February 23, 2015 Articles

Ethical Concerns and Best Practices in Cross-Border Internal Investigations

When conducting a multijurisdictional investigation, don't get caught in the privilege trap

by Katrina A. Hausfeld

Corporate practices for investigating internal wrongdoing have come under heightened scrutiny from various governmental regulatory bodies, both domestically and abroad. Internal investigations are often used as a tool to help executives identify gaps in their company's internal compliance system and reduce the company's potential liability in the event misconduct is discovered. Internal investigations also position companies to promptly identify those involved in any misconduct, determine the truth of allegations leveled against the company or individuals within the company, take remedial steps, determine whether the company ought to proactively self-report any purported misdeeds, and tactically respond to regulator or law enforcement inquiries and investigations should the need arise.

With companies increasingly subjected to inquiries and investigations by regulatory bodies and law enforcement agencies around the globe, the question of how to best protect your clients' internal investigations into alleged compliance failures or misconduct from discovery is paramount. While most countries recognize that the communications between a lawyer and a client should be granted some sort of special protection, when conducting an investigation that touches multiple jurisdictions, it is a mistake to assume that the existence, scope, and application of attorney-client privilege abroad mirrors that of the United States. Moreover, ethical rules may affect how an attorney is required to treat a client's documents and communications, including disclosure. It is thus incumbent upon counsel in a multijurisdictional internal investigation to know and understand both domestic and foreign rules affecting privilege and ethics in order to best protect a client's documents and communications.

Attorney-Client Privilege in the United States
In the United States, attorney-client privilege is an evidentiary privilege derived from common law. See Upjohn Co. v. United States, 449 U.S. 383, 389 (1981). The privilege creates a narrow carve out from the general rule that each party is entitled to the other side's evidence. The attorney-client privilege protects the essence of confidential communications between the client and attorney, and extends to confidential information given for the purpose of obtaining legal representation. Fisher v. United States, 425 U.S. 391, 402 (1976). Only a communication whose primary purpose or motivation is to seek or obtain legal advice is privileged. In re Seroquel Prods. Liab. Litig., No. 6:06-md-01769-Orl-22DAB, 2008 WL 1995058, at *4 (M.D. Fla. May 7, 2008). Purely factual information or information available from another source is not protected information. Upjohn, 449 U.S. at 395–96. Nor can information be placed under an evidentiary "cloak" simply because it is communicated to an attorney.

While the privilege may be invoked by either the attorney or the client, it exists "for the benefit of the client" and serves to promote effective legal representation by allowing the client and the attorney to communicate frankly and confidentially. See Upjohn, 449 U.S. at 389; Schwimmer v. United States, 232 F.2d 855 (8th Cir. 1956). In turn, this enables the attorney to provide candid, effective representation and well-reasoned advice. When the attorney-client privilege applies, a communication is generally considered sacrosanct and neither the client nor the attorney can be ordered to disclose its contents.

It is well established that a company, like an individual, can assert the attorney-client privilege. Upjohn, 449 U.S. at 390. In such cases, however, the "client" is the company, not the individual employees of the company. Thus, it is important to understand which communications between corporate counsel and individual employees will be protected for privilege purposes. Under federal law, and in most states, a communication by an employee with counsel, whether in-house or outside, will generally be protected if the communication was made for the purpose of seeking or obtaining legal advice for the company, as long as the employee was acting within the scope of employment. Upjohn, 449 U.S. at 394–95.

In the United States, under the federal rules, any work performed by an attorney, or his or her agents, in anticipation of litigation is also protected. Fed. R. Civ. P. 26(b)(3)(A). The attorney work product doctrine protects from discovery documents or information, such as mental impressions, legal theories, strategies, or compilations of data, prepared by or at the direction of lawyers. While the work product doctrine provides qualified protection from disclosure, it is broader than the attorney-client privilege because it covers more than just communications and their contents, and protects an attorney's ability to prepare his or her case.

Privilege Protection Extends to U.S. Internal Investigations
This past summer, the U.S. Court of Appeals for the District of Columbia Circuit reaffirmed that documents related to an internal investigation are protected by the attorney-client privilege. See In re Kellogg Brown & Root, Inc., 756 F.3d 754 (D.C. Cir. 2014). In that qui tam case, a defense contractor filed a False Claims Act complaint accusing Kellogg Brown & Root, Inc. (KBR) and its related corporate entities of defrauding the United States by inflating costs and accepting kickbacks while administering military contracts in Iraq. During discovery, the plaintiff sought documents related to a prior internal investigation by KBR into the alleged misconduct. KBR's investigation had been conducted pursuant to the company's Code of Business Conduct (COBC). KBR typically opened an investigation when it received a report of a potential COBC violation. As part of such COBC investigations, personnel with potential knowledge were interviewed and relevant documents reviewed. Upon completion, the investigators submitted a report regarding their findings to KBR's legal department. The plaintiff argued that the internal investigation documents were unprivileged business records and thus subject to discovery. KBR argued that, because the internal investigation had been conducted for the purpose of obtaining legal advice and at the direction of the legal department, albeit by nonattorneys, the internal investigation documents were protected by the attorney-client privilege.

The D.C. Circuit unanimously agreed. Communications made pursuant to investigations directed by in-house counsel enjoy the same privileges as investigations directed by outside counsel. A lawyer's status as in-house counsel does not "dilute the privilege" as long as he or she is consulted for the purpose of obtaining legal advice. In re Kellogg, 756 F.3d at 758. Further, communications made by and to non-attorneys serving as agents of in-house counsel during the investigation are also protected. The court ruled it was sufficient that the KBR employees knew the legal department was conducting an investigation of a sensitive nature and the information shared would be protected. Further, as long as one of the significant purposes of the communication was to provide legal advice, even if there were other purposes, the privilege applied; it did not matter whether an internal investigation was mandated by regulation or simply instituted at the company's discretion.

How Privilege Law Is Different in Foreign Jurisdictions
Similar to U.S. privilege law, common-law countries confer privileges, based on case law, on communications between lawyers and clients that relate to the clients' legal position, protecting them from disclosure. The United Kingdom, for example, recognizes two types of privilege similar to privilege in the United States—legal advice privilege and litigation privilege. See DLA Piper, Legal Privilege Handbook 2013, at 22–24 (Michael Marelus ed. 2013). Legal advice privilege attaches to documents that constitute confidential communications between a lawyer and his or her client made for the purpose of giving or obtaining legal advice. The privilege is extended to communications with all attorneys, including both in-house counsel and foreign outside counsel, provided the attorney in question is accredited in his or her home jurisdiction. Litigation privilege, like the attorney work-product privilege in the United States, applies when adversarial proceedings are reasonably imminent and affords a wider privilege than the legal advice privilege, as it protects work product and communications with third parties (in some instances) as well as those between the lawyer and client. Courts in the United Kingdom apply a "dominant purpose" test to protect all confidential documents prepared for the dominant purpose of giving or getting legal advice with regard to the conduct of that litigation.

In contrast, civil law countries have fairly narrow discovery processes, and litigants typically are required to produce only those documents on which they intend to rely at trial. Consequently, the concept of protecting documents from disclosure is deemed less important than in common-law jurisdictions. Instead, protections are typically provided under statutory or professional rules of confidentiality imposed on lawyers.

For example, under the law of the European Union, legal privilege is recognized as a fundamental right by the European Court of Justice. See Case C-155/79, Australian Mining & Smelting Eur. Ltd. v. Comm'n, 1982 E.C.R. 1575. The privilege, however, has limitations. For one, it only protects written communications with independent attorneys. In-house counsel are exempt from this privilege as they do not "enjoy the same degree of independence of [their] employer as a lawyer working in an external law firm." See Case C-550/07 P, Akzo Nobel Chems. Ltd v. Comm'n, 2010 E.C.R. I-08301. As a result, counsel is less equipped to handle conflicts between "professional obligations and the aims of his client." Id. Furthermore, as the privilege is only extended to lawyers licensed to practice in member states of the European Union, communications with foreign-qualified attorneys are also not protected.

In addition to the variability of privilege laws throughout Europe, the European Competition Network (ECN) adds another layer of inconsistency. A competition authority in one member state with stricter privilege laws can obtain and useinformation it receives through the ECN from a member state with more relaxed privilege laws. Legal Privilege Handbook 2013, supra, at 5–6.

The concept of attorney-client privilege varies even more widely outside of Europe. The concept of legal privilege does not exist in China, for example. Legal Privilege Handbook 2013, supra, at 17–18. A Chinese lawyer has a statutory and ethical duty to keep confidential any information that he or she receives from the client or others in the course of representation, as state secrets or commercial secrets, with the exception of any information regarding the preparation or commission of criminal acts, which must be reported to the authorities. However, a lawyer may be compelled to disclose client confidences by government authorities or by court order. During the course of an investigation, the government can also compel production of any documents created by or received from a lawyer. In-house counsel, whether Chinese or foreign in-house counsel, are considered employees and therefore do not have the same status under the law as outside counsel. In-house counsel may be compelled to testify or provide documentation against their client, as may foreign outside counsel, if they are subject to Chinese law.

Which Law Applies?
This raises the question of how U.S. courts will apply foreign privilege law when dealing with potentially privileged documents from an internal investigation in a foreign jurisdiction. Generally, the trend is for U.S. courts to apply the privilege law of the jurisdiction that is most closely related to the communication—i.e., the "touching bases" test.

In Astra Aktiebolag v. Andrx Pharmaceuticals, Inc., 208 F.R.D. 92, 98 (S.D.N.Y. 2002), a New York district court presented with 75 different challenged documents and three potential sources of law articulated the "touching bases test" as requiring deference to the law of the country that has the "'predominant' or 'the most direct and compelling interest' . . . unless that foreign law is contrary to the public policy of this forum." Astra Aktiebolag, 208 F.R.D. at 98. Commonly, the country with the predominant interest is the place "where the allegedly privileged relationship was entered into" or the place where it was centered when the communications were made. Astra Aktiebolag, 208 F.R.D. at 98.

Another potential minefield surrounds the production of documents in a foreign jurisdiction that would otherwise be protected by privilege in the United States. In some instances, U.S. courts have concluded that the privilege may be waived if documents are voluntarily disclosed to a foreign regulator. In In re Vitamins Antitrust Litig., 2002 U.S. Dist. LEXIS 26490, at *94 (D.D.C. Jan. 23, 2002), the defendants made a voluntary disclosure of certain privileged documents to several foreign government regulators in response to investigations in those jurisdictions. The plaintiffs then sought discovery of those privileged communications, arguing that the defendants had waived the privilege. The special master deciding the dispute concluded that all disclosures to the foreign regulators would be considered voluntary disclosures, and therefore no longer privileged, unless they were "made in response to a court order or subpoena or the demand of a governmental authority [that was] backed by sanctions for noncompliance," and that any available privilege or protection was asserted contemporaneously. Vitamins, 2002 U.S. Dist. LEXIS 26490, at *105.

Best Practices
What practices then should counsel advise that a company implement to ensure its internal investigations are protected to the highest extent possible from disclosure?

  • Understand the law of privilege in the applicable jurisdictions.

  • Hire local outside counsel whenever practical and consider routing communications through them. Communications with outside counsel typically enjoy the highest level of protection. To the extent practical, internal investigations should be conducted by outside counsel within the jurisdiction where the investigation has been brought, rather than in-house or other foreign outside counsel.

  • Internal investigations should be conducted under the direction and supervision of counsel, even if nonattorneys conduct the day-to-day investigation.

  • Create a written record of the "significant purpose" of the investigation. The company's internal compliance and investigation policies should clearly state that a significant purpose of conducting internal investigations is for the company to seek and obtain legal advice. Ideally, counsel directing the investigation should draft a written explanation at the outset stating that the investigation is being conducted to obtain legal advice, noting the legal issues that are being examined and the legal advice that is being provided.

  • Make it clear that all interviews are being conducted to gather facts to provide legal advice to the company and any information gathered will be kept confidential.

  • Take steps to preserve the privilege over all documents used or created as part of the investigation. Use legends on documents stating that the document is privileged, keep the investigation materials segregated, and only send information and legal advice relating to the investigation to those who need to see it. While U.S. government regulators are limited in their ability to specifically request privileged materials, voluntary disclosure to regulators of privileged information may subject the information or documents to discovery in other related actions.

  • Where written communications are required, label all documents as legally privileged and/or confidential and treat them as such. While labeling a document as privileged or confidential does not ensure it will be considered as such, it demonstrates that care is being taken to maintain the privilege or confidentiality. Also, store the privileged and confidential materials in a separate file from ordinary business materials and do not make edits or revisions to the communications or advice received from counsel.

  • As much as possible, limit access to privileged records or investigation materials in jurisdictions where privilege does not exist or is limited. To the extent possible, only circulate attorney work product or privileged communications to those who need to know that advice has been requested or rendered. Make sure firewalls are in place preventing in-house counsel in one jurisdiction from accessing privileged or confidential materials in other jurisdictions. Consider storing U.S. legal records exclusively in the United States and preventing access to such records from foreign jurisdictions absent express permission.

  • Communicate via phone. When an individual may be compelled to testify in certain jurisdictions, communicate sensitive information via phone whenever possible. Avoid providing written communications in jurisdictions where documents in the client's possession—or in-house counsel's—can be discovered.

  • Understand the ethics rules in the applicable jurisdictions. It is important to know and understand the ethics rules in each jurisdiction affected by the internal investigation, and what requirements they may impose on attorneys conducting the investigation. Such rules may have direct impact on the treatment of, and degree of protection afforded to, the client's documents and communications.

Keywords: litigation, commercial, business, attorney-client, ethics, foreign jurisdiction, internal investigation, privilege, work product, cross-border


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