United Kingdom Supreme Court Limits The Serious Fraud Office’s Extra-Territorial Reach
On February 5, 2021, the U.K. Supreme Court unanimously ruled that the Serious Fraud Office (the “SFO”), the U.K.’s top anti-fraud agency, lacks authority to compel a foreign company to produce documents to the regulator that are held outside of the U.K. While this ruling on its face suggests the SFO’s power to investigate foreign entities has been stymied, the decision may not have much effect in practice in light of the other cross-border tools that remain available to the SFO, including the mutual legal assistance (“MLA”) process.
In 2017, the SFO served KBR, Inc. (“KBR”)—a Houston-based engineering company—with two section 2 notices related to the agency’s longstanding investigation into KBR’s dealings with Unaoil, a Monaco-based oil consultancy accused of bribing government officials to secure contracts worth billions of dollars. The SFO’s investigation initially focused on the actions of KBR’s U.K. subsidiaries, but expanded as U.K. prosecutors sought evidence located at the parent company’s U.S. headquarters. The question before the court was whether section 2(3) of the Criminal Justice Act 1987, which established the SFO and endows the agency with unique powers to compel witnesses to testify or produce documents without first obtaining judicial approval, extended to a U.S. company which has no office in the U.K. and does not conduct business in the U.K.
The U.K. Supreme Court’s decision limiting the reach of section 2(3) overturned a 2018 lower court ruling that held that the SFO’s section 2 notices could extend to foreign companies, so long as the company had a “sufficient connection” to the U.K. In this latest ruling, the Supreme Court found it “improbable” that legislators intended section 2(3) “to leave in place a parallel system for obtaining evidence from abroad,” without providing foreign companies any recourse to challenge the demands in court or with national authorities where the evidence was located, and without the procedural safeguards that are inherent in the MLA process. For example, the MLA agreement between the U.K. and the U.S. includes regulations on acceptable uses for documentary evidence and provisions for its return.
The Supreme Court’s ruling hamstrings the SFO’s ability to circumvent the more cumbersome MLA process and reaffirms the presumption that U.K. laws do not have extraterritorial effect unless legislators explicitly provide an exception. The ruling also compounds the impact on the SFO of the U.K.’s departure from the E.U., which stripped the agency of certain law enforcement tools and privileges available only to E.U. member states. The SFO may still use Overseas Production Orders, a tool introduced in 2019 to hasten the MLA process for obtaining electronic data located overseas, however, as well as the MLA process and obtain evidence directly from foreign authorities under memoranda of understanding or when working on joint investigations. Thus, while the SFO may have to move slower or in conjunction with foreign authorities, it is unlikely that this ruling truly curtails the agency’s powers to investigate corporations abroad.