SFO entitled to disclosure of corporate’s internal documents

dominoes-corruption
In the recent case of The Director of the SFO v. Eurasian Natural Resources Corporate, the English court found that the Serious Fraud Office (the “SFO”) was entitled to disclosure of certain documents from a multinational corporate that was subject to an ongoing SFO criminal investigation resulting from allegations of international fraud, bribery and corruption. The documents had been generated by the corporate’s solicitors and forensic accountants during a period of internal investigation into those allegations.

The decision is significant for corporates who may come under investigation by a UK regulatory or criminal body because it clarifies that they cannot necessarily claim that their internal documents are privileged from disclosure. It is particularly noteworthy because the corporate had been negotiating with the SFO and was actively co-operating to uncover any wrongdoing within its organisation, in particular by its foreign subsidiaries.

Under English law, an individual or corporate may withhold disclosure of confidential and sensitive documents in the context of litigation or an investigation, by claiming either litigation or legal advice privilege. In broad terms, litigation privilege covers communications between parties and their solicitors and third parties for the purpose of getting advice or information relating to existing or contemplated litigation. Past case-law has confirmed that proceedings have to be “essentially adversarial” for litigation privilege to apply.

Legal advice privilege covers confidential communications passing between the individual/corporate and their lawyers, the latter acting in their professional capacity, for the purpose of giving and receiving legal advice, even when litigation is not contemplated. The English courts take a narrow view of who or what constitutes the “client” in this context. In the case of an individual, clearly the client is the person who instructs the lawyer. However, in the case of a corporate, legal advice privilege attaches only to communications between the lawyer and those individuals who are authorised to obtain legal advice on the corporate’s behalf, and the communications must be for the purposes of, or in the course of that person giving or receiving legal advice. A corporate will sometimes set up a specific internal team to manage an internal investigation and communicate with the corporate’s lawyers, with the aim of asserting that that team is the “client”, for the purposes of privilege.

In this case, the corporate was part of a multinational group of companies with mining operations performed through subsidiaries operating in geographical regions widely perceived as being high risk for public sector bribery and corruption, including Kazakhstan and various parts of Africa. In 2010, the corporate was alerted by a whistle-blower to alleged corruption and financial wrongdoing by its Kazakhstani subsidiary, and started investigating these allegations with the assistance of its lawyers. It subsequently instructed its forensic accountants to undertake a books and records review to satisfy regulatory and compliance requirements. In August 2011, the SFO contacted the corporate, suggesting that it might wish to self-report any incidents of corruption and wrong-doing. The SFO has a policy of encouraging corporates to self-report on the basis that this may be a factor weighing against any criminal prosecution in due course if wrongdoing is demonstrated, with a potential monetary civil settlement being agreed instead.

Between 2011 and 2013, there were ongoing discussions between the corporate and the SFO, whereby the corporate undertook to co-operate fully with the SFO. At the same time, internal investigations into the allegations of wrongdoing had continued. However, in August 2011, following personnel changes within the SFO, together with the corporate’s dismissal of the lawyers who had been representing it in the self-reporting process and who had been conducting the internal investigations, the SFO began an investigation into the corporate.

The SFO sought disclosure of various documents from the corporate in relation to the investigation. The corporate asserted that the documents requested were covered by litigation and/or legal advice privilege.

With the exception of one small category of documents, the court dismissed all the corporate’s claims of privilege. In relation to the claims for litigation privilege, the court found that, at the time the relevant documents were generated, litigation was not in reasonable contemplation. A potential criminal investigation, as opposed to a prosecution, does not amount to litigation for these purposes. Rather, the documents were produced not to assist in the conduct of litigation, but rather in order to decide how best to avoid contemplated litigation. Moreover, documents that were created with the intention of showing them to an opponent party could not be privileged. The court also highlighted the fact that investigations by regulatory bodies were not adversarial proceedings. Litigation privilege did not, therefore, apply.

As to legal advice privilege, the court decided that the various employees, ex-employees, company officers and third parties who had been interviewed by the corporate’s lawyers did not qualify as the “client” and were not authorised to seek and receive legal advice on behalf of the corporate. Their communications with the lawyers were not, therefore, privileged.

Given the increasing number of SFO investigations into, and prosecutions of, corporates since the UK Bribery Act came into force in July 2011, similar issues to those that were dealt with in this case might well arise in the context of future regulatory and criminal investigations. Corporates who co-operate with the authorities and self-report may still be compelled to disclose sensitive and confidential information at a later stage, despite their co-operation. In this case, the court noted that there was a public interest in the SFO being able to investigate and prosecute crime. Furthermore, the corporate had undertaken to give full and frank disclosure to the SFO at the outset of their negotiations and should not, therefore, be allowed to back out of its promise to do so.

It should be kept in mind that whether or not a document is privileged will usually be fact-specific. A corporate should remain very careful in dealing with factual internal investigations and should note that it may have more limited scope to obtain confidential legal advice than it might otherwise have thought.

This decision is being appealed.

Authors: Kevin Cooper, Reema Shour

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