The Expanding Reach of the SFO


Author: Tom Bolam, Joshua Bennett


Tom Bolam, Senior Associate, Fladgate LLP (tbolam@fladgate.com)

Joshua Bennett, Trainee Solicitor, Fladgate LLP (jbennett@fladgate.com)


 

The Facts

The SFO had commenced a criminal investigation into KBR Ltd, concerning suspected offences of bribery and corruption. KBR Ltd is one of many subsidiaries of the US based KBR Inc., and ultimately forms part of the wider KBR Group.

As part of its investigation, the SFO sought documents held both in and outside the UK. On 28 April 2017, the SFO issued a section 2(3)[1] notice to KBR Ltd, in which they requested the production of 21 categories of documents. The SFO became concerned that the KBR Group was drawing an inappropriate distinction between documents held by or within the control of KBR Ltd, and documents held outside the UK and outside the control of KBR Ltd.  It therefore issued a further, largely duplicative, s.2(3) notice in July 2017 (the “July Notice”) addressed directly to the US entity, KBR Inc. seeking disclosure of documents held by it outside the UK.

KBR Inc. objected to the SFO’s notice, advancing three grounds:

  1. Jurisdiction – The July Notice was ultra vires as it requested documents held outside the UK by a company incorporated in the US;
  2. Discretion – It was an error of law on the part of the SFO to exercise its section 2 powers despite having power to seek mutual legal assistance from the US authorities; and
  3. Service – The July Notice was not effectively served when it was served on a representative of KBR Inc. who was temporarily present in the UK at the request of the SFO, in order to attend a meeting with the SFO.

The Court rejected all of these arguments and upheld the validity of the notice.

Judgment

In respect of the three grounds, the Court ruled as follows:

Jurisdiction

 The Court held that a section 2 notice could be validly served on a non-UK company in respect of documents held outside the UK where there is a “sufficient connection between the company and the jurisdiction”. Among the factors establishing such ‘sufficient connection’ in this case were that some of the allegedly corrupt payments made by KBR Limited had required approval from KBR Inc., and had been processed by KBR Inc. in the US.

Discretion

The Court found that although the Mutual Legal Assistance regime provides an additional, alternative route to obtain documents for the SFO, its availability does not affect the lawfulness of the SFO’s decision to issue a section 2 notice to a non-UK company with sufficient connection to the UK.

Service

It was held that there was no requirement of “service” under section 2(3), but that plainly, as required, KBR Inc. was within the jurisdiction when the section 2 Notice was served through the presence of its corporate officer at the meeting with the SFO. While the Court found it unappealing that the SFO insisted on a KBR Inc. representative attending the meeting with the surreptitious intention to serve the July Notice, this did not affect its validity.

Conclusion

 The decision has important implications for foreign parent companies of subsidiaries that are under investigation by the SFO, where that parent company holds documents overseas which are potentially relevant to the investigation. It also represents a de facto widening in the SFO’s confirmed powers and it remains to be seen how the SFO will use this tool in future.


[1] Of the Criminal Justice Act 1987


 

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