Will the KBR judgment really clip the SFO’s wings in relation to their document compulsion powers or will the real extraterritorial limit be Brexit?.
01 March 2021
There has been a lot of professional comment on the recent Supreme Court judgment R (on the application of KBR Inc.) v. Director of Serious Fraud Office  UKSC 2 in which the court found that s.2 Criminal Justice Act 1987 notices did not have extra-jurisdictional reach.
The KBR judgment raises an interesting and wider range issue regarding mutual legal assistance (‘MLA’) which this short article considers, namely now that the United Kingdom has left the European Union, what impact will that have on the SFO or other prosecuting agencies (and defendants) to obtain evidence from the European Union or to extradite individuals who are residing in the European Union? In other words, not only has the territorial reach of s.2 now been limited, should the real concern for the SFO be Brexit, and has that event entirely blunted prosecutors powers or simply curbed them?
There were a number of clear relevant ‘takeaways’ from the KBR judgment when it comes to MLA:
- (a) KBR did not concern a company in the EU, but it turned very much on its own facts and has application to individuals and companies wholly outside of the UK.
- (b) KBR Inc. was a wholly owned company whose registered office and business was located in the United States. It had no presence in the UK, not even an office in the UK (and it was accepted that KBR UK was an entirely separate corporate entity). Despite these obvious difficulties the SFO tried to use its s.2 powers to compel the production of documentation from the company when one of its officers was required to come to the UK, in what was widely regarded by many lawyers in this area, as being an extreme circumstance that clearly stretched the limits of s.2 Criminal Justice Act 1987 compulsive power to its breaking point.
- (c) The Supreme Court found no basis to overturn longstanding caselaw that established a clear presumption against a UK statute which has territorial effect from having extra-territorial effect, where Parliament has not expressly provided for such an effect or where it cannot be properly inferred to exist from the provisions of the Act having regard to the international law of comity of nations.
- (d) Further the court drew on the following additional matters in its judgment: (i) there is a clear separate statutory scheme available to the SFO which provides for obtaining MLA from overseas through letters of request under the Crime (International Co-Operation) Act 2003, and where the SFO is a designated prosecuting authority for the purposes of that Act; (ii) there was nothing in the history of the Roskill Model (on which the SFO is founded), and specifically the passage of Criminal Justice Act 1987 through Parliament, which lent support to finding that s.2 should have an extra-territorial reach; and (iii) following Serious Organised Crime Agency v. Perry  UKSC 35  1 AC 182, in which the Supreme Court found a statutory provision that required extra-territorial disclosure of information under s.357 Proceeds of Crime Act 2002 similarly did not have extra-territorial reach, there was a clear analogy to be drawn between the two.
What about material held overseas and s.2 CJA 1987?
The KBR judgment did not entirely clip the SFO’s s.2 extra-territorial wings. It remains important that if you or your company are issued with a notice under s.2 that in addition to consulting with lawyers, the Supreme Court was clear that:
- (a) If a company is registered in the UK at Companies House, or has an office and or conducts business in the UK but is registered elsewhere in the world; and/or,
- (b) The person named on s.2 notice is a UK national (even where their acts may have been committed aboard);
then a s.2 notice can be issued by the SFO to acquire evidence from the company or individual, even where that may entail data, documentation or evidence located on servers or in offices outside of the UK (see paragraph 26 of the judgment, found here) .
Now that the powers of s.2 have been defined by the Supreme Court what are the options for the SFO post Brexit when it comes to acquiring evidence from the EU and individuals who reside in the EU?
Investigation / Mutual Legal Assistance
What is s.2 Criminal Justice Act 1987?
The Act established the SFO (under s.1) based on the Roskill model. Section 2(3) allows the SFO to compel a person or company under investigation to produce evidence including for example any specified documents which appear relevant to the investigation. Failure to comply has punitive consequences in that s.2(13) creates a summary offence if an individual fails to comply with a s.2 notice, and s.2(14) and s.2(16) create criminal offences where an individual makes a knowingly or recklessly misleading statements in response to a s.2 notice, and/or where an individual knows or suspects that an SFO investigation is being carried out falsifies, conceals or destroys relevant evidence to the investigation. It is important in this regard to remember that where an individual sends data or documentation out of the jurisdiction, and they do that to frustrate an investigation, which they know or suspect is underway, they would be guilty of the s.2(16) offence. Where for example though data is stored on the cloud outside of the UK and normally stored in that location or where it is recoverable and recovered by the subject of the s2 notice in response to that notice, then s.2(16) would not be engaged.
The s.2(3) power is the preferable route for the SFO and much more widely used because unlike s.2(4) there is no judicial oversight required to exercise the power, provided relevant internal SFO requirements under the Director’s guidance are met for its issuance. Section 2 notices are now widely and regularly used as a means to acquire evidence, even where on occasion the evidence would otherwise have been provided voluntarily.
It is worth noting that the SFO’s compulsive powers are not isolated to it alone. The FCA, Insolvency Service and CMA, to mention a few, all have compulsive powers available to them to acquire evidence.
Without the extra territorial effect of the s.2(3) CJA notice what other options are there in the European Union?
Deferred Prosecution Agreement (DPA)
The SFO have now completed nine DPA’s.
With the SFO’s increased use of DPA’s for corporates, which shows no sign of abating, and where a DPA is only available to a corporate who has usually self-reported, and where it has been fully ‘co-operative’ with the SFO in its investigation and which is a key criteria whether a court will regard it to be in the interests of justice to permit it to enter in to an agreement, has real implications on the provision of evidence to the SFO no matter where it is located in the world. When it comes to co-operation, and specifically the provision of evidence regard should be had to the DPA section of the SFO’s Operational Handbook and specifically its Corporate Co-Operation Guidance . In summary, any company seeking a DPA may will have their co-operation ‘measured’ by the SFO through their willingness to repatriate evidence to the UK and disclose it to the SFO. The SFO can via this route gain access to evidence from overseas offices and subsidiaries, and on occasion in circumstances where the SFO may have little alternative direct powers or influence in the specific jurisdictions concerned, to otherwise obtain that material.
The Crime (International Cooperation) Act 2003 (‘CICA’)
When the United Kingdom left the European Union in December 2020, after the transition period, it brought the Criminal Justice (European Investigation Order) Regulations 2017 to end. With the demise of European Investigation Orders, which accounted for 63% of all MLA requests made by the UK (see here) , and which had significantly replaced Mutual Legal Assistance (‘MLA’) requests from EU Countries, the UK must now return to the more ponderous s.7 CICA request process to countries who are signatories to the European Convention on Mutual Assistance in Criminal Matters 1959 (and which remains in force as amended). In real terms having to resort to CICA applications for material will impact on timely investigation and the detection of serious crime. By way of example, to illustrate the impact, the defunct European Investigation Orders were used to obtain the evidence in the EncroChat sequence of ongoing prosecution cases; see Regina (C) v. Director of Public Prosecutions  EWHC 2967 (Admin)  4 WLR 158.
The EU-UK Trade and Cooperation Agreement (‘TCA’) which was signed by the UK government in December 2020 also includes MLA provisions within it, and refers back to and relies upon the Additional Protocol to the European Mutual Assistance Convention, committed to at Strasbourg on 17 March 1978, and the Second Additional Protocol to the European Mutual Assistance Convention, agreed at Strasbourg on 8 November 2001 (Article 113 TCA). The TCA provides further information regarding how MLA should work with EU Countries. Title VIII TCA details that the “Specialised Committee on Law Enforcement and Judicial Cooperation” (‘the Specialised Committee’) shall adopt a standardised form for MLA and MLA requests can be made if the following conditions are met:
- (a) the request is necessary and proportionate for the purpose of the proceedings, taking into account the rights of the suspected or accused person; and,
- (b) the investigative measure or investigative measures indicated in the request could have been ordered under the same conditions in a similar domestic case.
The TCA also details that there should be co-operation between the UK and EUROJUST, EUROPOL to combat serious crime.
These provisions all look very promising and might lead the reader to assume that MLA will continue in the same way it did before Brexit, where, on the whole investigation assistance and the provision of evidence was provided by and to the UK prosecuting authorities in a relatively timely way. However, the European Judicial Network has recently published an article on the application of the TCA and have noted that a number of member states (Austria, Belgium, Czech Republic, Finland, Germany, Italy, Portugal and Sweden) have indicated they would require additional domestic legislation to enable the TCA to take effect, though this was particularly in relation to surrender (i.e. extradition). This may mean that these provisions will take some take to be enacted before they are operative in the respective jurisdictions mentioned.
Section 2(3) notices are certainly a useful tool for the SFO to obtain documents, but perhaps there are greater headaches that will now be caused by Brexit when it comes to gaining access to suspects, among which are the loss of the European Arrest Warrant (‘EAW’) and lack of access to the Schenghen Information System (SIS II) database.
The new arrest warrant system provided within the TCA and Extradition Act 2003 for import cases from EU Countries may cause real issues for the SFO. The SFO do not have a good track record with EAW requests, both warrants issued in Germany and France were refused by those countries in the Euribor trial and the new agreements may now make it even more difficult to extradite individuals in future cases.
Article 83(2) TCA allows a nationality exception for countries that notify the Specialised Committee. As the TCA has not been ratified by the EU yet no notifications have been received but during the transition period Germany, Austria and Slovenia notified and are likely to do so again and Poland and the Czech Republic may also do this. The solution to this curb of the UK’s reach in extradition is found at Article 83(3) TCA which states that the EU country “shall consider instituting proceedings against its own national which are commensurate with the subject matter of the arrest warrant.” It is very much yet to be seen how this would work in practice and one might think would be impossible for a large-scale fraud investigation as instigated by the SFO.
Finding criminals and their assets in Europe may also prove to be a more difficult task. The UK no longer has access to the SIS II database which provided 'real-time' alerts about individuals and objects of interest to EU law enforcement. The UK now has to rely on the Interpol system which appears to be used significantly less by EU members. For example, at the time of writing, of the 7538 worldwide red notices currently on the Interpol website only 32 are issued by Poland ; in 2018 Poland issued 2394 EAWs (see page 29 here) ; even if the Interpol notice figure were 32 a month, this would only be around 384 warrants a year. The UK appears to have no red notice alerts on the Interpol website at present, but by way of contrast issued 176 EAWs in 2018. The difference in volume is significant and that variance appears to be consistent in most other EU countries. There is also a clearly a capability gap between the two systems and it might prove very difficult for the SFO to use this system effectively for the foreseeable future at least.
The KBR judgment has certainly caused a stir and it will mean that the SFO must return to the ‘usual’ and older MLA system provided for within the CICA to obtain documents and evidence from the EU. There is no doubt this will impact on investigations in the post Brexit world. Experience of CICA applications demonstrate on a frequent basis in SFO cases that the execution of a CICA application often take many months, even years to comply with. On occasion, even in various EU jurisdictions, they are not complied with at all. The speed of information during investigations that concern EU members is therefore very likely to slow down in comparison to the position before Brexit. Furthermore, the loss of the EU law enforcement systems from the EIO, EAW and SIS II will surely be the biggest issue for the SFO when it comes to ensuring suspects are returned to this jurisdiction, and therefore enabling future prosecutions that have a European focus.