Briefings

Putting privilege behind bars: legal privilege in criminal investigations, June 2017

The High Court narrows the application of legal professional privilege, rejecting the argument that internal investigation documents are privileged against regulators, such as the Serious Fraud Office (SFO).

Introduction

Companies conducting internal investigations should be aware of the high threshold required to invoke privilege against disclosure of documents in anticipated civil, and now, criminal proceedings. The court has ruled¹ that investigations commenced by regulatory bodies such as the SFO do not constitute ‘adversarial proceedings’ and therefore documents cannot be protected under litigation privilege.

The facts

Eurasian Natural Resources Corporation (ENRC) conducted an internal review of its operations in Kazakhstan and Africa following allegations of potential fraud, bribery and corruption by two anonymous whistleblowers. ENRC appointed external solicitors and forensic accountants to investigate the allegations. After negative publicity, both in Parliament and in national newspapers, the SFO wrote to ENRC stating it was not carrying out a criminal investigation for failure to comply with the self-reporting requirement² at this stage, but strongly encouraged cooperation. Under s.2 CJA 1987³, the SFO required ENRC to produce four classes of documents generated prior to and during the internal investigation. ENRC claimed the documents were covered by legal advice and/or litigation privilege. The SFO invited ENRC to disclose its internal report and supporting documents under a ‘limited waiver of privilege’ - meaning the SFO would not use the content for prosecution purposes. ENRC refused.

The judgment

• The court determined that litigation privilege (which gives protection from disclosure of documents or communications between a lawyer, its client or a third party, created for the dominant purpose of preparing for existing or anticipated litigation) cannot protect documents if they were produced at a time when there was no more than a “general apprehension of future litigation”. In any case, Mrs Justice Andrews stated that an SFO investigation is not classed as adversarial litigation and as such the dominant purpose of the documents was not for constructing a defence in future criminal proceedings. Therefore, the claim for litigation privilege failed.
• Equally, it was difficult to claim legal advice privilege, which protects confidential communications between a lawyer and its client which come into existence for the purpose of giving or obtaining legal advice, as the majority of documents did not fall into this definition. Interview transcripts (a verbatim record of a conversation with no legal commentary) between the solicitors and employees, ex-employees, officers and third parties did not constitute legal advice as established in the controversial RBS Rights Issue case⁴. The court upheld legal advice privilege only over presentation slides prepared by the lawyer for the client’s Board of Directors.
• In coming to this conclusion, the court upheld the narrow definition of ‘client’⁵ as meaning only those employees who are authorised to communicate with the legal advisor⁶. This may include a team specifically set up to manage an internal investigation as was the case in the often criticised judgment Three Rivers No 5⁷.
• The court highlighted the distinction between civil proceedings, which can be brought in a commercial context where there is no foundation or substantive evidence to support a claim; and criminal proceedings, which cannot be started until the prosecutor is satisfied there is sufficient evidential basis to support prosecution, and it is in the public interest to pursue the claim.

ENRC has confirmed it will appeal this decision. HFW will publish an update following the appeal.

The HFW perspective

Companies engaging in commercial activities must be aware of their obligations to regulators – any circumstance which may give rise to either civil or criminal prosecution must be notified to the relevant regulator as soon as the company becomes aware of it. The penalties for failure to comply include personal prosecution against the company’s directors. Early notification, compliance with requests and clear rules on disclosure can allow for greater scope for negotiation of a civil settlement with a regulator. It is worth noting that the Conservative government has plans to close the SFO and roll its functions into the National Crime Agency (NCA), which may impact on the nature and efficacy of future investigations.

Furthermore, the privilege status of documents produced for the purposes of an internal investigation must be carefully considered prior to production. Sensitive information may have to be disclosed if privilege does not apply to the classes of documents.

This decision highlights the high threshold required to assert privilege over documents in the context of a regulatory investigation. The mere assertion of privilege is not sufficient as the court will look to the substance and purpose of the document, rather than its form. Therefore, it is crucial to determine the purpose for which a document is being created. If you believe there is a circumstance which should be notified to a specific regulator, even if the threat turns out to be innocuous, it is important to have prompt reporting functions within your organisation in order to prevent further activity and to ensure sanctions or individual criminal liability are reduced for the organisation and its directors as far as possible.

Any company conducting an internal investigation should keep the following in mind:

• What does the internal investigation relate to?
  If the report is likely to have more than just internal significance, it is important to think of the implications of its production.
• Are any regulators likely to be interested in the subject matter?
  The key regulators for commercial activities are the FCA, PRA, Competition & Markets Authority, SFO and National Crime Agency among others.
• Has a specific team been set up to manage the internal investigation?
  An internal team may be considered as the client for the purposes of giving instructions and receiving legal advice and therefore assist with assertions of privilege.
• Have any documents been produced internally prior to or during the investigation?
  To avoid having to disclose sensitive internal information, consider holding discussions with those involved.
• By whom is the internal report being drafted?
  It is recommended that reports and investigations are conducted by external counsel, to afford the strongest position in relation to privilege. Although, it should be noted that privilege will always come down to the circumstances of the case.

For more information, please contact Andrew Williams, Partner, London on +44 (0)20 7264 8364 or andrew.williams@hfw.com, or your usual contact at HFW.

Research conducted by Rohan Soni, Trainee Solicitor.

Footnotes

1. The Director of the Serious Fraud Office v Eurasian Natural Resources Corporation Ltd. [2017] EWHC 1017 (QB)
2. The self-reporting requirements were introduced under the SFO Guidance on Corporate self-reporting (2009) under which companies are required to report any circumstances or allegation of fraud, bribery, corruption or wrongdoing to the SFO in anticipation of proceedings.
3. s.2 Criminal Justice Act 1987 gives power to investigators to require Directors to produce requested documents.
4. The RBS Rights Issue Litigation [2016] EWHC 3161 (Ch) stated that verbatim transcripts of interviews taken by a solicitor would not constitute ‘legal advice’ as there was no addition of a lawyer’s work or material.
5. Three Rivers District Council (No 6) [2004] UKHL 48
6. The court agreed with the analysis in The RBS Rights Issue Litigation, in which Hildyard J stated, “the fact that an employee may be authorised to communicate with the corporation’s lawyer does not constitute that employee the client or a recognised emanation of the client.”
7. Three Rivers District Council (No 5) [2003] QB 1556