GAB is pleased to welcome back Frederick Davis, a lawyer in the Paris and New York offices of Debevoise & Plimpton and a Lecturer at Columbia Law School, who contributes the following guest post:
In the fight against transnational bribery and other forms of corporate crime, a key element of some national prosecution agencies’ strategy is to encourage corporations to “self-report” to the government and to cooperate with any subsequent investigation. The United States Department of Justice (DOJ) pioneered this strategy, but other jurisdictions are beginning to adopt it as well. The basic approach is to offer companies both a stick and a carrot: The stick: If corporations do not self-report and are ultimately discovered, they will be prosecuted vigorously. The carrot: A self-reporting, cooperating company can obtain a more favorable settlement, and perhaps avoid prosecution altogether. From a public policy perspective, it is vastly more efficient for prosecutors to work with corporations in the fight against corruption, essentially enlisting them as partners to detect, investigate, and bring to justice the individuals responsible for corruption, than for prosecutors to do all this work themselves.
From the company’s perspective, though, the decision whether to self-report is difficult: By making a first phone call to a prosecutor, the company all but commits to negotiating a settlement and abandons both the chance of non-detection and the (perhaps scant) possibility of a successful defense. At a minimum, starting this process will entail large costs (particularly legal fees), as well as risks, including the risk that prosecutors may discover more matters to be investigated. There is also the problem, already discussed on this blog, of evaluating whether a negotiated outcome in one country will preclude or deter prosecution in another. And at least at the early stages, the company may not even be certain whether a violation has in fact taken place, or how widespread or egregious such violations may have been. For these reasons, when a company’s leaders learn that there may have been violations of anti-bribery or other laws, the company will retain a seasoned legal team to oversee a thorough internal investigation of the facts in order to make a reasoned decision whether, and where, to self-report.
When a company asks lawyers to do this, it is essential that the attorneys’ work be protected by the attorney-client privilege, at least until such time as the company decides to share fruits of the investigation with prosecutors. If a company knew that everything learned or generated by its lawyers in the course of an internal investigation could be subject to seizure or forced disclosure to prosecutors, then companies would face a huge disincentive to start the process of conducting an internal investigation at all, since doing so could simply create a handy road map – and compelling evidence — for the prosecutor. In the United States, although the conduct of such an internal investigation poses a number of possible traps for the unwary, if the investigation is properly managed then the company can generally be assured that no prosecutor will get her hands on the fruits of its lawyers’ work unless and until the company specifically authorizes such disclosure. Matters are more complicated in Europe, however. For example, in-house counsel are generally not considered to be “attorneys” capable of generating a protectable professional privilege. And in some countries, such as France, the client does not necessarily have the power to “waive” the secret professionel (the rough equivalent of the attorney-client privilege) at all. Most notably—and most troublingly—recent court decisions in the UK and Germany have gone even further in making the results of lawyers’ internal investigations discoverable by prosecutors without the company’s consent. These decisions, if not reviewed or curtailed by legislation, will create huge disincentives to self-investigation, and hence to self-reporting.
In May 2017, a judge on the High Court of London ruled in SFO v. ENRC that an international company must turn over to the Serious Fraud Office (SFO) most of the internal investigation material generated by outside lawyers. The judge reasoned that since the SFO had not yet made a decision to prosecute when the investigation took place, the company was not yet “defending” itself, and thus could not rely on the litigation privilege that normally protects an attorney’s work product. This decision, which is being appealed, has already caused significant turmoil and uncertainty in UK legal circles. Earlier this year, another judge on the same court, in Bilta v. UBS, “distinguished” the ENRC holding in a case where it found that a tax authority’s investigation had proceeded to a point where it was reasonable for the company to retain counsel, but this ruling left unresolved the more fundamental issues of whether a company that faces a risk of investigation can safely turn to lawyers to advise them.
In Germany, the Constitutional Court recently rejected claims by both a corporate client and its attorneys that prosecutors shouldn’t be allowed to seize the attorneys’ internal investigation work product. The case involved the well-known investigation of carmakers alleged to have fudged their diesel emission numbers, which led Volkswagen (VW) to hire the international law firm Jones Day to conduct an internal investigation. In March 2017, a local court in Munich, acting at the request of the local prosecutor, ordered the physical seizure from Jones Day’s offices of files and electronic data relating to the investigation. Notwithstanding the uproar that this raid of attorneys’ offices caused, the Germany’s Constitutional Court denied requests from VW, Jones Day, and the individual Jones Days attorneys to invalidate the seizure. In three separate opinions, the Constitutional Court frustratingly avoided some of the real issues, noting that VW could not complain since its own offices were not visited; that Jones Day could not complain because it is a US, not a German, law firm; and the individual lawyers (some of whom were in fact German) lacked standing. But the Court also noted, in the opinion relating to VW, that VW could not claim to rely on a professional relationship of confidence with its attorneys since it had not yet been charged with any specific wrongdoing – thus reaching much the same conclusion as had the UK Court in ENRC.
These matters are continuing to evolve. The ENRC appeal—which was argued in July 2018 and may be decided soon—may bring some clarity to the situation in the UK, and in Germany legislation is being discussed to address the issue in the wake of the Constitutional Court’s recent rulings. This is encouraging and necessary, because these decisions threaten to undermine what has proved to be an effective strategy for combating foreign bribery by corporations. If firms cannot rely on lawyers (both in-house and outside counsel) to conduct internal investigations of potential bribery or other malfeasance with confidence that the resulting reports can be kept confidential, firms will be less likely to order such investigations in the first place, and may simply decide not to self-report in the absence of a good understanding of the facts and thus the likely outcomes. This harms both corporations and prosecutors: corporations because they will have lost an important strategic option that often is beneficial for them and their shareholders, prosecutors because they would be less likely to detect, and ultimately deter, corporate misconduct not brought to their attention.