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JAN-MAR 2014
www.riskandcompliancemagazine.com
RCrisk&
compliance&
Inside this issue:
FEATURE
The evolving role of
the chi...
2 www.riskandcompliancemagazine.comRISK & COMPLIANCE Jul-Sep 2018
risk&
complianceRC&
www.riskandcompliancemagazine.com
www.riskandcompliancemagazine.com 3RISK & COMPLIANCE Jul-Sep 2018
PERSPECTIVES
PERSPECTIVES
CROSS-BORDER
INTERNAL COMPLIAN...
4 www.riskandcompliancemagazine.comRISK & COMPLIANCE Jul-Sep 2018
MINI-ROUNDTABLE
Legal privilege and internal
investigati...
www.riskandcompliancemagazine.com 5RISK & COMPLIANCE Jul-Sep 2018
MINI-ROUNDTABLE
contradictory picture and contributed to...
6 www.riskandcompliancemagazine.comRISK & COMPLIANCE Jul-Sep 2018
PERSPECTIVES
Other states whose jurisdictions might be
a...
www.riskandcompliancemagazine.com 7RISK & COMPLIANCE Jul-Sep 2018
PERSPECTIVESXXX
is excluded. This does have
to be openly...
8 www.riskandcompliancemagazine.comRISK & COMPLIANCE Jul-Sep 2018
PERSPECTIVES
authorities can reinstate lost trust and li...
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Rc Cross-Border Internal Compliance Investigations in Germany and Legal Privilege: Balancing The Needs

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Legal Privilege and internal investigations in Germany – balancing the need

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Rc Cross-Border Internal Compliance Investigations in Germany and Legal Privilege: Balancing The Needs

  1. 1. JAN-MAR 2014 www.riskandcompliancemagazine.com RCrisk& compliance& Inside this issue: FEATURE The evolving role of the chief risk officer EXPERT FORUM Managing your company’s regulatory exposure HOT TOPIC Data privacy in Europe REPRINTED FROM: RISK & COMPLIANCE MAGAZINE JAN-MAR 2014 ISSUE DATA PRIVACY IN EUROPE www.riskandcompliancemagazine.com Visit the website to request a free copy of the full e-magazine Published by Financier Worldwide Ltd riskandcompliance@financierworldwide.com © 2014 Financier Worldwide Ltd. All rights reserved. R E P R I N T RCrisk& compliance& CROSS-BORDER INTERNAL COMPLIANCE INVESTIGATIONS IN GERMANY AND LEGAL PRIVILEGE: BALANCING THE NEEDS ��������������������������������� ������������ risk& complianceRC& ������������������ ������� ������������������������� �������������� ������������ ��������������������������� ��������� ��������������������������� ������������������ REPRINTED FROM: RISK & COMPLIANCE MAGAZINE JUL-SEP 2018 ISSUE www.riskandcompliancemagazine.com Visit the website to request a free copy of the full e-magazine Published by Financier Worldwide Ltd riskandcompliance@financierworldwide.com © 2018 Financier Worldwide Ltd. All rights reserved.
  2. 2. 2 www.riskandcompliancemagazine.comRISK & COMPLIANCE Jul-Sep 2018 risk& complianceRC& www.riskandcompliancemagazine.com
  3. 3. www.riskandcompliancemagazine.com 3RISK & COMPLIANCE Jul-Sep 2018 PERSPECTIVES PERSPECTIVES CROSS-BORDER INTERNAL COMPLIANCE INVESTIGATIONS IN GERMANY AND LEGAL PRIVILEGE: BALANCING THE NEEDS BY WOLFGANG SPOERR AND MATHIAS PRIEWER > HENGELER MUELLER I nternal investigations have become firmly established in continental Europe, or at the very least in Germany. They are increasingly viewed as an important element of a company’s best possible defence. However, even within just one jurisdiction there are conflicting goals to consider. Legal requirements have to be balanced in many different ways. Experience shows that this is possible, as long as certain basic cornerstones are respected and, on a more detailed level, the developing best practice for internal investigations is adhered to. This challenge becomes much more complex in the case of cross-border investigations. The fundamental legal framework for internal investigations differs vastly between jurisdictions. Even so, with the help of foresight it is usually possible to balance the different requirements so that companies do not reach the point where there is a genuine conflict between the requirements of different jurisdictions and a decision needs to be taken.
  4. 4. 4 www.riskandcompliancemagazine.comRISK & COMPLIANCE Jul-Sep 2018 MINI-ROUNDTABLE Legal privilege and internal investigations in Germany Internal investigations, along with the accompanying disclosure of the results of an investigation to regulatory or criminal enforcement authorities, have been firmly established in the US since the 1970s and are now part and parcel of the local legal culture. This has only recently been the case in Germany. For some time, internal fact-finding in cases of potential misconduct was a task for the internal audit department. Voluntary disclosure of potentially significant matters under criminal law and active support for public investigations were a rare exception. In the aftermath of corruption scandals among some of Germany’s largest corporates, the practice saw its first systematic developments. But the approach has been viewed with some scepticism. The German legal tradition understands fact-finding, under criminal law, to be the sole responsibility of the state, with prosecutors having full authority over the matter. Getting private entities involved in the processes of fact-finding and investigation seems to run contrary to this principle at first glance. However, everything has changed. The concerns were never really legally substantiated and did not serve to hinder the establishment of accepted best practice in Germany. Nonetheless, many legal questions, generally concerning the design and implementation of internal investigations, or specifically related to the disclosure of the results of the investigation to state authorities, remain unanswered. For example, the scope of employees’ disclosure obligations during interviews, data protection aspects regarding the internal processing of personal data and the transmission of information to the authorities, and the evaluation of the admissibility of the evidence in legal proceedings, are just some examples to be mentioned here. Legal privilege is an area of particular controversy in Germany. Though there has only been a limited number of decisions handed down by German courts on this matter, they have created a “German companies often find themselves coming into contact with US laws, most likely due to the fact that the US is the most important market for the export of German goods.” CROSS-BORDER INTERNAL COMPLIANCE INVESTIGATIONS IN...
  5. 5. www.riskandcompliancemagazine.com 5RISK & COMPLIANCE Jul-Sep 2018 MINI-ROUNDTABLE contradictory picture and contributed to intense legal uncertainty, with even the German Federal Constitutional Court now being involved in resolving the matter. In a simplified way, legal privilege is part of the professional rules of the legal system, and only indirectly protects against state intervention. In-house counsels are not even granted privilege. Whether case-related documents are protected from confiscation depends on their content and their possession. For example, confidential documents that are in the custody of the client are only protected if they were clearly drafted as part of the defence in ongoing criminal proceedings. Even within the safe harbour of a law firm there is no absolute protection, according to a contested opinion. Instead, the protection is dependent on the condition that the documents in question mirror the particular relationship of trust between the defendant and its counsel. A search of the law firm’s (not the criminal defence attorney’s) premises by investigative authorities is therefore conceivable and fairly common, despite legal privilege, whereas it would be quite the exception from a US point of view. By contrast, German legal privilege does not contain a waiver doctrine. In the event that the client happens to disclose individual documents or information from the protected set of data, there is no negative impact on the existence of sufficient protection with regard to the collection of evidence in connection to other information or documents. More complex balancing is required in cross-border investigations In a global economy, factual circumstances often have an international aspect to them. Cross-border investigations are, therefore, the rule rather than the exception. An additional element comes into play when there are not only international facts to be investigated, but the jurisdiction is also spread across different nations. On top of the already difficult relationship between legal privilege and cooperation and disclosure, the different design of legal privilege among jurisdictions is added into the mix. German companies often find themselves coming into contact with US laws, most likely due to the fact that the US is the most important market for the export of German goods. In addition, authorities like the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) do not see country borders as a barrier to action, but will instead prosecute criminal behaviour abroad if there is a jurisdictional nexus. If, in these cases, a company considers the disclosure of certain findings in Germany, potential consequences for US-based administrative or legal proceedings must then be taken into account. Even successful cooperation with German investigative authorities may have a disastrous effect on the US side, and may eventually turn out to be a pyrrhic victory if the strategy was purely set out with the German proceedings in mind. CROSS-BORDER INTERNAL COMPLIANCE INVESTIGATIONS IN...
  6. 6. 6 www.riskandcompliancemagazine.comRISK & COMPLIANCE Jul-Sep 2018 PERSPECTIVES Other states whose jurisdictions might be affected by the case must also be taken seriously of course. The UK, for example, has a very different understanding of legal privilege, especially as it pertains to internal company investigations. US legal privilege and cooperation with German authorities Unlike in European law, US law comprehensively protects the relationship between attorney and client by way of legal privilege. Insofar as the attorney-client privilege or the work-product doctrine are applicable, they may also be relied on by companies. In-house counsel also benefits. Within the law of evidence and procedural law, legal privilege functions as a stronghold against confiscation, as well as statement and disclosure obligations. When cooperating with American authorities, this is relevant insofar as both the SEC enforcement manual and the US Attorney’s Manual, which is significant for DOJ investigations, stipulate that cooperation which is seen to be positive is not tied to the disclosure of privileged information. The different levels of protection and the limitations of legal privilege, which are already entirely different at a very basic level, lead to disclosure obligations or expectations being much more extensive here than in the US. Thus the minimum expectations of German public prosecutors in acknowledging cooperation efforts are based on the scope of information they would be able to obtain in the event of a hypothetical intervention on the basis of the existing rules on investigative powers. As a result, disclosure in Germany should, in principle, also include those documents that are protected by legal privilege under US law, but are subject to confiscation under German law. This poses a dilemma. German investigative authorities are not parties to the case mandate. As potential prosecutors, they are equally potential opponents of the company. If they are provided with documents subject to US legal privilege, this might lead to a loss of protection in the US, based on the principles of the attorney-client privilege and the work-product doctrine. Through an unlimited focus of the cooperative strategy on German standards, the company could therefore be forced to also disclose documents in proceedings before US courts and authorities, which the opponent would otherwise not gain access to. This is the direct result of the privilege waiver doctrine, with an unintended privilege waiver being the nightmare of any lawyer dealing with internal investigations. Finding a way out of this dilemma requires finesse, negotiation skills and foresight. Even at the stage of planning a cross-border internal compliance investigation, the risk of waiving US legal privilege can already be sought to be minimised. An example of how to achieve this would be to set the organisational and timely scope of the investigation in such a way that internal and external legal advice CROSS-BORDER INTERNAL COMPLIANCE INVESTIGATIONS IN...
  7. 7. www.riskandcompliancemagazine.com 7RISK & COMPLIANCE Jul-Sep 2018 PERSPECTIVESXXX is excluded. This does have to be openly agreed with the authorities though. In general, when communicating with German authorities, it is advisable to raise awareness of the particular circumstances of a cross-border investigation early on. The reasons for choosing not to disclose certain information which is protected under US law must be clearly articulated. Relevant data must, therefore, be permanently and reliably saved. Transparency is key here. There must never be the impression that arguments such as the privilege argument are used in a strategic way to withhold evidence. The end result would be mistrust, which is very hard to get rid of again. The stance taken by the German authorities is very similar to the US authorities’ attitude toward European companies in cases where they rely on European or other local data protection laws. Only where practical approaches are not sufficient to exclude or mitigate the conflicts in an individual case, does the dilemma need to be cleared through a careful weighing-up exercise. The only remaining option is to compare and balance the risks resulting from, for example, US and German law. The core question is one of risk assessment, including the probability of an adverse event and its impact: is it worse to limit cooperation with the authorities on the German side or to face the likely consequences for proceedings on the US side? A risk assessment of this type entails more than comparing the impending moderate fines in Germany with the impending horrendous liability payments and penalties in the US. The effects on the company’s public perception must also be considered. A good rapport with the investigative CROSS-BORDER INTERNAL COMPLIANCE INVESTIGATIONS IN...
  8. 8. 8 www.riskandcompliancemagazine.comRISK & COMPLIANCE Jul-Sep 2018 PERSPECTIVES authorities can reinstate lost trust and limit the reputational damage caused by the investigation. In any case, the result of the balancing, depending on the design and intensity of the relationship thus far, may vary: the deliberate non-disclosure of documents will usually not be that severe from the point of view of the authorities if it is preceded by months of successful cooperation. If, however, the decision for non-disclosure is already made early on in the cooperation or later on without a clear rationale and transparent scope, the cooperation may be permanently damaged. Outlook: regulations in the future corporate criminal law of Germany Internal compliance investigations will gain new momentum with the future corporate criminal law, which the ruling parties of the new German federal government have agreed upon. It envisages legal requirements and incentives for internal investigations and disclosure of the resulting findings. This is to be combined with a drastic increase in company fines, up to 10 percent of turnover per offence. Private business is not overjoyed about this. Instead, it leads to legal uncertainty across all industry sectors. There is a fear that this will de facto lead to an obligation to cooperate with the authorities. While companies currently, more or less, have a choice of whether they want to use the findings from an internal investigation for compliance purposes or whether to pass them on to investigative authorities, the new rules could lead to disclosure being the only option. The statement that cooperative efforts will be viewed positively, after all (at least semantically) is not that far from the threat, that a refusal would have negative effects. It is already clear that, in line with the political intent of the federal government, the disclosure of findings from internal compliance investigations will become more important and most likely a more regular occurrence too. Alongside this, the need for legal advice on cooperation with investigative authorities and the need for internal investigations will increase. Sound strategic legal advice will also increasingly be required by companies across all sectors. RC& CROSS-BORDER INTERNAL COMPLIANCE INVESTIGATIONS IN... Wolfgang Spoerr Partner Hengeler Mueller T: +49 (0)30 203 74 159 E: wolfgang.spoerr@hengeler.com Mathias Priewer Associate Hengeler Mueller T: +49 (0)30 203 74 248 E: mathias.priewer@hengeler.com

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