Internal investigations – quo vadis?

German Constitutional Court: no protection against the seizure of documents relating to "Internal Investigations" at law firms

Law firms and the companies had put their trust in the German Constitutional Court. They had hoped that the highest German court would provide some clarity about the seizure exemption for documents relating to an internal investigation that are kept by the law firm charged with the investigation. The German Constitutional Court did provide clarity, but not of the kind the stakeholders had hoped for, because the German Constitutional Court held that it was legal to seize the documents at the US Law Firm Jones Day relating to the internal investigation at VW and Audi in connection with the diesel issue.

Background

Volkswagen AG, the Law Firm Jones Day as well as some individual attorneys involved had filed constitutional complaints against the search warrants, the seizure, and the negative legal remedy decisions. They criticized mostly that the seizures illegally interfered with the attorney/client relationship between Volkswagen AG and Jones Day. The German Constitutional Court, however, dismissed the constitutional complaints. The reasons for the dismissals provided by the German Constitutional Court basically contain the following core statements:

• Documents resulting from an attorney/client relationship are not exempt from seizure in and of themselves, but only, if the client is a defendant already.
• As long as the initiation of proceedings against the company as the potential debtor of a corporate fine is not objectively expected yet, the company is not yet a defendant entitled to a freedom from seizure.
• The seizure protection relation to an attorney/client relationship between the attorney and the parent company cannot be applied to its subsidiaries.
• Law firms that are based abroad and who do most of their business abroad cannot claim the protection of German Basic Law.

Consequences

Not much can be said against the decisions of the German Constitutional Court from a purely legal (constitutional) perspective. They clearly show, however, that there is an urgent need in practice for a legal provision governing internal investigations and corporate criminal law. The German Code of Criminal Procedure, which focuses on the traditional defense of the individual, is simply no longer suitable for the defense of companies on the basis of modern compliance parameters, which include internal investigations. It is very disconcerting and unfair from a procedural standpoint to encourage companies to investigate any violations committed by members of the company against certain regulations within the context of due compliance itself, but then not to protect any documents that may have been drafted by an attorney in connection with these internal investigations against access by a prosecutor.

The formal argument for the lawfulness of a seizure, i.e., that the company is not (yet) a defendant while the investigations against company members are ongoing, may be in line with the provisions of the German Criminal Code of Procedure, but it is lacking. Especially the investigations in the Volkswagen case make this very clear. At the time the documents were seized, no proceedings had been initiated against the company, and the documents from the internal investigation could therefore, according to the German Constitutional Court, be seized. That did not, however, prevent the prosecution from initiating proceedings against the company at a later date, and is now armed with the results of the internal investigation. The differentiation between the proceedings against company members and the company itself therefore seems very artificial.

Outlook

This uncertainty is untenable for companies from a constitutional point of view. The legal provisions for internal investigations announced in the coalition agreement should therefore contain a comprehensive prohibition of the gathering and using of evidence and information gathered by attorneys over the course of internal investigations that is similar to the "attorney privilege" known from US law. Otherwise, attorneys are degraded to auxiliary investigators of the prosecution, which is concerned about its capacities.

Should companies completely stop conducting internal investigations until the announced provisions are in place? Certainly not! Clearly, the decision by the German Constitutional Court put a significant damper on the good-faith efforts of companies to work on their "sins of the past". Not to perform internal investigations at the start of a self-cleaning process would, however, be fatal for companies if this might cause them to continue violating the law. In response to the decisions by the German Constitutional Court, companies and attorneys should, going forward, structure their attorney/client relationships in a clearer manner. An internal investigation as a defence of the company should be clearly delimited from "normal" attorney consulting services. In addition, it is important to ensure that group companies are formally included in the attorney/client relationship with the group parent. As the case may be, an earlier cooperation with the investigating authorities may prevent them from making a surprise visit to a law firm as well.