When learning of a potential regulatory issue – whether through receipt of an information request from the authorities or through an internal mechanism – a firm will usually conduct an internal investigation, whose purpose is to understand the scope of the issue, remediate the problem, and to formulate a response to regulators, civil plaintiffs and other constituencies.
It is imperative that the internal investigation be conducted so as to maximise the protections of legally applicable privileges. If the privilege is protected from the outset, the company can then determine the extent to which privileged materials should be withheld from regulators or civil plaintiffs or the extent to which the company will waive the privilege.
This article examines the differences in approach to privilege issues under US and English law, and suggests some measures companies can take to maximise the privilege protections in the conduct of internal investigations.
Privilege in the United States – applicability of privilege doctrines to internal investigations
Under US laws, there are two key types of privileges: the attorney-client privilege and the attorney work-product doctrine.
The attorney–client privilege
The attorney–client privilege protects confidential attorney–client communications for the purpose of giving or receiving legal advice from disclosure. In the context of an internal investigation, attorney–client privilege will be available where one of the significant purposes of the internal investigation was to obtain or provide legal advice.1 In a landmark decision, a US federal appellate court held that:
In the context of internal investigations, if one of the significant purposes of the investigation was to obtain or provide legal advice the privilege will apply. That is true regardless of whether an internal investigation was conducted pursuant to a company compliance program required by statute or regulation, or was otherwise conducted pursuant to company policy.2
It is well established that under US laws, attorney–client privilege can apply to any employee of a company directly involved in providing information for the company’s attorneys to use in advising the company (in contrast to the English law position, discussed below). As a result, notes of witness interviews carried out by counsel with employees of their client company will generally be regarded as protected by attorney–client privilege.3 Note, however, that underlying facts cannot be immunised from discovery by communicating them to counsel during the course of an investigation.4
This issue was examined in the recent General Motors case, in which the court considered an application by plaintiffs in a product liability dispute for access to interview notes underlying an internal investigation report, prepared by General Motors’ counsel, but then provided to regulators and made publicly available.5 The court determined that the interview notes were protected under both the attorney–client privilege and work-product doctrine because the interviews were conducted to assist counsel in providing legal advice to the company and in contemplation of litigation. The court held that the privilege covering the interview notes had not been waived by General Motors’ public disclosure of external counsel’s investigation report. Since General Motors had produced a significant volume of additional documentation to the plaintiffs, the court found that the case did not present ‘the unusual and rare circumstances in which fairness requires a judicial finding of waiver with respect to related, protected information’.
However, the court’s holding in General Motors is not without limits. In a closely watched employee retaliation case filed by the general counsel of Bio-Rad, a life science company, claiming that the company wrongfully terminated him for reporting certain misconduct to the audit committee, a district court in California has declined to follow General Motors to grant privilege protection to work products generated in the internal investigation conducted by outside counsel examining the alleged misconduct, claiming that the company cannot use the conclusion from the investigation offensively at trial to defeat the plaintiff’s retaliation claim while precluding the plaintiff from presenting related communications to rebut this evidence.6
The attorney–client privilege also generally extends to protect communications between an attorney and third-party experts working on an investigation, provided the investigation is being directed by counsel. However, there have been outlier cases where such protection has been lost. For example, in Wultz v Bank of China Ltd, the plaintiffs sought disclosure of documents relating to an internal investigation conducted by a bank’s compliance team.7 The court found that there was no evidence that the documents had been created ‘at the ‘direction’ of an attorney in order to allow the attorney to render legal advice’ but that the investigation was instead carried out by non-lawyers, and therefore rejected the bank’s privilege claim.
The attorney work–product doctrine
The work–product doctrine protects attorneys’ mental impressions formed, conclusions reached or legal theories developed in anticipation of litigation. The work–product doctrine does not, however, offer a complete protection from disclosure. To the extent that an attorney’s work contains relevant and non-privileged facts, it is disclosable in cases where the plaintiff has a substantial need for the information and cannot otherwise obtain equivalent information without undue hardship.
The United States adopts a broad interpretation of the requirement that litigation be anticipated. Thus, courts have routinely held that an ‘investigation by a federal agency presents more than a remote prospect of future litigation’ for the purposes of the work–product doctrine.8 However, any materials alleged to be the subject of work–product protection must have been prepared because of such litigation. In Wultz, the court held that the documents were also outside the scope of work–product protection since the bank did not demonstrate that the investigation had been carried out because of litigation; the company’s internal procedures would have required that an investigation be carried out, and documents produced in the same way, without any threat of litigation.
Privilege waiver as cooperation with US authorities
The extent to which US authorities make ‘credit’ for cooperation conditional on a company’s willingness to waive the privilege has been a subject of intense debate over recent years. The current version of the US Attorney’s Manual states that waiving the attorney–client or attorney work product protections is not a prerequisite under the Department of Justice’s prosecution guidelines for a company to be viewed as cooperative. In fact, the current version of the manual states that ‘while a corporation remains free to convey non-factual or “core” attorney–client communications or work product – if and only if the corporation voluntarily chooses to do so – prosecutors should not ask for such waivers and are directed not to do so’.9 Eligibility for cooperation credit is not predicated upon the waiver of attorney–client privilege or work–product protection but rather on the company’s disclosure of relevant facts.
The enforcement manual of the Securities and Exchange Commission (SEC) states that staff ‘may not ask a party to waive the attorney–client privilege or work product protection without prior approval of the director or deputy director’.10 It also notes that voluntary disclosure of information ‘need not include a waiver of privilege to be an effective form of cooperation.’ While the guidance sounds similar, in practice, it is more common for the SEC staff to have an expectation that the company will be willing to waiver privilege than for the criminal authorities to do so. Companies should nevertheless understand that if it provides privileged materials to the SEC, the privilege will be waived for these materials in its entirety, meaning that the criminal authorities and civil litigants can also access these materials later.
The above guidance would suggest that companies self-reporting to US regulators have fewer incentives to make disclosure of privileged material. Nonetheless, extensive disclosure of facts may lead to an argument that there is a subject matter waiver that applies in general to a broad range of communications and work products created in the internal investigation process. This aggressive argument has at least been successful in the Bio-Rad case, in which the court held that a 41-page PowerPoint presentation by Bio-Rad’s outside counsel to the SEC lead to the waiver of privilege of other documents when fairness requires so.11
A decision to waive privilege in the United States may have far-reaching consequences. The US courts have generally refused to recognise limited or selective waivers of privilege.12 Therefore, any waiver of privilege over investigation documentation to a regulator may result in a complete loss of privilege as against third parties. When disclosing documents, parties should insist that there is no general subject matter waiver and it should reserve the right to claw back any inadvertent disclosures. Additionally, parties should be aware that agreeing to disclose attorney–client communications to third parties at the inception of an investigation can result in a loss of the attorney–client privilege.13
Privilege in England and Wales
English law recognises two main heads of privilege: the legal advice privilege, which applies to confidential communications between a lawyer and client for the purpose of giving or receiving legal advice; and the litigation privilege, which applies to confidential communications between the lawyer and client, or between either of them and a third party, for the sole or dominant purpose of gathering evidence for use in legal proceedings, or for giving legal advice in relation to such proceedings. Litigation privilege only applies where litigation has commenced or is reasonably anticipated. While these two concepts are broadly analogous to the US attorney–client privilege and work-product doctrines, there are some important differences.
The legal advice privilege
The legal advice privilege is similar to the US attorney–client privilege in that it protects communications for the purposes of giving and receiving legal advice. However, the doctrine is narrower because it only covers lawyer–client communications and therefore does not protect communications with a third party. In an investigation, this means that reports prepared for a company by third parties (such as forensic accountants or IT experts) will not be protected by legal advice privilege (although they may be covered by the litigation privilege). The Supreme Court confirmed in 2013 that the legal advice privilege does not apply to any professional other than a qualified lawyer, rejecting an argument that documents containing legal advice on tax matters from an accounting adviser were privileged.14
An important limitation of the legal advice privilege is the limited definition of ‘client’ established by the English courts. The Court of Appeal’s decision in Three Rivers (No. 5) placed restrictions on who may be considered to be the client and gives rise to uncertainty over the scope of legal advice privilege for corporate clients.15 The Court of Appeal limited the definition of the client to the small group of employees who had been given responsibility for coordinating communications with the lawyers, meaning that all other employees were regarded as third parties and that legal advice privilege could not be claimed over their communications. The Court of Appeal’s reasoning was not followed in other Commonwealth jurisdictions, but in 2016 and 2017, a series of High Court decisions found that solicitors’ interviews with client company employees were not covered by legal advice privilege, as the employees in question did not form part of the client for privilege purposes.16 In particular, in the RBS Rights Issue Litigation case, the High Court noted that the effect of Three Rivers was to limit the client to those authorised to seek and receive legal advice on behalf of the client corporation, and that the authority to provide information to the lawyers was not sufficient for these purposes. The High Court did not consider it necessary to determine the question of whether the client should be regarded as comprising only those individuals who represent the ‘directing mind and will’ of the client, and the judge (Hildyard J) did suggest that he inclined to this view. The narrow view taken in the RBS Rights Issue case was subsequently endorsed in the ENRC case discussed below.
In the RBS Rights Issue case, the High Court also discussed the extent to which interview notes may be regarded as subject to legal advice privilege, even where the interviews themselves are not (applying the restrictive interpretation of ‘client’ outlined above) on the basis that the interview notes form part of the lawyers’ working papers. The judge concluded that, in order to be protected by legal advice privilege, there must be some attribute of the notes which distinguished them from verbatim transcripts of the interviews. He found that RBS had not demonstrated that this was the case on the evidence. However, in appropriate circumstances, it may be possible to argue that interview notes are subject to legal advice privilege on the basis that they give a clue as to the trend of lawyers’ advice.
It is therefore advisable for companies conducting internal investigations to consider expressly nominating the individuals who will be responsible for directing outside counsel. To the extent that interviews are conducted with individuals outside the nominated client group, these are unlikely to be covered by the legal professional privilege (since they are communications between a lawyer and third party) and notes of such interviews may be disclosable, unless litigation privilege applies.
The litigation privilege
In the context of internal investigations, there are substantial limitations on the scope of litigation privilege. The scope of this doctrine is unclear in the context of regulatory investigations since the litigation privilege has been held only to apply in circumstances where the contemplated proceedings are adversarial, rather than inquisitorial.17 This distinction was considered by the Competition Appeal Tribunal (CAT) in 2012 in the context of an investigation involving the Office of Fair Trading (OFT) and Tesco.18 The CAT determined that the proceedings were ‘sufficiently adversarial’ by the time the company began to gather its evidence since the OFT had already issued two ‘statements of objections’ alleging competition violations and Tesco was contesting the OFT’s case. Some commentators have sought to apply this decision to other regulatory investigations by analogy arguing, for example, that a Financial Conduct Authority (FCA) investigation in which it has issued a warning notice would likely be regarded as ‘sufficiently adversarial’ in the same way as the OFT proceedings.
The English courts have, however, recently considered whether a criminal investigation by the Serious Fraud Office (SFO) satisfied the ‘litigation’ limb of the test for litigation privilege. In SFO v Eurasian Natural Resources Corporation Ltd  EWHC 1017 (QB), the High Court found that the test of whether litigation is in reasonable contemplation is not met just because a criminal investigation is contemplated. Only a prosecution, not an investigation, amounts to litigation for these purposes, and contemplation of a criminal investigation does not necessarily equate to the contemplation of a prosecution. Prosecution only becomes a real prospect once it is discovered that there is some truth in the allegations, or at least some material to support them. The ENRC decision was considered by the Court of Appeal in R (For and on behalf of the Health and Safety Executive) v Jukes  EWCA Crim 176, where the court endorsed Andrew J’s assertion that the reasonable contemplation of a criminal investigation does not necessarily equate to the reasonable contemplation of prosecution for the purposes of establishing litigation privilege. Whether this stance is maintained remains to be seen as ENRC have been granted leave to appeal, with the Court of Appeal hearing scheduled at the time of writing for July 2018.
A second limitation on the scope of the litigation privilege arises in the context of the ‘dominant purpose’ requirement. The English courts highlighted the narrow scope of this requirement in a recent case involving the production of reports prepared by a firm of accountants on the instruction of joint liquidators of a group of companies owned by the Tchenguiz brothers and used to hold investments and carry out derivatives and futures trading.19 The liquidators provided the reports to the SFO in connection with its investigation into the brothers. The Tchenguiz brothers subsequently brought a claim against the SFO for allegedly unlawful raids on their premises and sought disclosure of the reports. The liquidators argued that the reports were covered by litigation privilege. The Court of Appeal held that it was not possible to establish that the reports were prepared for the dominant purpose of litigation where they had been commissioned for dual purposes: both to obtain advice in relation to litigation and to carry out the liquidators’ statutory duty to assess the relevant companies’ assets and liabilities. The Court of Appeal stated that the real difficulty was that ‘in circumstances which call for clarity and precision’ the liquidators had ‘made no effort to grapple with the obvious need to establish which of dual or even multiple purposes was dominant if a plausible claim to privilege was to be made out’.
The ENRC case also considered the ‘dominant purpose’ test, finding that, even if litigation was in reasonable prospect at the time, documents prepared in connection with ENRC’s internal investigation had not been prepared for the dominant purpose of that litigation. Instead, the primary purpose was to find out if there was any truth in allegations made by a whistle-blower and (if there was) to decide what to do.
The High Court considered the decision in ENRC in Bilta (UK) Ltd v Royal Bank Of Scotland Plc & Anor  EWHC 3535 (Ch) and held that it was not determinative on the facts. In Bilta, RBS claimed litigation privilege over documents, including transcripts of interviews, which had been created as part of an internal investigation. RBS conducted the investigation following receipt of a letter from HM Revenue and Customs (HMRC), which asserted that there might be grounds to deny RBS’s VAT reclaim in relation to certain carbon credit trades on the basis that RBS ‘knew or ought to have known’ that the trades were connected to VAT fraud. The High Court held that the dominant purpose of the documents was litigation and that they were subject to litigation privilege. While RBS had other purposes in conducting the internal investigation (such as trying to persuade HMRC not to pursue an assessment, maintaining a good relationship with HMRC and adhering to RBS’s internal protocols), these purposes were ‘effectively subsumed under the purpose of defeating the expected assessment’. The court stressed that the exercise of determining the dominant purpose of documents would, in each case, be a question of fact.
In the context of internal investigations, the onus will be on the party seeking to assert litigation privilege to establish that litigation was the ‘dominant’ purpose. It may be difficult to claim litigation privilege over documents created as part of an internal investigation in certain circumstances, for example those prepared in connection with an investigation conducted:
• pursuant to a regulatory or statutory obligation;
• for the purpose of reporting to shareholders; or
• to respond to complaints where it is unclear that the complainant intends to bring legal proceedings.
The result of ENRC and Jukes is that it is likely to be easier to establish that litigation privilege applies in the context of civil proceedings. However, where a criminal investigation is under way but no proceedings have been commenced, these judgments of the High Court and Court of Appeal would suggest that litigation privilege might not be available in respect of documents prepared in connection with that investigation.
Waiver of privilege as a ‘badge of cooperation’ in the United Kingdom?
Recent statements by UK regulators have demonstrated a determination that companies waive the privilege over their internal investigations to demonstrate cooperation. Senior SFO officials have suggested that they intend to take a more aggressive approach to claims of privilege by companies who self-report serious fraud or corruption and the recent High Court decisions in relation to privilege are likely to make privilege claims more difficult to justify in the context of internal investigations.
In public speeches, senior SFO personnel have expressed their displeasure with broad assertions of privilege by companies seeking to cooperate with the SFO in the interests of obtaining a favourable resolution, especially where the privilege is asserted to cover a witness’s first account (or initial interview). For example, in a 2015 FCA speech on internal investigation, Jamie Symington, director in enforcement, said:
A practice we sometimes see is for the investigation to produce only lawyers’ notes of such interviews. No recordings, no notes by others including the interviewee. Then firms will sometimes argue that the notes of the interview are privileged. This sort of approach looks to us like a ‘gaming’ of the process in order to shroud the output of an investigation in privilege. We find it particularly unhelpful and unwelcome.20
This sentiment was echoed by the SFO’s general counsel, Alun Milford, in March 2016, where he noted that the SFO does not regard itself as constrained from asking for underlying facts even if they are privileged, and the SFO will view as uncooperative false or exaggerated claims of privilege, and is prepared to litigate over them.21 This is consistent with the SFO’s statement on the self-reporting process which indicates that ‘all supporting evidence including but not limited to emails, banking evidence and witness accounts’ must be provided as part of the self-reporting process.22 At the time of writing the SFO has appointed a new director and it remains to be seen how she will approach the issue; although there is nothing to indicate a softening of the SFO’s position.
Despite the SFO’s rhetoric, in AL v SFO  EWHC 856, the High Court was critical of the SFO’s approach in challenging claims to privilege by a company in the context of a criminal trial of individuals following entry into a deferred prosecution agreement (DPA). AL, a former employee of XYZ Limited (a company which entered into the United Kingdom’s second DPA with the SFO in 2016) applied for judicial review of the SFO’s decision not to pursue XYZ for breach of its duty of cooperation under the terms of its DPA.23 The High Court ultimately denied AL’s application on the basis that it was brought in the wrong forum, however, the court was critical of the SFO and stated that, had it been the proper forum, it would have quashed the SFO’s decision and remitted the issue for reconsideration. AL’s application centred on his request to the SFO to disclose notes taken by XYZ’s lawyers during interviews of senior employees (including AL), conducted during an internal investigation before XYZ took the decision to self-report. The SFO requested access to these notes but XYZ refused on the basis that they were privileged and instead provided the SFO with ‘oral proffers’. The SFO took no further action against XYZ to force disclosure of the original interview notes. The High Court criticised the use of oral proffers as ‘highly artificial’ and expressed surprise that the SFO did not more robustly demand the written summaries, which it considered not to be privileged following the ENRC case.
The judgment is likely to result in the SFO adopting a more robust approach to challenging privilege claims, especially in circumstances where a corporate is obliged to cooperate with the SFO under the terms of a DPA. It also raises the prospect that, in multi-agency settlements, there might be a divergence of approach between agencies who are content to receive oral proffers (eg, the US Department of Justice) and those which are not.
Under English law (in contrast to the US position), provided that confidentiality is not waived in respect of privileged communications, privilege can be maintained against the rest of the world following a specific waiver in favour of a regulator or third party.24
Conclusions for multinational investigations
We have set out in this article some of the key differences between US and English law in relation to the availability of privilege claims in internal investigations. Managing internal investigations that involve multiple jurisdictions necessarily involves the consideration of complex issues arising from different legal systems and regulatory expectations. Differing privilege standards are a key area to consider when managing a cross-border investigation. In light of the increased cooperation and information-sharing between different regulators, a company cooperating with one body should expect to share the same information with investigatory agencies in different countries. In this context, privilege issues should be considered with great care since a limited waiver of privilege when providing information to one regulator (in line with its expectations of cooperation) may lead to collateral privilege waivers in respect of other regulators in other jurisdictions.
As companies conduct internal investigations, they should:
• involve counsel at the outset of the investigation and ensure that counsel is responsible for directing the investigation;
• create a written record demonstrating that the investigation is being conducted for the purpose of the company obtaining legal advice in connection with anticipated litigation;
• ensure that all non-legal advisers are retained or supervised by counsel overseeing the investigation;
• ensure that the record reflects that key decision-makers at the company are within the client group so that there is no doubt that their communications with counsel are protected;
• in creating written reports of the investigation or witness interviews, be mindful of the distinction between ‘facts’ on the one hand, and ‘legal advice, mental impressions or analysis’ on the other hand, and consider whether the written reports will be protected under the privilege laws in each jurisdiction that the company can face potential litigation or enforcement actions; and
• take steps to avoid inadvertent waiver by ensuring the investigation and any related documents or reports are treated as confidential and not disclosed outside the investigation team.
Companies conducting internal investigations should strive to protect the privilege at the outset so as to retain the flexibility to decide later whether and to what extent a privilege waiver is advisable. Where a company has structured its internal investigation to maximise its privilege, the company will have more control over how and when to disclose the relevant information.
1 See Upjohn Co v United States, 449 US 383 (1981); see also In re Kellogg Brown & Root Inc, 756 F. 3d 754 (DC Cir. 2014); but see Wultz v Bank of China, 304 FRD 384 (SDNY, 2015) (holding that internal investigation documents were not protected by attorney–client privilege when none of the documents consisted of communications between bank and one of its attorneys, and none of the documents were produced at the direction of an attorney in order to allow the attorney to render legal advice).
2 In re Kellogg Brown & Root Inc 756 F. 3d at 760.
3 See, eg, US ex rel. Figueroa v Covan World-wide Moving, Inc, No. 3:12-CV-1144-JFA, 2014 WL 5461995, at *4 (DSC 27 October 2014) (holding that ‘objective facts’ are not protected by privilege).
4 See Upjohn, 449 US 393 (1981), in which the Supreme Court stated that ‘privilege exists to protect not only the giving of professional advice to those who can act on it but also the giving of information to the lawyer to enable him to give sound and informed advice.’
5 In re General Motors LLC Ignition Switch Litigation, 80 F.Supp.3d 521 (SDNY 2015).
6 See Wadler v Bio-Rad Labs, 212 F.Supp.3d 829, 852 (ND Cal. 2016).
7 304 FRD 384.
8 Pacamor Bearings v Minebea Co, 918 F. Supp. 491, 513 (DNH 1996); but see State of Fla. ex rel. Butterworth v Indus. Chemicals, Inc, 145 FRD 585, 588 (ND Fla. 1991) (holding that the work product privilege did not apply to a state-level civil investigative demand because a State Attorney General need not ‘anticipate litigation’ before issuing a civil investigative demand).
9 US Attorney’s Manual 9-28.710.
10 SEC Enforcement Manual, 4 June 2015: www.sec.gov/divisions/enforce/enforcementmanual.pdf.
11 See Walder, 212 F.Supp.3d at 852.
12 Aronson v McKesson HBOC, Inc, No. 99-CV-20743, 2005 WL 934331, at *5 (ND Cal. 31 March 2005) (‘the communications were not protected by the attorney–client privilege when made because McKesson had clearly agreed to disclose attorney–client communications to third parties before the communications had occurred’).
13 Some federal circuit courts have left open the possibility that selective waivers could be possible in particular circumstances. For examples of circuit courts that have rejected the concept of selective waiver, see In re Pacific Pictures 679 F.3d 1121 (9th Cir. 2012) and Westinghouse Electric Corp v Republic of the Philippines 951 F.2d 1414 (3rd Cir. 1991). The Eighth Circuit expressly permitted a selective waiver in the form of disclosure to the SEC in response to a subpoena in Diversified Industries v Meredith 572 F.2d 596 (8th Cir. 1978).
14 R (on the application of Prudential plc and another) v Special Commissioner of Income Tax and another  UKSC 1.
15 Three Rivers District Council and others v The Governor and Company of the Bank of England  EWCA Civ 474.
16 See Astex Therapeutics v Astrazeneca  EWHC 2759 (Ch); see also The RBS Rights Issue Litigation  EWHC 3161 (Ch).
17 In re L (a Minor) (Police Investigation: Privilege)  AC 16.
18 Tesco Stores Ltd v Office of Fair Trading  CAT 6.
19 Rawlinson and Hunter Trustees SA v Akers  EWCA Civ 136.
20 Jamie Symington, ‘Internal Investigation by Firms,’ Speech on 5 November 2015, available at www.fca.org.uk/news/speeches/internal-investigations-firms.
21 Alun Milford, ‘Speech to Compliance Professionals,’ on 29 March 2016, available at www.sfo.gov.uk/2016/03/29/speech-compliance-professionals/.
23 See paragraph 62 of preliminary DPA and paragraphs 14(iii) and 19 of final redacted DPA.
24 See Gotha City v Sotheby’s  1 WLR 114, in which privileged information was found to remain so after it had been shared with a third party on the understanding that they would keep the communications in confidence, and Property Alliance Group v The Royal Bank of Scotland plc  EWHC 1557 (Ch), in which documents provided to regulators on a confidential ‘non-waiver’ basis and pursuant to agreements under which privilege and confidence were expressly maintained remained privileged as against a civil litigant.