The rulings should prompt general counsel of businesses with headquarters or operations in Germany to tighten up their approach to internal investigations. Failure to do so could result in sensitive information relevant to those investigations being seized by authorities and being used to initiate or back-up criminal or administrative enforcement action resulting in serious liabilities for the business, its managers and employees.
The background and the rulings
On 6 July, the German Federal Constitutional Court published three rulings on the legality of the seizure of documents and data obtained during a dawn raid of a law firm that conducted internal investigations on behalf of a corporation.
The rulings concerned information pertinent to investigations opened in March 2017 by Munich prosecutors into fraud and illegal advertising related to the so-called 'Dieselgate' emissions cheating scandal at Volkswagen.
As part of the investigations, police officers and prosecutors dawn-raided the headquarter offices of Audi AG in Ingolstadt, as well as the Munich offices of US law firm Jones Day. Audi, subsidiary of Volkswagen, was involved in the engineering and manufacturing of 3.0-litre diesel engines used for high-end models made by several branches of the Volkswagen group.
Jones Day had been asked by Volkswagen in September 2015 to conduct an internal investigation into the Dieselgate facts, and to represent Volkswagen to the US enforcement authorities. Jones Day's activities included investigations at Audi through a number of its German lawyers.
During the dawn-raid at the law firm the authorities obtained 185 document files as well as data stored on the IT system reflecting the findings of the internal investigations.
Legal remedies taken by the client and the law firm against the dawn raid and seizure of this information were not successful – the first and second instance courts held that provisions of the German Code of Criminal Procedure (Strafprozessordnung - StPO) relevant for the protection of the lawyer-client privilege did not apply for various factual as well as legal reasons.
These Code provisions basically prohibit the seizure of written communication between the suspect of a crime and its lawyer and records prepared by the lawyer in this regard. Further, these provisions limit investigative measures against lawyers, and prohibit the use of evidence gathered by such prohibited seizure or measures in court.
The client, the law firm and three of its German lawyers raised several constitutional complaints with the Federal Constitutional Court, arguing a breach of their fundamental rights through the seizure and confirming court decisions. Further, the law firm applied for an interim injunction to prevent the authorities from reviewing the seized information, until the Federal Constitutional Court ruled on the constitutional complaints. The Federal Constitutional Court in July 2017 granted such interim relief for a period of six months, and, in January 2018, prolonged the relief for further six month.
However, on 27 June this year the Federal Constitutional Court, in three rulings, decided not to admit any of the constitutional complaints for a ruling on the merits, arguing that the use of the relevant provisions by the authorities and courts does not give rise to specific concerns under constitutional law. Specifically, it held that Volkswagen is not violated in its right for informational self-determination nor of its right to a fair trial.
Further, US based Jones Day was held to be unable to lodge a constitutional complaint under the German constitution at all, for being neither a domestic nor an EU legal entity, among other things as it did not demonstrate an effective place of management within Germany or the EU.
These rulings are not subject to appeal. It means the authorities can now access the documents and data and enhance their ongoing investigations with this information.
Consistent with case law
The legal reasoning adopted by the Federal Constitutional Court is in line with a narrow legal view taken by the prevailing opinion by German courts and scholars on the provisions prohibiting the seizure of written communication between the suspect of a crime and an lawyer and records prepared by the lawyer in this regard.
According to this narrow view, in summary, the provision only protects the specific relation of trust between a person being charged with a crime, and the lawyer defending this person in criminal proceedings.
The first prominent case law to this effect dates from 2010, when the regional court of Hamburg ruled in favour of the local prosecutors who had dawn-raided the Hamburg offices of Freshfields, seizing interview protocols made in the course of internal investigations on behalf of HSH Nordbank to gather evidence against board members of HSH Nordbank in breach of trust investigations.
Thus, unless the prosecutors investigate against the client or clients who have instructed the law firm with internal investigations, and such internal investigation is being made for the purpose of defending this client, information obtained and prepared by the law firm is not protected by the lawyer-client privilege. Rather, it may be seized and used by the enforcement authorities.
Although this position has been widely disputed with valid legal arguments, it continues to apply in light of the recent rulings.
Further, materials produced or held by in-house counsel engaged in internal investigations are per se not protected by the German lawyer-client privilege, but can be generally seized without limitations at the corporation.
Change in the law in the pipeline
The recent decisions add fuel to the flames of an ongoing political discussion whether the relevant provisions should be actively changed by the legislator. It seems inconsistent to encourage businesses to implement compliance measures including internal investigations, while at the same time putting them at risk that findings obtained at great efforts and cost get out control if seized and used by the authorities, with potentially detrimental liability effects for the business, its managers and employees.
In its coalition agreement of March this year, the governing coalition in Germany agreed, among other things, to enact specific legal requirements for internal investigations, in particular with respect to the seizure of documents and requirements for dawn-raids, and create legal incentives for internal investigations and the voluntary disclosure of respective findings.
The Federal Ministry of Justice has been instructed to provide a draft bill in this regard. However, it is not yet known if and when a draft bill will be presented, and to what extent such draft reflects, confirms or changes the current legal position.
Actions for businesses and general counsel in particular
Although the recent rulings highlight the limitations that apply to lawyer-client privilege in Germany, there are steps general counsel can take in preparation and execution of internal investigations to protect sensitive information from those investigations from seizure.
- use external lawyers in significant cases that may potentially lead to criminal investigations by the authorities;
- thoroughly plan internal investigations, including adopting a clear and targeted definition of the client, as well as a clear and targeted definition of the scope of the mandate to include the potential defence against potential criminal or administrative investigations against individuals, the legal entity and / or the management, as the case may be;
- ensure law firms contracted to help have a thorough strategy in place on how to handle records obtained and prepared during internal investigations, including a clear labelling of all information related to the defence mandate, and policies how to document information, while ensuring efficient case handling and reporting to the client at the same time;
- include general warnings to employees of the client that are subject to interviews that while they have to provide comprehensive information to their employer on employment related circumstances, there is an inherent risk that state authorities may seize this information later and use it in legal proceedings against them; and
- confirm that the law firm assigned to assist in internal investigations in Germany is acting in a structure that does not prevent it from lodging constitutional complaints under the German constitution – although it is not clear whether such a structure alone would have helped in past cases, and would help in future cases.
Munich-based Dr. Eike W. Grunert is an expert in compliance at Pinsent Masons, the law firm behind Out-Law.com.