A ruling on 6 July 2018 by Germany’s Federal Constitutional Court (Bundesverfassungsgericht) has held that a prosecutor’s raid of the offices of a US law firm and the seizure of certain documents was not unconstitutional.[1] The law firm, Jones Day, had appealed an earlier ruling of the Munich District Court (Landgericht), arguing that documents seized by the prosecutor in the raid had been protected under professional secrecy rules. This latest ruling means that the 131 documents seized from Jones Day in the raid, which relate to Jones Day’s representation of Volkswagen in the ongoing emissions case, can now be used by the Munich Prosecutor’s Office in its investigation. 

This ruling removes any uncertainty as to whether documents from an internal investigation in Germany held by lawyers advising a client were protected; it is now clear that they are not under the German concept of professional secrecy rules. This latest ruling raises important questions for both clients and foreign law firms undertaking internal investigations in Germany.

Background

Munich prosecutors raided Jones Day’s Munich office in March 2017 as part of their ongoing diesel emissions investigation. The prosecutor’s investigation came after allegations that Jones Day’s client, Volkswagen AG, had equipped diesel vehicles with devices to cheat emissions tests. Jones Day were appointed by Volkswagen in 2015 to conduct an internal investigation into the allegations. Volkswagen refused to provide the authorities with the report from this internal investigation, but did provide the US Department of Justice with a factual summary of the results.

A Munich District Court ruled in May 2017 that the prosecutor’s use of files from the raid was legal. On 26 July 2017, the Federal Constitutional Court made an interim order prohibiting the use of those documents, pending final judgment.

The Decision

Jones Day’s action to prevent the seized documents from being used failed for lack of standing. The court held that only German citizens and companies (not foreign law firms) could bring a constitutional claim – even if the foreign law firm’s German-domiciled client opposed the use of the documents by the prosecutor and brought its own claim in the Constitutional Court. Volkswagen had also made a complaint about the raid, claiming that it violated the company’s right to informational self-determination and to a fair trial. The court disagreed with that assertion. Moreover, Volkswagen’s complaint failed as its constitutional rights remained unaffected; it was Jones Day’s offices that were raided, not Volkswagen’s. The seizure of documents from Jones Day was found to be proportionate in the circumstances. The court further found no constitutional requirement to extend the protection of a lawyer-client relationship to subsidiary companies of the client. 

The court also clarified the circumstances where an absolute prohibition on the collection and use of evidence under s.160 (“Investigation Proceedings”) of the Code of Criminal Procedure would be appropriate. The court said that an absolute prohibition on the collection and use of evidence in this manner – i.e. prohibiting the use of material that English and US lawyers would consider protected by legal professional privilege – “considerably restricts effectiveness of law enforcement as required under constitutional law”. It added that such absolute prohibitions are “only feasible in exceptional circumstances”, such as “an interference with the scope of protection of human dignity”.

Implications and wider context 

The ruling certainly complicates the conducting of internal investigations in Germany. Foreignheadquartered law firms may begin to retain less client documentation in their German offices, and clients may reconsider what information they wish to entrust to their counsel. It is also not clear whether the use of a German-domiciled law firm would provide greater protection to clients. Whilst it would allow the law firm standing to challenge the raid in the Federal Constitutional Court, it is unlikely that a practically different result would be achieved. Although the Court did not need to decide whether a German law firm could bring a claim to prevent the use of material covered by professional secrecy, the Court’s press release states that whether a client is charged with a criminal offence or not, to protect material from use by prosecutors would stymie law enforcement and be open to abuse by the client. This suggests that a claim by a German firm would be similarly unsuccessful.[2] 

The ruling comes at the same as lawyer-client privilege is under scrutiny in other jurisdictions. The Court of Appeal in England and Wales recently heard the appeal of ENRC v SFO [2017] 1 WLR 4205, which is expected to clarify the application of legal professional privilege in internal investigations, particularly as it relates to records of interviews. In the United States, lawyer-client privilege hit the headlines when Squire Patton Boggs offices were recently raided by federal prosecutors. The law in a number of jurisdictions is in a state of flux, which underscores the need at the outset of any investigation for lawyers and their clients to consider this issue carefully and consider fully the state of the law relating to privilege / professional secrecy in each relevant jurisdiction to determine whether and if so which documents will be covered and on what basis. Strategic choices will also need to be made about who should conduct interviews, when and how they should be carried out and how they should be documented.

In addition, the checklist of issues to consider at the outset of an investigation has grown with the implementation of the EU General Data Protection Regulation (GDPR). The GDPR has certainly not made it impossible to conduct investigations, but it does require both clients and lawyers to consider where personal data is located, on what basis it is being or will be processed as part of the investigation and how that data is to be moved (if necessary) out of the European Economic Area. The landscape for internal investigations continues to grow in complexity, and careful consideration at the start of an investigation can head off a number of issues further down the line.