (UK) jurisdiction from a company (KBR Inc) incorporated overseas (the jurisdiction ground).
  2. It was an error of law on the part of the Director of the SFO to exercise his section 2 powers despite his power to seek Mutual Legal Assistance ("MLA") from the US authorities (the discretion ground).
  3. The notice was not effectively "served" by the SFO handing it to a "senior officer" of KBR Inc who was temporarily present within the jurisdiction at a pre-arranged meeting with the SFO (the service ground).

KBR failed on all three grounds and the Section 2 notice was held to be valid.

On the question of jurisdiction, the Court noted that the statute was silent. However, the Court decided that section 2 must have an element of extraterritorial application since “It is scarcely credible that a UK company could resist an otherwise lawful s.2(3) notice on the ground that the documents in question were held on a server out of the jurisdiction.”  

Having decided that section 2 does have extraterritorial application with regard to UK companies, the Court considered whether foreign companies are in a different position.  The Court ultimately came to the conclusion that foreign companies were subject to section 2 jurisdiction where the corporate had “sufficient connection” to the UK.  Simply having a subsidiary in the UK jurisdiction was not sufficient connection on its own; however, in the present case there was evidence that payments which were the subject of the investigation were approved by the parent – KBR Inc.

On the question of discretion, KBR Inc. contended that because the SFO was entitled to rely on an MLA treaty with the United States, the SFO should have pursued that line first.  The Court rejected that submission, pointing out that there may be good practical reason to exercise Section 2 powers, including speed and the risk that an MLA request may be ignored.

As regards service, the Court pointed out that there are no formal service procedures set out in the Act and that because a representative of KBR Inc. was present in the jurisdiction, the notice had properly been drawn to the attention of KBR Inc.

The Court did, however, express some criticism of the SFO’s tactic of arranging a meeting to effect service - describing the tactic as unappealing because it may impact on the willingness of others to attend such meetings in the future.

Comment

Application to FCA and PRA Investigations

Whilst the decision of the Court related solely to CJA section 2 notices, it is likely to have wider application, particularly to the FCA and PRA which enjoy similar powers under the Financial Services and Markets Act 2000 (FSMA). 

FSMA provides the FCA and PRA with the power to require the provision of documents by authorised persons and their group companies, and where there is an active enforcement investigation, from anyone where the investigator reasonably considers the production of documents to be relevant to the purposes of the investigation.

As with the CJA, there is no express territorial provision in FSMA.  However, unlike the CJA, service requirements in relation to notices under FSMA have been codified in secondary legislation – The Financial Services and Markets Act 2000 (Service of Notices) Regulations 2001.  That statutory instrument clearly envisages that in some cases service of notices outside the jurisdiction may be required.  For example, paragraph 2 of the order refers to the posting of notices outside the United Kingdom.

Regulatory Gateways

To date, the UK regulators have generally sought to obtain overseas documents and information through mutual assistance gateways operating under the umbrella of EU regulations, the IOSCO multilateral memorandum of understanding or bilateral agreements with overseas regulators.   In many cases, the regulatory gateways for provision of information are quicker and more straightforward than criminal MLA channels and the regulators have largely been content to operate in this manner.  However, the KBR decision may encourage the PRA and FCA to seek to obtain more information directly.  There will now be less scope for institutions to resist extra-territorial requests by the regulators, except in limited circumstances - for example where compliance with the request may be in breach of local law.

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