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Internal investigations documents seised in lawful law firm raid

 

11 October 2018

The much publicised raid of U.S. law firm Jones Day’s Munich office and the seizure of documents relating to VW’s internal investigation by prosecutors in an investigation of Audi AG were legal, according to German courts. A constitutional complaint by the law firm, its client (VW) and individual German Jones Day lawyers has recently failed. The rulings highlight the (now familiar) tension in a corporate wanting to carry out an internal investigation, with external legal assistance, without fear of the internal investigation documents being disclosed to investigators: Federal Constitutional Court, orders dated 27 June 2018, file numbers 2 BvR 1405/17, 2 BvR 1780/17, 2 BvR 1562/17, 2 BvR 1287/17, 2 BvR 1583/17.

VW retained US law firm Jones Day to provide legal advice and assist with an investigation during the U.S. Department of Justice investigation of VW and its subsidiary, Audi, and relating to the diesel emissions scandal.

In Germany, the public prosecutor’s offices in Brunswick were investigating VW and prosecutors in Munich were investigating Audi, on suspicion of fraud and criminal advertising.

The Munich prosecutors conducted a raid at Jones Day’s Munich offices in March 2017. They seized a large number of paper files and electronic data which related to the VW investigation for use in the Audi investigation. Jones Day and VW challenged the seizure, but were unsuccessful both before the Munich Local and Regional Courts.  Jones Day, three individual German Jones Day lawyers and VW lodged constitutional complaints with the German Federal Constitutional Court (BVerfG), but these have also failed.  The essence of these constitutional complaints was an allegation that the lower courts had not sufficiently considered the relationship of trust between a client and a law firm when examining the proportionality of the seizure.

VW

The court held that VW’s fundamental rights (which it has as a German entity) were not violated. Although its right to informational self determination was affected, the state measures were proportionate, considering the severity of the alleged offences and the intensity of the suspicion.

It is important to remember that whilst it was the Munich prosecutors that raided Jones Day, Jones Day’s client, VW, was not being investigated by the Munich prosecutors (they were investigating Audi – who were not Jones Day’s client). VW was being investigated by different investigators – in Brunswick. This was important, as the court found1 that search and seizure of documents at a law firm is lawful unless the law firm’s client is a suspect in the criminal investigation concerned or is subject to proceedings for an administrative fine or for confiscation of property.2

For a client who is not yet under criminal investigation or subject to proceedings for an administrative fine, the same protections against search and seizure will apply if an investigation is ‘imminent’; in particular, if there is sufficient objective suspicion that senior management have committed a criminal offence or breached a supervisory3 duty – a mere fear of an investigation does not suffice.

The BVerfG ruled that the search and seizure by the Munich prosecutors did not violate VW’s fundamental rights, but the documents could not be used in the investigation of VW by Brunswick prosecutors.

Jones Day – no fundamental rights for non EU entity

The court refused to hear the constitutional complaint from Jones Day. It held that Jones Day does not have fundamental rights under the German Constitution. Only German legal entities and legal entities seated in the EU have such rights. Jones Day, an Ohio partnership, did not have its main seat in the EU. The BVerfG held that the German branch of a foreign entity may have fundamental rights provided certain conditions are met. This is consistent with its ruling in a previous decision on a law firm raid involving a raid on the Dusseldorf and Frankfurt offices of a large international law firm organised as an English partnership4. The conditions are that:
- The branch must be impacted by the actions of the state.
- It must have a largely domestic (ie German) focus for its business activities.
- It must be organisationally autonomous.

The BVerfG found that this was not the case for Jones Day’s Munich office. It remains unclear what exactly was the difference in the facts, compared to the previous case.

Foreign law firms still have the same rights as German entities under the German Criminal Procedure Code (StPO).  This means that the lower courts must apply the same criteria as for a German entity when examining whether a search and seizure is lawful. One of the criteria is proportionality.  The law firm argued as part of its complaint to the BVerfG,  that the search and seizure was disproportionate and that the lower courts had not properly considered the relationship of trust between lawyer and client when considering proportionality. Despite declining to hear the constitutional complaint by Jones Day, the BVerfG nevertheless confirmed that, in its view the relationship between a client and a law firm (irrespective of whether it is EU or not) conducting an independent internal investigation into allegations of misconduct does not involve particular trust.

Individuals – their fundamental rights were not affected

The three individual lawyers were unsuccessful too. The court found their fundamental rights were not affected by the state’s actions (the raid) because it was the law firm that had been retained by VW, not the lawyers as individuals.

Which documents are now safe from seizure?

The decisions highlight the risk that documents located in Germany with a law firm advising on an internal investigation for a client may not be protected from seizure by German criminal prosecutors unless the client entity is subject to current or imminent proceedings for an administrative fine or confiscation, related to an existing criminal investigation. The ‘client’ must be the same entity that is being investigated for this protection to apply – so, if a subsidiary of a large corporate group is being investigated, that subsidiary should instruct the law firm directly (ie not via its parent company).

Employee interview notes

Uncertainty remains about whether employee interview notes can be seized even if the client is subject to an investigation. Some German courts have held that these are not covered by the relationship of trust between the law firm and the client, as this does not extend to all interviewed employees. This was not an issue in the VW case, so the BVerfG did not state its view.

Data held on foreign servers

The Munich Regional Court ordered the Munich prosecutors to release data to Jones Day that was copied from a Jones Day server located in Belgium, as there had been no request from Germany to Belgium for judicial assistance. This confirms that the prosecutors’ right to inspect accessible electronic data even if stored on a data carrier elsewhere5 only relates to data stored in Germany.

Documents held by clients

Note that the BVerfG’s decisions only relate to search and seizure in law firms. For documents held by a client under investigation the exceptions to a prosecutor’s right to search and seize them is even more limited. The only documents protected are communications between the client and its defence counsel retained for that criminal investigation.

Plans to change the law

The German government, according to the coalition agreement, intends to reform corporate criminal liability and, as part of that, create legal certainty over what materials created during an internal investigation are protected from search and seizure.  Related issues have been considered in depth in other countries – for example the UK Court of Appeal recently ruled (in SFO v ENRC) that documents created during an internal corruption investigation (including a lawyer’s notes of employee interviews) did not have to be disclosed to the UK Serious Fraud Office in a subsequent criminal investigation against the company.

Effective compliance requires appraising past deficiencies. An internal investigation by a law firm is often essential for this, and the law should protect the investigation documents from search and seizure at the law firm. There is a difficult balancing act here, between on the one hand ensuring the effectiveness of criminal prosecution, and on the other protecting the relationship of trust between a lawyer and a client (which is important for the administration of justice). The BVerfG used to emphasise the latter aspect in many previous cases; now it seems to give more weight to the former.

Footnotes:
1 The BVerfG re-examines lower court decisions only in relation to a potential  violation  of  fundamental rights, not for mere errors of law. Although the court confirmed the interpretation of the law by the Munich courts, it does not mean that other interpretations would be unconstitutional or that the BVerfG agrees that the interpretation of the Munich courts is correct.
2 See section 97 StPO. The BVerfG held that wider rule generally forbidding investigative measures against law firms (section 160a StPO) does not  apply for search a seizure; this had been previously disputed.
3 Sections 30, 130 Administrative Offences Act (Ordnungswidrigkeitengesetz, OWiG). Note that under current German law legal entities cannot commit criminal offences.
4 BVerfG, decision dated 18/3/2009, file no. 2 BvR 1036/08.
5 Section 110(3) StPO.

Further information

This article is part of the Allen & Overy Legal & Regulatory Risk Note, a quarterly publication.​

 

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