International investigations are the heart and soul of FCPA inquiries. As denoted by its title, the Foreign Corrupt Practices Act deals with bribes and offers to foreign officials and those of foreign state owned enterprises.
While U.S. domiciled law firms may lead such investigations from the U.S., there can also be a large international component staffed by law firm partners, associates and employees outside the United States. For U.S. lawyers, two of the most sacrosanct rules are the attorney-client and work-product privileges. Now such protections may be in jeopardy outside the United States.
The New York Times reported that German prosecutors raided the offices of the U.S.-based law firm Jones Day, which is heading the Volkswagen internal investigation.
The raid, which removed documents and other materials, “suggests that the authorities believe the firm has not divulged all documents that may be relevant to the case. If so, it would be a blow to Jones Day’s reputation while raising the possibility of new revelations that would further tarnish Volkswagen.”
While I would opine that such a raid in the United States would be almost unheard of, unless the law firm was part of a criminal conspiracy, in Germany things are more fluid. Matthias Jahn, director of the Institute for Economic Crimes Law at the University of Frankfurt, told the Times the ”rules on lawyer-client privilege are less absolute in Germany.”
Also, the raid had court approval, so there must have been some reasonable basis presented to a presiding magistrate who granted the order.
One of the things German prosecutors may been seeking is evidence of senior management or even Board level knowledge or involvement. VW has resolutely denied that higher-ups participated in the fraud or were even aware of the existence of the defeat device for its almost 10 years of existence. Yet VW has steadfastly “refused to disclose Jones Day’s findings.”
Even if viewed as an outlier of prosecutorial conduct, this raid opens up one very large can of worms not only for VW but also U.S. law firms that use their foreign offices to lead or even participate in international investigations.
If the most basic U.S. legal privileges can be tossed aside, things will become much more difficult in conducting FCPA investigations outside the United States.
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Tom Fox is a Contributing Editor of the FCPA Blog. He has practiced law in Houston for 30 years. He’s the creator of the award winning FCPA Compliance and Ethics website. He is the Compliance Evangelist. His best-selling seminal book, “Best Practices Under the FCPA and Bribery Act: How to Create a First Class Compliance Program” (available from Amazon here) is widely viewed as one of the top volumes on the nuts and bolts of compliance.
4 Comments
Good post That "dawn raid on a law firm" was probably preordained, given the disparity of views on privilege between Europe and the US. (Cue in Joe Murphy on "how governments undermine compliance programs") To me, this dramatically underscores the big gap many companies have in how they conduct internal investigations. We now know that a number of internal concerns were raised about this, including one from the vendor who supplied the software! To be sure, all gatekeepers at VW would have preferred to have discovered the problem before being embroiled in this perfect storm that has already cost the company billions, a monitor, reputation damage and years of certain chaos to come.I'm not talking about the investigation that takes place AFTER all hits the fan, it's the BEFORE that companies need to get better at. I've already written on why investigations after Yates become essential, but until companies get true compliance subject matter experts in place in a structure designed yo succeed, we are going to see companies miss the boat on investigations over and over. Companies need an internal management solution 24/7, not a high priced law firm they call in after the fact. Just ask GM with their "69 Naughty words'11
This is a terrible development and a timely alert. I'm an American lawyer who's been working in Korea for the last 20 years; as an employment lawyer I have worked on a lot of internal investigations. As a guy who interfaces a lot with US-based clients and their counsel, I've had to break it gently to too many people: There is no legal professional privilege recognized in Korean law. We do not have an exclusionary rule that makes attorney-client communications off limits in criminal prosecutions. In fact, Korea's public prosecutors relish the opportunity to get their hands on compliance-driven questions an accused may have asked its external legal counsel (more properly, his or her external legal counsel, as the Representative Director of a Korean corporation bears personal criminal liability for all acts or omissions of the company), which the prosecutors will use as evidence of intent to break the law. I have worked at no fewer than two Korean law firms which have had their offices raided by prosecutors seeking documents.
I have worked on a couple of fpca investigations in the us. It is customary for law firms to withold "bad" documents. I am surprised on how sloppy doj and sec are with the requests or maybe they just don't care. It is good to see that prosecutors in other countries take their jobs more seriously, DoJ and SEC ought to take note. Many of the settlements over the last few years were a mere money grab by us gov and good pr for MNEs. The underlying corrupt practices have been refined and are now certified by us gov. DoJ has no interest in fighting corruption, sad.
Like Tom and the other commentators, I am concerned that an external law firm has been raided. However, US companies have been slow to take on board the limitations on legal privilege here in Europe. And external law firms have been complicit in perpetuating a myth. As a compliance professional, I see "Privileged" stamped on too many things without thinking. That can be a red rag to a government investigator. Sometimes compliance professionals are excluded from critical information on the basis that privilege does not apply to us. And sometimes external counsel are brought in to provide "cover", adding little value to an internal investigation. I am not suggesting that any of this applies to Jones Day's work for VW. But I am suggesting that GCs and CCOs need to work together to understand the extent of legal privilege and when it can be helpful and when it is not.
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