Stuart Alford QC, Serrin A Turner, Gail E Crawford, Mair Williams and Max G Mazzelli, Latham & Watkins
This is an extract from the third edition of GIR's The Practitioner’s Guide to Global Investigations. The whole publication is available here.
Internal investigations: UK perspective
Internal investigations will inevitably deal with personal data, particularly employees’, and in the United Kingdom this is governed by the GDPR. As a result, those conducting internal investigations will have to consider the legal justification for the processing of personal data that may otherwise be illegal under the GDPR. Consent and legitimate interest are two of the key legal bases companies and practitioners can rely on to process data in an internal investigation and they are explored in more detail below.
The GDPR establishes a higher standard for consent for the processing of personal data than the Data Protection Act 1998 (DPA) it replaced. Consent must be given clearly and in plain language and must be an affirmative act – consent cannot be given by inactivity, such as pre-ticked boxes in an online form.
In the typical employer–employee context of an internal investigation, the concept of consent being freely given is a complicated one. Given the dynamic, some jurisdictions consider that consent from an employee to an employer may never be freely given, a position exacerbated in an internal investigation by the added element of potential wrongdoing by the employee or another individual. Investigators should ensure they comply with the GDPR, either by getting express consent from the data subject to process their data, which may not be feasible in an internal investigation (blanket clauses in employment contracts will no longer be enough), or by relying on one of the lawful bases under the GDPR (discussed below) to lawfully process the data.
Derogations and legitimate interest
The GDPR allows for personal data to be processed in certain circumstances, including derogations, when consent has been given and when a country has the benefit of an adequacy decision.
Under the GDPR, data processors can consider the legitimate interests of a third party or public interest when considering the use and processing of personal data. In an internal investigation this ability could allow the lawful basis of legitimate interests (of a third party or public interest) to process personal data. The rights of individuals can, however, override a legitimate interest, if the processing of data would interfere with an individual’s fundamental rights.
The UK’s Information Commissioner’s Office (ICO) enforces data protection legislation and has stated that: ‘Legitimate interests is the most flexible lawful basis for processing’. The ICO has set out a three-part, cumulative test for establishing whether there is a legitimate interest in processing the data.
- Purpose test: is the purpose of the processing a legitimate interest?
- Necessity test: is the processing of the data necessary for the purpose?
- Balancing test: is the legitimate interest overridden by the individual’s interests?
The above test can be used by those conducting internal investigations to justify the processing of data under the GDPR because it is for the legitimate purpose of the company itself, or a third party. In respect of the necessity test, companies must consider alternative means of gathering the same information before processing personal data of any kind. Best practice means such considerations should be documented.
To demonstrate compliance with the GDPR, data controllers will have to document their decisions carefully, which may be of particular value in internal investigations where data may be being processed voluntarily. Data controllers should review any existing policy or consider introducing a new one, to ensure that processing data as part of an internal investigation is justified in compliance with the GDPR. In addition, the ICO recommends the application of a legitimate interest assessment based on the three-part test, which may be a useful addition to an investigation plan.
Special category data
When processing data in an internal investigation, data controllers must pay increased attention when dealing with special category data. The concept of special category data is similar to that of sensitive personal data under the DPA, and includes data about a natural person’s sex life, ethnic origin and political opinions. In an internal investigation, this kind of information will often be held on a human resources file that becomes part of a review within the investigation. The concept of special category data is dealt with under Article 9 of the GDPR and it has been extended to include genetic and biometric data.
When dealing with special category data, Articles 6 and 9 of the GDPR must be satisfied, Article 6 to demonstrate a lawful basis for processing and Article 9 to show that one of the derogations apply – including consent, public interest and to make or defend a legal claim.
The public interest exception may be the most useful in an internal investigation, especially where it is likely to be followed by a regulatory investigation. However, this ground will be difficult to satisfy, and controllers should be confident in their justifications before relying on this exception.
The Data Protection Act 2018 (DPA 2018) provides helpful guidance on the public interest exception in Schedule 1, Part 2. Paragraphs 10 and 11 are of particular relevance to internal investigations and relate to the prevention or detection of unlawful acts. Paragraph 11 also relates to protecting the public against dishonesty. These provisions will often assist in identifying a lawful basis for the processing of special category data in internal investigations. Note that both provisions require that processing be done without consent, to avoid prejudicing the investigation.
Third parties to investigations
Companies and practitioners often rely on third parties to assist with internal investigations (for example in data analysis, legal advice or document review). These third parties will very often require access to personal data in order to act. The GDPR has introduced new requirements when entering into such arrangements, which means that a contract or other legal act under European Union or Member State law is now required where controllers engage the services of processors.
This must set out the ‘subject-matter and duration of the processing, the nature and purpose of the processing, the type of personal data and categories of data subjects and the obligations and rights of the controller.’ These provisions have been part of many standard contracts for years (particularly to identify where data is actually located – i.e. server locations), but it is now particularly important that the correct agreements are in place from the outset of any interaction with third parties, to comply with the GDPR. In addition, any agreement must contain an obligation of confidentiality.
Internal investigations: US perspective
The United States has no single unified data protection regime. However, a patchwork of federal and state privacy laws impose various constraints on the extent to which a company may collect and review information about its employees, particularly their electronic communications.
State privacy laws in the United States vary considerably, but many states recognise a common-law right against unreasonable intrusions into a person’s seclusion or privacy. Such causes of action have been brought against employers in the context of searches in the workplace. While courts have typically upheld an employer’s right to search company-owned property, including computers and devices, there is no bright-line rule. In cases involving more unusual facts, an employee may be able to make out an invasion of privacy claim based on a workplace search. Accordingly, companies are well advised to have written policies, that all employees must acknowledge, clearly providing that the company’s network and systems are subject to monitoring and search. An employee will face difficulty establishing a right to privacy in company-controlled systems or data where such policies are in place.
Other state laws place more specific prohibitions on employers that can limit the outer bounds of a company’s investigative actions. For example, various state laws prohibit questioning an employee on issues that serve no business purpose, demanding an employee disclose passwords and other credentials to his or her personal email and social networking accounts, requiring employees to alter privacy settings on their electronic accounts, or asking employees to access social media accounts in the presence of the employer.
Various state and federal laws also restrict the collection of electronic communications, including emails (both work and personal), phone calls and social media accounts. One primary federal law is the Electronic Communications Privacy Act, which breaks down into the Wiretap Act (which generally prohibits intercepting electronic communications), the Pen Register statute (which generally prohibits use of a pen register to track communications), and the Stored Communications Act (which generally prohibits unauthorised access to stored electronic communications). These statutes do not generally prohibit an employer from searching its own email system. However, they may limit an employer’s ability to use company-owned equipment to access an employee’s communications stored with third-party providers (e.g., Gmail), at least without the employee’s consent.
Finally, besides state and federal laws, internal investigations in the United States may also be subject to the GDPR’s restrictions, given the GDPR’s extraterritorial reach. In particular, to the extent the investigation requires review of personal data stored in the European Union – for example, an employment file for an employee in an EU affiliate, stored on a server in the European Union – then the company must evaluate whether a lawful basis exists under the GDPR to transfer the data to the United States for the purpose of the investigation. In the absence of a clear lawful basis for transfer, the company may wish to consider ways of handling the data that do not involve transferring personal data to the United States – such as reviewing the relevant personal data in the European Union, or redacting personal information from the data set before it is transferred to the United States.
Investigations by authorities: UK perspective
Companies have always had to consider competing interests when dealing with investigating authorities, but until now data protection has rarely been near the top of any list of considerations. The very significant fines available under the GDPR mean that companies must take data protection much more seriously, particularly the handling of personal data to authorities both in the United Kingdom and overseas.
Guidance from authorities
Prior to the introduction of the GDPR, concerns were raised about the balance companies should strike between their reporting and regulatory commitments (including investigations), on the one hand, and protecting their employees’ (or anyone else’s) personal data on the other. To offer some guidance in this regard, the Financial Conduct Authority (FCA) and ICO published a joint update on the GDPR in which they made clear that they believed ‘the GDPR does not impose requirements which are incompatible with the rules in the FCA Handbook.’ This belief is yet to be tested and it is unclear whether the FCA will be tolerant of delays, limitations on information and other issues caused by a company’s cautious approach to data protection.
Furthermore, the FCA has been keen to point out that it will be considering breaches of the GDPR as part of its supervision of senior management arrangements, systems and controls. Although this is limited to entities regulated by the FCA, it seems likely that other authorities will take a similar approach and companies will need to be ready to show that they have taken their data protection obligations – ongoing and as part of an investigation or data request from a investigating authority– seriously.
Providing data to authorities
Where authorities make requests for data, companies must be absolutely clear about the legal powers by which those requests are being made, to ensure that they can comply with the request while fulfilling their GDPR obligations. The benefits of voluntarily handing over more data than specifically required have probably disappeared with the GDPR’s tougher data regulation regime.
Given the international scope of many investigations today, companies will have to consider the practicalities of exporting data while complying with the GDPR. The transfer of data to a third country is regulated by Article 44 of the GDPR. It is unclear whether the United Kingdom will be treated as a third country following Brexit or if, given the United Kingdom’s apparent willingness to adhere to the GDPR post-Brexit, another arrangement will be reached. If the United Kingdom is to be a third country, it can apply for an adequacy decision from the European Commission, determining that a third country has an adequate level of data protection, and data may be transferred to it.
An alternative method for complying with the GDPR may be to redact personal information before handing documents over to authorities. Depending on the size of the document set; however, this may be a very expensive way of satisfying the authorities and the GDPR, particularly as it would require not only the data subject’s name to be redacted, but also any information from which the data subject could be identified.
Articles 48 and 49 of the GDPR set out the requirements for transferring data under international agreements, such as mutual legal assistance treaties (MLATs). Using MLATs provides a structured system for exchanging information and evidence, but the process can be expensive and lengthy, which is particularly unhelpful where credit for early and responsive co-operation is sought, particularly when dealing with US authorities.
The scope of the derogations under Article 49 appear to provide enough latitude for companies to engage with authorities proactively and efficiently; however, the extent of all the derogations remains untested. For the time being, companies should be cautious when transferring data, even in response to requests from authorities.
Some national regulators (such as the UK FCA and the US Securities and Exchange Commission) have reciprocal arrangements in place to transfer data. The use of these inter-regulator arrangements has a number of attractions. However, they often operate through a memorandum of understanding between the regulators, which on its face does not satisfy the definition of a legal agreement under Article 48 and so may not be an appropriate method for data transfer. While the interpretation of Article 48 remains untested, caution should be taken about permitting data to be transferred outside the jurisdiction under a memorandum of understanding between regulators.
Investigations by authorities: US perspective
As in the United Kingdom, companies in the United States must be mindful of the GDPR’s restrictions in responding to subpoenas or other compulsory demands requiring the production of documents. Under US law, a company served with compulsory demands must produce any responsive documents within its possession, custody or control – wherever the data is stored. It is common for US law enforcement agencies or regulators to issue demands for documents to companies requiring the production of large volumes of data. To the extent that responsive data is stored in the European Union, and contains personal data subject to the GDPR, the company must produce it notwithstanding its foreign location. As a result, US companies served with formal demands to produce documents may face a situation where their obligations to comply with US legal process conflict with the GDPR’s restrictions.
A US company concerned that it faces such a conflict should first discuss the issue with the regulator or law enforcement agency involved and attempt to narrow the scope of the request to avoid or minimise the need to produce GDPR-regulated data. This is particularly important because, for the company to rely on the GDPR’s legal defence derogation to produce the data to US authorities, the data must be ‘necessary for the establishment, exercise or defence of legal claims’. Accordingly, obtaining clarity from law enforcement or the regulatory agency as to what personal data is necessary to respond to the request, and redacting or otherwise anonymising the other personal data that is not needed, will put a company in a more defensible position if GDPR issues arise.
At the same time, US law enforcement authorities or regulatory agencies are likely to press for clarity as to whether the GDPR genuinely prohibits the transfer of the data in question to US authorities. The US Department of Justice has taken a robust approach previously in similar circumstances, by asserting: ‘Where a company claims that disclosure is prohibited, the burden is on the company to establish the prohibition. Moreover, a company should work diligently to identify all available legal bases to provide such documents.’ Although the risk of breaching obligations under the GDPR should be a major consideration when dealing with investigating authorities, companies must balance this against the risks of non-compliance with US authorities, which may seek sanctions (including even criminal contempt) against a company for failing to comply with investigators’ demands.
Where a company truly cannot comply with a demand for documents from US authorities without violating the GDPR’s transfer restrictions, and the company is unable to negotiate an adequate resolution with the US authorities involved, the company may choose to challenge the legal process. US courts have long held that, where it would violate foreign law for a company to produce certain documents in response to US legal process, the company may challenge enforcement based on international comity. If the court agrees that compliance with the demand for documents would give rise to a true conflict of laws, it will weigh the conflicting legal obligations of US law and foreign laws case by case. Specifically, a court entertaining such a challenge must consider, among other things, the importance of the records to the US legal matter for which they are sought, the availability of alternative means of securing the information and the extent to which noncompliance with the request would undermine important interests of the United States, or compliance would undermine important interests of the state where the information is located.
However, while courts have sometimes quashed subpoenas on comity grounds in civil litigation, they have typically rebuffed such challenges in the context of criminal investigations, finding that the domestic interest in enforcing the criminal laws trumped the foreign data privacy interests involved. The enforcement of the GDPR and the severe potential penalties that attach to non-compliance may provide greater motivation to companies to challenge US legal process if they believe there is a risk that compliance will run afoul of the GDPR’s requirements; and likewise, the prospect of GDPR penalties may lead US courts to give more weight to foreign data privacy interests than they might otherwise in such challenges. Indeed, US court decisions applying the international comity balancing test have sometimes turned, in significant part, on the low likelihood of severe penalties being imposed on the recipient of the legal process at issue if complied with. It is unclear, however, whether and to what extent the GDPR will actually change the equation in this regard – at least prior to a significant fine or other penalty for a disclosure.
Collecting, storing and accessing data: practical considerations
A few practical considerations for all investigations:
- Involve data controllers at as early a stage as possible.
- Identify any relevant documents to be transferred which contain special category data.
- Document all decision-making relating to the transfer of data and consider it against Article 49 of the GDPR.
- Work with authorities to agree realistic expectations for the scope and timing of data requests.
- Consider all options for the transfer of data, including redactions, MLATs and the use of domestic authorities.