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By Patrick T. Campbell and Darley Maw
Patrick T. Campbell, a litigation partner with BakerHostetler in New York, focuses on white collar and corporate criminal and regulatory matters as well as commercial litigation. His experience includes representing numerous foreign claimants in the then-largest civil asset forfeiture action brought by the Justice Department’s Kleptocracy Asset Recovery Initiative; a former London-based JPMorgan managing director in parallel U.S. and U.K. investigations related to a multibillion-dollar trading loss; and a dual-nationality citizen in connection with a Securities and Exchange Commission investigation and potential enforcement action.
Darley Maw, a former associate with BakerHostetler, is currently a clerk for the Honorable Joel H. Slomsky in the U.S. District Court for the Eastern District of Pennsylvania.
On May 8, 2017, the U.K. High Court of Justice, Queen’s Bench Division, issued a decision in Serious Fraud Office v. Eurasian Natural Resources Corp. Ltd. (“ ENRC”) that significantly narrowed the applicability of the U.K. legal privilege doctrines in internal investigations. In pertinent part, the court in ENRC held that interview notes drafted by ENRC’s outside counsel and documents created by forensic accountants, in connection with an internal investigation into allegations of fraud and corruption, were not covered under the U.K. legal advice or litigation privileges, which are the U.K. counterparts to the U.S. attorney-client privilege and work product doctrine, respectively. ENRC is another example of the significant differences between the legal privilege rules of the U.S. and foreign jurisdictions.
Companies based in the U.S., particularly those with overseas operations and subsidiaries, are increasingly subject to cross-border government investigations and enforcement activities. The types of alleged conduct that often lead to cross-border investigations and enforcement are broad, ranging from corruption and money laundering to securities and environmental fraud. U.S. companies face a myriad of practical challenges when conducting internal investigations that cross national borders, including dealing with the differences in the legal privilege rules of different jurisdictions. (For a broader discussion of the increasing frequency of cross-border regulatory and enforcement activities, see Baker Hostetler, 2017 Mid-Year Cross-Border Government Investigations and Regulatory Enforcement Review (forthcoming September 2017).) Companies and their in-house counsel should be aware that the relatively broad legal privilege protections afforded in the U.S. are not always reciprocated abroad, and be prepared to structure internal investigations in ways that account for those differences.
ENRC, a U.K. company, is part of a multinational group of companies operating in the mining and natural resources sector. Until 2009/2010, the company’s principal operations, carried out through its wholly-owned subsidiary Sokolov-Sarbai Mining Production Association (“SSGPO”), were in Kazakhstan. In 2009/2010, the company sought to expand and diversify its operations through a series of acquisitions of companies operating in various parts of Africa. ( Serious Fraud Office v. Eurasian Natural Res. Corp.  EWHC 1017, 11 (QB).)
In December 2010, ENRC received an email from an apparent whistleblower, alleging corrupt practices and financial wrongdoings within SSGPO. In response, ENRC retained counsel to conduct an internal investigation into the whistleblower’s allegations. The alleged corrupt activity also received widespread media attention and, in August 2011, during ENRC’s internal investigation, the company received a letter from the U.K. Serious Fraud Office (the “SFO”). The SFO stated that it was not carrying out a criminal investigation into ENRC at that stage, but strongly encouraged the company to consider the SFO’s 2009 Self-Reporting Guidelines while it undertook its internal investigation. Shortly thereafter, ENRC’s outside counsel started a dialogue with the SFO, which, according to the SFO, was a part of the SFO’s Self-Reporting Guidelines. Between August 2011 and March 2013, there were over 30 meetings and discussions between ENRC’s counsel and the SFO. ( ENRC, EWHC 1017 at 103, 120-34.)
In April 2013, the SFO ended informal discussions with ENRC and launched its own criminal investigation into the alleged corrupt activities. As part of its investigation, the SFO issued notices to ENRC pursuant to Section 2(3) of the Criminal Justice Act 1987, seeking documents generated during the phase of ENRC’s internal investigation that preceded the SFO’s formal criminal investigation. Among other documents, the SFO sought (1) interview notes created by ENRC’s outside counsel of interviews they conducted of current and former employees and officers of ENRC, and its subsidiary companies, including SSGPO; and (2) materials generated by ENRC’s forensic accountants, which were part of a books and records review they carried out in connection with identifying controls and systems weaknesses and potential improvements. ENRC declined to comply with the SFO’s notices, claiming that the documents sought by the SFO were protected by the U.K. litigation and/or legal advice privileges. ( ENRC, EWHC 1017 at 5, 25-36, 131.)
The ENRC court first determined that the U.K. litigation privilege did not apply to any of the documents created during ENRC’s internal investigation. Under U.K. law, the litigation privilege applies if: (1) litigation is in progress or reasonably in contemplation; (2) the communications are made with the sole or dominant purpose of conducting that anticipated litigation; and (3) the litigation is adversarial, not investigative or inquisitorial. A central issue in ENRC was whether the company reasonably contemplated litigation with the SFO during its internal investigation. While “[t]he party claiming privilege is not required to show that it is more likely than not that adversarial litigation will ensue,” it is insufficient to demonstrate that there is a “distinct possibility” that sooner or later someone might make a claim, or there is a general apprehension of future litigation. ( ENRC, EWHC 1017 at 5, 51.)
The ENRC court held that the company failed to establish that it was aware of circumstances that rendered litigation between itself and the SFO a real likelihood rather than a mere possibility. At most, according to the court, ENRC demonstrated that it was aware of a real likelihood of the SFO commencing a criminal investigation into the company. However, the court reasoned that a criminal investigation was not “adversarial” for the purposes of the litigation privilege. A SFO investigation is a preliminary step taken, and completed, before any decision to prosecute is made. ( ENRC, EWHC 1017 at 122, 150.)
Instead, the court required that ENRC show that it reasonably contemplated a criminal prosecution by the SFO. In doing so, the court elevated the showing a company has to make to claim the litigation privilege in the context of a potential criminal action as opposed to a potential civil action, reasoning that there is no inhibition on the commencement of civil proceedings where there is no foundation for them, other than the prospect of sanctions being imposed after the event, but criminal proceedings cannot be started unless and until the prosecutor is satisfied that there is a sufficient evidential basis for prosecution and the public interest test is also met. ENRC had to know enough about what its internal investigation is likely to unearth, or has unearthed, to appreciate that it is realistic to expect a prosecutor to be satisfied that it has enough material to stand a good chance of securing a conviction. ENRC failed the test because it did not present any evidence “that there was anything beyond the unverified allegations themselves,” and thus the prospect of criminal proceedings against ENRC or its subsidiaries was never anything more than speculative. ( ENRC, EWHC 1017 at 122, 155, 160, 163.)
The court further decided that even if ENRC reasonably contemplated criminal proceedings at the relevant time, none of the documents generated during the company’s internal investigation was created for the “dominant purpose” of defending against such a criminal proceeding. To satisfy the “dominant purpose” test under U.K. law, the disputed documents must have been “created for the dominant purpose of deployment in, or obtaining legal advice relating to the conduct of, anticipated criminal proceedings.” Rather, the court found that the primary purpose of ENRC’s internal investigation was to access the veracity of the whistleblower’s claims and to prepare for potential SFO investigations. Further, any documents created during the period in which ENRC cooperated with the SFO were created for the purpose of avoiding litigation, and ENRC did not show that a parallel purpose, let alone a dominant purpose, was to defend against potential criminal proceedings that the SFO could have brought against the company at a later time. The court also highlighted the fact that ENRC intended to share the results of the internal investigation with the SFO, and therefore, the documents could not have been created in contemplation of a criminal proceeding. ( ENRC, EWHC 1017 at 164-66.)
The ENRC court also rejected the application of the legal advice privilege to the interview notes. Under U.K. law, the legal advice privilege attaches to “all communications passing between the client and its lawyers, acting in their professional capacity, in connection with the provision of legal advice, which relates to the rights, liabilities, obligations or remedies of the client either under private law or under public law.” Litigation need not be contemplated for the privilege to comply. The issue in ENRC was whether the interviewees fell within the definition of the “client” for the legal advice privilege to attach to those communications. ( ENRC, EWHC 1017 at 62.)
The court discussed the 2003 decision in Three Rivers District Council v. Bank of England (No 6)  U.K. QB 48, where the U.K. Court of Appeals held that documents created by bank employees and sent to the bank’s counsel in the context of an internal investigation related to a public inquiry were not protected under the legal advice privilege. According to the ENRC court, the Three Rivers decision supports the proposition that the “legal advice privilege attaches only to communications between the lawyer and those individuals who are authorised to obtain legal advice on that entity’s behalf.” ( ENRC, EWHC 1017 at 70.) The definition of the “client” was also addressed by the December 2011 U.K. High Court decision in The RBS Rights Issue Litigation, in which Three Rivers was followed and applied. The RBS court reinforced the proposition supported by Three Rivers and ruled that notes of current and former employee interviews taken by a bank’s in-house and outside counsel during an internal investigation were subject to disclosure because the interviewees were not authorized to seek or obtain legal advice on behalf of the corporation. ( In re RBS Rights Issue Litig.,  EWHC 3161 (Ch); see also ENRC, EWHC 1017 at 177.)
Following Three Rivers and RBS, the ENRC court held that the interview notes were not covered by the legal advice privilege. The court reasoned that ENRC did not provide any evidence to support that the interviewees were authorized to seek or obtain legal advice on behalf of the company. ( ENRC, EWHC 1017 at 177.)
The ENRC decision departs from U.S. legal privilege jurisprudence in several respects. First, in contrast to the U.K. litigation privilege, application of the U.S. work product doctrine generally does not require that the sole or dominant purpose for the creation of the documents is to defend against litigation. Rather, in most federal circuits, the party claiming protection under the work product doctrine need only show that, “in light of the nature of the document and the factual situation in the particular case, the document can fairly be said to have been prepared or obtained because of the prospect of litigation.” ( United States v. Adlman, 134 F.3d 1194, 1202 (2d Cir. 1998) (citation omitted); see also, e.g., In re Grand Jury Subpoena (Mark Torf/Torf Envtl. Mgmt.), 357 F.3d 900, 907 (9th Cir. 2004).) Under the “because of” test, there is no requirement that a document be produced to assist in the conduct of litigation, much less primarily or exclusively to assist in litigation. ( E.g., In re Gen. Motors LLC Ignition Switch Litig., 80 F.Supp.3d 521, 532 (S.D.N.Y. 2015).)
In addition, while a U.K. party needs to show that he reasonably contemplated a criminal prosecution for the litigation privilege to apply, a U.S. litigant typically needs to show only the commencement of a government investigation to claim work product protection. ( E.g., Gen. Motors LLC, 80 F.Supp.3d at 532 (holding work product doctrine applies to materials generated in light of pending DOJ investigation); S.E.C. v. Nacchio, Civil Action No. 05-cv-00480-MSK-CBS, 2007 WL 219966, at *6 (D. Colo. Jan. 25, 2007) (noting that “courts have acknowledged that an investigation by a federal agency presents more than a remote prospect of future litigation.”) (quotation omitted).) In fact, interview notes and memoranda generated in the context of internal investigations defending against government investigations have long been considered classic attorney work product by U.S. courts. ( See Gen. Motors LLC, 80 F.Supp.3d at 532.) The court in ENRC also elevates the showing litigants must make for application of the litigation privilege in the context of a criminal proceeding as opposed to a civil proceeding. U.S. courts draw no such distinction with respect to application of the work product doctrine. ( In re Sealed Case, 146 F.3d 881, 884 (D.C. Cir. 1998).)
Moreover, it appears that the U.K. legal advice privilege is more limited in the context of internal investigations than the U.S. attorney-client privilege. As discussed above, under ENRC and prior U.K. cases, attorney communications with corporate employees who are not authorized by the company to seek or obtain legal advice are not privileged. In contrast, it is well-established U.S. law that the attorney-client privilege extends to communications between corporate counsel and company employees as long as “[t]he communications concerned matters within the scope of the employees’ corporate duties, and the employees themselves were sufficiently aware that they were being questioned in order that the corporation could obtain legal advice.” ( Upjohn Co. v. United States, 449 U.S. 383, 394 (1981).) The U.S. Supreme Court in Upjohn expressly rejected the “control group” test, which is similar to the standard employed in the U.K.
There are other significant differences between the legal privilege laws of the U.S. and foreign jurisdictions as well. For example, in the 2010 landmark decision of Akzo Novel Chemicals Ltd. v. European Commission  ECR I-8301, the European Court of Justice (the “ECJ”) held that the legal professional privilege (the EU’s counterpart of the U.S. attorney-client privilege) did not apply to internal communications between in-house counsel and employees in the context of an European Commission investigation into alleged anti-competitive practices, even if the purpose of the communication was to seek or provide legal advice. The ECJ’s decision rested on the premise that in-house lawyers are not sufficiently independent from their clients because they are bound to them by an employment relationship and may prioritize that over their ethical obligations.
More recently, in September 2016, the Swiss Federal Supreme Court held that where a bank was found to improperly delegate certain compliance-related obligations under the Swiss Anti-Money Laundering Act, including monitoring or investigating any potential malfeasance, to outside counsel, no privilege could be applied. (Bundesgericht [BGer][Federal Supreme Court], Sept. 20, 2016, 1B_85/2016 (Switz.).) The court reasoned that anti-monitoring compliance is a typical function of the bank, and not the type of legal work that is delegated to outside counsel. In the U.S., on the other hand, it is of no consequence whether an internal investigation is in connection with an anti-money laundering matter or any other legal issue. A company’s communications with its outside counsel will remain privileged as long as a primary purpose of the internal investigation was the provision of legal advice to the client. ( Upjohn, 449 U.S. at 390.)
The privilege rules may be even more restrictive in Russia, where the concept of “advocate secrecy” covers only information related to the legal advice dispensed by an advocate who is a member of the Russian bar and has met certain requirements to qualify for a special status above a typical lawyer. (Alexei Dudko, The Practitioner’s Guide to Global Investigations: Russia, Global Investigations Review, Jan. 6, 2017.)
In order to provide the company with the flexibility of an internal investigation conducted in a privileged environment, the company and its counsel must consider the legal privilege laws of the country where the investigation is being conducted. Here are some steps companies can take to maximize the preservation of the attorney-client privilege and work product doctrine in cross-border investigations and enforcement activities:
As the phrase suggests, the protections afforded between attorneys and clients are a privilege, not a right. Communications thought to be private could be swiftly disclosed to the government or an opposing party in subsequent civil litigation. Understanding variations in the attorney-client privilege and work product doctrine will equip companies and their counsel to confidently weather a cross-border investigation with minimal surprises.
The views expressed in this article are those of the authors and not necessarily those of BakerHostetler or its clients.
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
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