Cross-border Investigations: When Are Documents Developed in the Course of an Internal Investigation Protected by Legal Privilege?

• Published date: 28 August 2018
• Law Firm: K&L Gates LLP
• Author: Barry Hartman,Dr. Wilhelm Hartung,Dylan Moses,Ted Kornobis,Christopher Jaros,James Millward

Introduction
A recent decision by Germany’s Federal Constitutional Court (Bundesverfassungsgericht) (“FCC”) [1] has renewed important questions with respect to legal privilege, its varied conceptual and practical scopes and application in different jurisdictions, and the implications of these differences for multi-jurisdictional internal investigations. The decision concerned the seizure of materials from Jones Day’s offices in Munich. That firm had been retained to undertake an internal investigation on behalf of its client, the supervisory board of Volkswagen AG. The company was facing high-profile compliance issues and resulting enforcement actions around the globe, including in the United States and in Germany, relating to the alleged manipulation of emissions performance data of diesel engines installed in its passenger vehicles.

Questions
How far do prosecutors’ powers reach to search for and seize documents obtained or generated by an outside law firm in an internal investigation, and to what extent does legal privilege offer protection against measures such as those taken by the German public prosecutor (Staatsanwaltschaft) in the above mentioned case? To what extent does the voluntary disclosure of some information to prosecutors (a possible “selective waiver of privilege”) in one jurisdiction predetermine the chances of success of asserting legal privilege in other jurisdictions, particularly in circumstances where prosecutors or regulators from various jurisdictions and countries cooperate and exchange information?

The following discusses these questions from the perspective of the United States, the United Kingdom, and Germany.

Legal privilege is acknowledged in all three jurisdictions, albeit based on different concepts.

Germany

In Germany, as outlined in previous alerts [2], the two pillars of legal privilege are an attorney’s: (i) legal obligation to maintain confidentiality of client information [3], and (ii) right to remain silent as a witness in legal proceedings [4]. The right to remain silent is flanked by protections also implemented in the code of criminal procedure (Strafprozeßordnung, (StPO)) against a public prosecutor’s searches and seizure of information. For example, German law prohibits the seizure of written correspondence between defense attorney and client [5] as well as “defense materials” (Verteidigungsunterlagen) more generally, which include documents prepared by an attorney or the client for purposes of the defense.

While it is clear that the above protections apply to individuals who have been formally accused, it is not clear to what extent the client must be formally accused before the client or legal counsel can successfully claim the protection. There is also uncertainty regarding how privilege protection can be applied to corporate entities (which under German law cannot commit a crime as German law requires individual culpability), as opposed to natural persons, particularly in the context of an internal investigation.

In recent years, privilege protections have been the subject of some legislative action [6], as well as a number of court decisions prompted by a phenomenon, which is still relatively new in Germany, that an outside law firm may conduct an internal investigation for a corporate client. Due to the absence of corporate criminal liability in Germany, legal privilege and related legal issues traditionally have centered on the relationship between accused individuals and their lawyers; however, the increased prevalence of internal investigations has created a need to consider these questions with respect to the relationship between corporate clients and their lawyers.

Section 160a StPO in its 2011 amended form [7], on its face, affords external lawyers absolute protection in criminal investigations in that attorneys may not be subject to any investigatory measures concerning criminal matters in which they are providing advice. The provision also prohibits the monitoring (e.g., wiretaps) of defense attorneys and provides that their offices must not be searched for files of clients under criminal investigation. However, the exact reach of the protections under section 160a StPO remains unclear.

A favorable interpretation of this provision was taken by the Regional Court of Mannheim [8] to the effect that defense counsel, whether for an individual or a corporation, enjoyed protection from seizure and subsequent use in criminal proceedings of confidential client documents in the lawyer’s care, as long as the client provided the materials to counsel in good faith (i.e., not as a means of seeking to impede the investigation). As the court explained, “good faith” would not be assumed where the client provided incriminating documents unrelated to the matter at issue purposefully to counsel solely to protect those incriminating documents from seizure. Other, subsequent court decisions indicate that documents, even if prepared by company staff (in-house legal counsel or otherwise), enjoy protection from seizure:

• If they have been prepared for the purpose of defending a corporation in possible legal proceedings [9];
• Even if the documents are possessed by and located at the business premises of the potentially accused person or entity [10];
• And even if they were created before legal proceedings were initiated, as long as those proceedings were anticipated [11] and a professional relationship of trust between the accused (individual or corporation) and the lawyer already existed as part of the process leading towards a formal retention [12].

Despite such favorable and encouraging rulings, effective confidentiality protection of documents related to internal investigations remains a challenge following the FCC‘s recent ruling.
For a start, none of the above-cited decisions by local or regional courts are binding on other courts. Procedurally, in these matters, challenges against prosecutorial search and/or seizure warrants have to be brought to the local courts and appeals against local court decisions can be brought to regional courts, but not higher.

In addition, the FCC has now made the following important points, confirming that a court...