SFO Suffers Defeat on Overseas Powers

The SFO is defeated in its attempt to compel KBR to reveal 21 years’ worth of documents held by its US parents company rule Supreme Court.

A sign is displayed in an unmarked Serious Fraud Office vehicle parked outside a building, in Mayfair, central London March 9, 2011. Property tycoons Vincent and Robert Tchenguiz were among nine people arrested on Wednesday after police raided addresses in London and Reykjavik linked to an investigation into the collapse of Iceland's Kaupthing Bank. REUTERS/Andrew Winning (BRITAIN - Tags: CRIME LAW BUSINESS)

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LONDON (Within the Law) - The modern world caught up with the Serious Fraud office as the Supreme Court dealt a big blow in its powers to fight cross border crime.

The UK Serious Fraud Office (SFO) was wrong to try and compel U.S. engineering, procurement and construction company KBR Inc to hand over documents held overseas during an investigation, the UK Supreme Court ruled on Friday. The ruling dents the SFO’s pursuit of a major international bribery investigation and has implications for the future. 

Overruling a previous High Court ruling, five Supreme Court Judges unanimously reversed a 2018 lower court ruling that so-called Section 2 notices could have extra-territorial reach, siding with US engineering services company KBR which said the regulator could not use its Section 2 powers to demand evidence held by its US parent company. 

"The presumption against extra-territorial effect clearly applies in this case because KBR Inc is not a UK company, and has never had a registered office or carried on business in the UK," they said.

The SFO said Section 2 powers were fundamental to its ability to investigate multinationals with complex corporate structures, but that it welcomed the court's clarification.

KBR said it was "pleased".

The High Court had found in favour of the UK regulator. However, the judges found that they did not recognise the sufficient connection test which had been outlined by the High Court judges. This, they said, would involve rewriting the legislation. 

The court ruled that the legislation was ‘generally not intended to have a extra territorial affect.’ Instead, they said the SFO should have relied on the system of mutual legal assistance which governs overseas cooperation between states.

In a statement the SFO said: “Section 2 powers are fundamental to our ability to conduct our investigations which often involve international companies with complex corporate structures. They added that they welcomed the Supreme Court’s ‘clarification on the extent of the SFO’s powers in this matter.’ 

For the SFO this was the modern world coming back to bite. The legislation they relied on had been drafted in 1987 when the world was a much smaller place. Times have changed and the regulator hadn’t moved quickly enough to keep pace. 

Lawyers said the old law might be ill-suited to the modern age but that it was not the role of the courts to rewrite statutes to further a public interest in investigating crime.

"The judgment is a welcome reminder of the presumption against extraterritoriality in English criminal law," said Andrew Smith, a partner at law firm Corker Binning.

Judith Seddon, a partner at Ropes & Gray, called the decision a "victory for principled statutory interpretation".

The SFO still has Overseas Production Orders, a new power introduced in 2019 to speed up the MLA process to secure electronic data held overseas if a co-operation treaty exists between jurisdictions. Companies seeking to avoid prosecution can also voluntarily cooperate with the agency.

If they want to pursue cross border cooperation in the future the SFO may have to look at drafting new legislation in the usual manner. 

 

(Reporting by Kirstin Ridley. Written by Tom Cropper, edited by John Stonestreet, Susan Fenton, Kirsten Donovan and Michael O'Sullivan)

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