A judicial review decision in the High Court of England & Wales (the Court) on September 6, 2018 found that a notice served in the UK under Section 2 of the Criminal Justice Act 1987 (a Section 2 notice) on the U.S.- based General Counsel of KBR Inc was enforceable and required the disclosure of documents held in the United States.
It was not relevant that KBR Inc had indicated that it would not make the documents available to the General Counsel for production. Neither was it relevant that the documents were not in the UK or that the documents were not under the direct control of the UK subsidiary over which the Court had clear jurisdiction. The Court decided that KBR Inc had a “sufficient connection” with the UK for the notice to be valid because of its role in payment approval and processing for its UK subsidiary.
Significantly, failure to comply with a Section 2 notice can potentially leave the recipient personally open to criminal prosecution. Therefore, this decision may reduce the appetite of senior U.S. staff to attend SFO meetings in person without seeking advice and where relevant assurances in advance.
Background. Section 2 of the Criminal Justice Act 1987 (Section 2) gives the SFO power to issue notices requiring production of non-privileged documents relevant to an SFO investigation. It is a criminal offense for the recipient to fail to comply without a reasonable excuse.
In April 2017 the SFO issued a Section 2 notice to KBR Ltd, the UK subsidiary of U.S. engineering and construction company KBR Inc. Earlier that year the SFO had opened a bribery investigation into KBR Ltd that followed from its ongoing investigation into Unaoil. The documents required by the Section 2 notice included both material held by KBR Ltd in the UK and material held by its parent, KBR Inc, in the United States. KBR Inc provided some of the U.S. held material, but indicated it was doing so on a voluntary basis.
Subsequently, in July 2017 KBR Inc’s General Counsel voluntarily attended a meeting with the SFO in the UK to discuss the investigation into KBR Ltd. During that meeting the SFO served the General Counsel an additional Section 2 notice in her name requiring her to provide KBR Inc’s U.S. held documents.
KBR Inc declined to comply with the July notice and applied to the Court for it to be set aside. It argued that Section 2 does not and should not operate extraterritorially. KBR Inc also stated that it would not make the relevant documents available to its General Counsel.
The Court rejected KBR’s submissions. In summary, after a review of extensive case law, the Court found that Section 2 must have some element of extraterritorial application, or serious fraud investigations could be stymied by UK companies e.g. by transferring documents abroad.
Sufficient Connection. The Court enforced the July notice on the basis that there was a sufficient connection between KBR Inc and the UK. This connection was established primarily because payments central to the SFO’s investigation of KBR Ltd required the approval of KBR Inc and were paid by KBR Inc through its treasury function in the United States. However, the Court further noted that the following facts did not on their own constitute a sufficient connection:
- The mere fact that KBR Inc is the parent of KBR Ltd
- The mere fact that KBR Inc had previously provided the SFO with material on a voluntary basis
- The presence of senior KBR Inc officers at a meeting with the SFO in the UK in relation to the investigation of KBR Ltd.
Mutual Legal Assistance. Historically the SFO has often observed the convention of using Mutual Legal Assistance (MLA) Treaties to collect documents held in the United States. As a result, KBR Inc also argued that the Director of the SFO, at that time David Green QC, was wrong to exercise his Section 2 powers in this case. However, the Court rejected this argument and noted that MLA was only an alternative and that the Director was not obliged to use it.
The Future Use of Section 2 Notices. It remains to be seen whether the Court’s decision will result in more use of Section 2 notices on the legal staff of non-UK companies. The issue is contentious given data privacy, privilege and extraterritoriality concerns. In addition, the new Director of the SFO, Lisa Osofsky, has signalled her intention to maintain a positive and engaged relationship with the legal profession and may take a different approach to document collection to her predecessor.
Whilst these matters become clearer and pending any appeal, the Court’s judgement may make non-UK in-house counsel more cautious when considering attending meetings with the SFO and to seek English law advice and where relevant SFO assurances in advance.