KBR and the Serious Fraud Office – should offshore companies and corporate providers still worry about a knock at the door from the SFO?
At first sight, the recent decision of the UK Supreme Court in R (on the application of KBR Inc) v Director of the Serious Fraud Office [2021] UKSC 2 appears to provide a good deal of comfort to companies which are based outside the UK. The Supreme Court has ruled that the Serious Fraud Office (SFO) cannot use its powers under section 2(3) of the Criminal Justice Act 1987 to require a company based outside the UK to produce documents to the SFO in relation to an ongoing investigation. Failure to comply with a notice under section 2(3) is itself a criminal offence; there is therefore a good deal at stake here. However, a closer reading of the judgment suggests that the position is not quite as straightforward as it might otherwise seem, and offshore companies (and those who administer them) should pay careful attention to the wider ramifications of the decision.
The facts of the case are fairly straightforward. KBR is a company incorporated in the United States; it has no fixed place of business in the UK and does not carry on business in the UK. The section 2(3) notice was handed to KBR’s General Counsel by the SFO at a meeting in London, the SFO having insisted that the meeting be attended by an officer of the company. The documents sought by the notice were held by KBR outside the UK. At first instance, the Divisional Court ruled that section 2(3) might extend to non-UK companies in respect of documents held outside the UK ‘when there is a sufficient connection between the company and the jurisdiction’. On appeal to the Supreme Court, the fundamental question for the Court was whether section 2(3) of the CJA 1987 should be read as having extra-territorial effect, such that a company in the position of KBR would fall within its scope, and also whether the ‘sufficient connection’ test should be applied.
The Supreme Court observed that the general starting point is that a statute is not presumed to have extra territorial effect in the absence of express wording to that effect. In this case, there was nothing to indicate that section 2(3) is intended to have extra territorial effect. The court also rejected the ‘sufficient connection’ test as seeking to impose too broad a reading on the wording of the statute.
However, the decision only goes so far. It is now clear that a foreign company, which has no registered office in the UK; which does not carry on (and has never carried on) any business in the UK and which does not hold any documents in the UK cannot be obliged by the SFO to produce documents by way of a section 2(3) notice. However, if any of these conditions is not met, then the position is much more uncertain. The court observed in passing that a UK company which holds documents abroad could still be caught within the ambit of a section 2(3) notice. What of a foreign company which holds documents in the UK? What of a foreign company which carries on business in the UK but holds documents abroad? What about officers of the company who are temporarily in the UK? What about corporate service providers who administer structures which hold assets or trading businesses in the UK?
For all of these reasons, the decision in KBR is not the final curtain on this issue, but rather the first act in a play which is likely to run and run. Even if a section 2(3) notice cannot be served, evidence can still be sought by the SFO abroad by way of a request for mutual legal assistance, as the Supreme Court observed. For now, one thing is clear. If directors of offshore companies receive a section 2(3) notice, or are given any indication that a section 2(3) notice might conceivably be served, then they should seek legal advice as a matter of urgency.
