The General Director of the UK’s principal corruption enforcer, the Serious Fraud Office (“SFO”), David Green, previously warned companies that the SFO would challenge privilege claims it considers unfounded. Last week, his office won the right to subpoena documents from a cooperating company’s internal investigation after the company self-reported potential misconduct, successfully putting another crack — some might say of massive proportions — in the protections available to companies caught balancing the need to ferret out wrongdoing with the desire to cooperate with the government.
On May 8, 2017, in a case between mining and natural resources company Eurasian Natural Resources (“ENRC”) and the SFO relating to allegations of bribery and corruption in Africa and Kazakhstan, the English High Court ruled that ENRC had to turn over internal investigation documents created by ENRC’s outside counsel, Dechert, to the SFO as part of the SFO’s investigation.1 T he materials include notes of witness interviews taken by outside counsel, investigative reports created by outside counsel, and forensic accounting reports created at the direction of outside counsel.
This ruling addresses, for the first time, how and when England and Wales’ legal advice and litigation privileges apply in the criminal context where the apprehended “litigation” involves future potential investigation and prosecution by the government itself. To the likely surprise of companies and attorneys more familiar with the U.S. approach to privilege determinations (which would likely protect such documents from disclosure), the UK court found that none of these materials were privileged because there was no threat of litigation when ENRC engaged outside counsel to conduct an investigation.
Under English law, a litigation privilege applies to communications between clients/attorneys and third parties when, at the time of the communication: (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.2
Significantly, the judge ruled that a criminal investigation is not the same as adversarial litigation. She also found that the dominant purpose for creating the materials was to fact-find and to create reports and presentations for the SFO during a time when the relationship between ENRC and the SFO was collaborative rather than adversarial. Nor was the internal investigation’s work product created with the dominant purpose of obtaining legal advice. Instead, the facts demonstrated that ENRC’s initial focus had been on a fact-finding investigation to prepare for an investigation, not to help it mount a defense to a criminal prosecution, and later, to persuade the SFO to agree to a civil settlement in lieu of a criminal prosecution.3
More surprising, the court found that ENRC could not have “reasonably contemplated” a potential criminal prosecution by the SFO even though ENRC perceived a serious risk of an investigation. Placing companies in a sort of chicken-and-egg conundrum, the court found that “[c]riminal proceedings cannot be reasonably contemplated unless the prospective defendant knows enough about what the 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.”4 Left unsaid is how a company could ever investigate to arrive at such knowledge without assembling the very evidence a government enforcer could now seek to discover and use against the company.
Having found that the litigation privilege did not apply, the court considered whether the far narrower protections of the legal advice privilege could be invoked. That privilege only protects communications between counsel and the client in connection with the provision of legal advice. In other words, in the corporate context, only communications between an attorney and those employees authorized to obtain legal advice on the corporation’s behalf — i.e. the corporation’s directors and, possibly due to their position, in-house legal staff — would be covered. Accordingly, while counsel’s views of an interview of a company employee would likely be protected, notes from the interview, and the contents of the interview itself, are far more exposed.
What This Means For You
We often take for granted under U.S. law that conversations with attorneys and the work product they produce are protected from disclosure to civil adversaries or government prosecutors. Indeed, most would find it unfathomable that a company might conduct and self-disclose an internal investigation to government prosecutors, only to have the prosecutors turn around and demand discovery of investigatory reports, notes from witness interviews, and other work product.
Implicit in much of the court’s determination, however, was an inference by the court that by self-reporting and cooperating with the SFO, ENRC’s relationship with the SFO was “collaborative, not adversarial.” And an assumption that ENRC must have intended to eventually share with the SFO documents and reports created by the internal investigation. It remains to be seen what chilling effect this precedent might have on future cooperation with government enforcers in the UK. Troublingly, prior UK precedent suggests that even work product created by internal investigations outside the UK in concert with government enforcement actions could be subject to discovery in litigation in the UK, such as in later shareholder litigation in the UK or parallel UK criminal investigations.5
Given the vagaries of protection provided by privileges in the UK, and assumptions that might be drawn from any cooperation with government enforcers, companies that might face criminal prosecution or civil litigation in the UK must understand the risks and precautionary steps, including:
- Clearly defining which company representatives are authorized to seek and obtain legal advice on behalf of the client, including documenting any formal delegations of authority from the company’s board of directors;
- Recording in any instructions to counsel or minutes from the board authorizing counsel’s retention that prima facie evidence justifying assembling a defense to a specifically apprehended claim has been identified; and that the lawyers are being retained in contemplation of defending that claim;
- Ensuring that attorney notes from factual interviews are not mere transcripts and contain information demonstrating the “trend of the legal advice,” such as qualitative assessments of the information obtained and suggestions for further areas of legal inquiry;
- Identifying and documenting whether investigatory work product, such as any resulting reports, are intended to be provided to government regulators, either in whole or in part;
- To the extent feasible, delaying the retention of third-party experts, such as forensic accountants, until after the company can document a basis for believing that criminal prosecution might be reasonably contemplated and ensure that those third parties are retained through (and report to) counsel; and
- Segmenting the work of such third-party experts into (1) work whose dominant purpose is tied to preparing a defense or obtaining legal advice in respect of a prospective criminal prosecution, and (2) work whose dominant purpose is compliance or remediation.
While ENRC has indicated that it intends to appeal this decision, and other third party interventions are also likely, materials created in connection with internal investigations remain presently at great risk of discovery in the UK.