No one wins if internal investigations are not privileged

If companies’ inquiries can be used against them they might stop making them, Amanda Raad writes

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May 17, 2017
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The recent High Court ruling regarding the Serious Fraud Office and the mining company ENRC appears, at face value, to be a straightforward application of English law to the parameters of legal professional privilege. But the case has unintended and potentially far-reaching consequences for corporate internal investigations.

Prior to this judgment, companies in the UK rightfully believed they could retain counsel to conduct privileged internal investigations into allegations of wrongdoing. They could diligently investigate complaints while maintaining control over whether and how to disclose any potential adverse findings. The ENRC judgment seemingly abolishes this privilege, leading to a potentially detrimental chilling effect on internal investigations by UK corporations.

The court limited the boundaries of the “in anticipation of litigation” privilege, often relied on in the internal investigations context, and concluded that it was only applicable after the investigation revealed concrete evidence of wrongdoing and negotiations between parties had sufficiently broken down.

But companies will inherently fail both tests at the start of internal investigations.

First, concrete evidence of wrongdoing is typically uncovered through the course of an investigation. That is the purpose of a well-scoped investigation. Second, parties are encouraged to co-operate with regulators, and rarely would you expect negotiations to break down early in the investigative process. Under this standard most internal investigations will not be privileged in the UK.

As a result, companies may be tempted to halt non-privileged internal investigations. After all, why should companies pay the costs of investigations that ultimately are used to incriminate them?

However, companies should carefully consider the role of internal investigations in their organisations. Implementing adequate procedures is the only defence available to corporates under the UK Bribery Act, and these procedures necessarily include an investigative function.

Regulators’ expectations concerning scope of investigation, disclosure, and co-operation also vary by jurisdiction, and global corporates will not be excused from corporate responsibilities because of a change in English privilege principles. For example, co-operation credit in the US is largely dependent on the robustness of a company’s investigative response. Allowing fraudulent or corrupt behaviour to exist within an organisation will ultimately cause financial, reputational, and of course legal risk.

If companies fail to investigate themselves then already resource-constrained regulators will need to find new ways to identify, investigate, and prove misconduct. But, if companies do conduct non-privileged investigations in the UK, the findings could be used against them both here and abroad.

So, who wins from this decision? Arguably, no one.

Amanda Raad is a partner at the London office of the US law firm Ropes & Gray

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