The SFO has recently criticised the approach being taken to the negotiation of deferred prosecution agreements (“DPAs“) with the agency in the UK – its main issue being the lack of “co-operation” by companies and their lawyers alike. Of particular frustration to the SFO is the failure of companies to waive their right to privilege in respect of their documents following an internal investigation.
The SFO has made its position clear for some time: in order to benefit from a DPA, the company must be willing to co-operate fully with the SFO. As to the assertion by a company of a right to privilege in the context of providing full co-operation, the SFO’s position was summarised earlier this year in a speech by Alun Milford as follows:
- The SFO will view false or exaggerated claims of privilege as uncooperative, and it is prepared to litigate over them.
- If a company’s assertion of privilege is well-made out, then the SFO will not hold that against the company: to do otherwise would be inconsistent with the substantive protection privilege offers. In these circumstances, the SFO will simply judge the question of co-operation in its normal way against its published criteria.
- If a company produces the witness accounts sought by the SFO (despite the application of privilege), then the SFO will view that as a significant mark of co-operation.
- The SFO will also view as a significant mark of co-operation a company’s decision to structure its investigation in such a way so as not to attract privilege claims over interviews of witnesses.
What is clear from this guidance, and has been confirmed by the SFO, is that it is not seeking disclosure of communications between clients and their lawyers on questions of liability or rights. What the SFO does want, however, are documents setting out the underlying facts learned from the internal investigation, particularly the first accounts of witnesses.
David Green gave further guidance in November 2016 as to the approach to be taken by companies and their lawyers in seeking to negotiate a DPA:
- Companies should self-report once an internal investigation has uncovered any wrong doing. From that point forward, the SFO expects companies to assist in the investigation of individuals.
- If a company tries to obscure the result of an investigation with a lengthy report, the SFO will respond with a criminal investigation.
Whilst helpful in demonstrating the approach being taken by the agency in assessing whether to enter into a settlement with a company, the guidance given by the SFO is indicative of an overall approach that is perhaps contradictory. While on the one hand the SFO accepts that it cannot, as a matter of law, make adverse inferences from a company’s decision to assert a right of privilege over documents it requests it will, nonetheless, view a company’s decision to waive privilege as a “significant mark of co-operation“.
By way of a reminder, in order to be covered by legal advice privilege, a document containing factual information must form part of the “continuum of communication”1 between a client and the lawyer. This essentially means that the lawyer must be engaged to advise the client on its rights and liabilities to which that factual account relates. See our previous article for further guidance as to when privilege will apply in the context of internal investigations.
In light of the comments made by the SFO, we expect it is going to become increasingly more difficult for companies to assert a right to privilege over documents such as witness statements and, at the same time, convey to the SFO that it is co-operating fully in the context of any DPA discussions.
In response (partly) to this position being taken, the Law Society recently issued a consultation on a draft guidance note on the usage of legal professional privilege (”LPP“). That consultation concluded on 9 September. In its draft guidance, the Law Society provides a helpful reminder to the legal profession as a whole that, as a matter of law in England and Wales, LPP is a fundamental human right. It can therefore only be curtailed by Parliament or as a result of a waiver by the client. A client cannot therefore be criticised or treated detrimentally for asserting its right to assert LPP, even if a waiver would have been more helpful to the regulator or investigator.
On that basis, the Law Society asserts that it would be “improper” to put pressure on a client to waive privilege in circumstances where the client’s failure to do so would result in the client not being regarded as co-operative. Equally improper, in its view, is to suggest to a client that they should conduct their affairs in such a way that LPP does not arise in the first place.
This is, however, precisely the current stance which is being taken by the SFO.
It remains to be seen whether the recent comments by the Judiciary including Lord Neuberger and the Law Society’s guidance on the fundamental importance of LPP will cause the SFO to alter its position as to how it assesses “co-operation” in this context.
In the meantime, however, where does this leave companies currently under investigation or considering whether to self-report?
- Consider our practical tips to ensure that privilege is maintained in internal investigation documents (even if the company later chooses to waive privilege over certain documents).
- The SFO has stated that it is particularly interested in the accounts of witnesses provided during internal investigations. Rather than waiving privilege (where it applies) in respect of those documents as a whole, companies should consider with their lawyers whether there are any middle ground alternatives. For example, some companies have provided summaries to the SFO of the information provided by witnesses (as occurred in the cases of Standard Bank and XYZ Limited).
- Any decision to waive privilege should not be taken lightly. Before doing so, a company will need to consider with its lawyers the benefits of potentially being offered a more lenient outcome by a regulator and whether this outweighs the potentially significant risks of waiving privilege.