Germany
Seizure of documents in diesel emissions scandal lawful, says Constitutional Court
Following the unsuccessful complaints lodged by Volkswagen AG and the law firm Jones Day with Germany’s Constitutional Court regarding the seizure of sensitive compliance documents in the diesel emissions scandal, companies should now take a closer look at their compliance structures for internal investigations and revise them, if necessary.
The order to search the Munich office of law firm Jones Day and the decision to uphold the seizure of documents found there for the purpose of examination are not constitutionally objectionable. This was the decision of a panel of judges of the Federal Constitutional Court, Germany’s supreme court, handed down in June 2018.
Two complaints submitted by Volkswagen AG, two by Jones Day, and one brought by lawyers working at the firm, were not admitted for decision.
The plaintiffs challenged the measures carried out by authorities in Munich and the lower courts’ decisions to uphold them. The rulings add fuel to the fire in the long-running debate on the protection of lawyers’ documents in the context of internal investigations.
No charge, no protection from seizure
Performing an internal company investigation is often the only way for a company to assess the extent of misconduct and risk to the company in the event of suspected improper conduct by employees or managers.
According to the justices, investigating authorities can now gain access to the results and documents from these internal investigations as long as the company itself is not affected by the specific investigation proceedings.
“The fact that other relationships may exist that are affected by investigatory measures, such as that of a subsidiary, is expressly not sufficient to prevent authorities from accessing the documents,” explains Johannes Altenburg, lawyer and partner at Roxin Rechtsanwälte LLP.
This was particularly true where an investigation proceedings has not yet been initiated. In this case, the Constitutional Court leaves companies to their own devices, depriving them of protection under the principle of legal privilege. The fear is that this decision may encourage investigating authorities to perform searches at a company’s appointed law firms if they become aware that internal investigations are being conducted.
Leeway for accused parties
However, the court’s decisions also provided insight into the level of protection intended by the Constitutional Court, explains the criminal law expert. For example, a company would have the right to protection of its lawyers’ defense-related documents if this company is included in a criminal investigation as the possible subject of an association fine, which would lend it a status similar to that of a party charged with a criminal offence.
Niklas Auffermann, founder and partner of FS-PP in Berlin, which specializes in corporate criminal law, also believes there is room for maneuver following the ruling. The court deemed it constitutionally permissible to grant client-attorney privilege if the initiation of fine proceedings against a company based on a management failure or the future status as a party charged with a criminal offence was “sufficiently certain”.
“From the point of view of the companies and the lawyers engaged to perform an internal investigation, it will be important here to identify any factors that make it likely that proceedings will be initiated against the company in the future as early as possible and to align the investigation assignment specifically with the task of defending the company,” explains Auffermann.
‘Companies should establish trust with authorities’
Christoph Klahold, Chief Compliance Officer at ThyssenKrupp, sees the impact on practice as follows: “Good compliance requires effective internal investigations. And the rules of the game can now be determined by the legislator.
Clearly defined rules are not an end in and of themselves, but they do create legal certainty and take account of the legitimate interests of the parties concerned. Now and in the future, companies have to make the effort to establish relationships with the investigating authorities based on trust in order to have a good basis for cooperation if necessary.”
The Constitutional Court did not take advantage of the opportunity to provide this much-needed clarity and to further specify the objective criteria required for holding the “status of a party charged with a criminal offence in the future”.
It also remains to be seen, adds Altenburg, whether companies must be aware of these objective circumstances at the beginning or at the end of the internal investigation to justify a prohibition on seizure, or if the public prosecutor’s office must be aware of them at the time the search is carried out.
Incentive for reviewing company structures
The ruling should provide incentive for companies in Germany – and especially corporate groups – to review their existing structures for internal investigations. The case of VW clearly shows that there is a tendency among corporate groups to have parent companies clarify facts about possible criminal offences. And it is this specific practice that must be reconsidered.
“For each assignment that may potentially result in an internal investigation, it is important to decide early on which legal entity should actually award the assignment,” explains Altenburg. This is particularly the case for medium-sized companies, as subsidiaries generally do not maintain their own legal and compliance departments and internal investigations are almost always carried out by the parent company.
In the future, companies will have to consider at the start of an assignment how to exactly organize the processes and client relationships so that they do not end up with a special case – like VW and Audi did.
German law offers no privilege for US law firms
In regard to the constitutional complaint lodged by Jones Day, the judges had already denied its right to appeal because the firm is a foreign legal entity and as such cannot invoke material basic rights under German law and the Constitution.
This ruling creates a dilemma for companies involved in matters that also affect non-European jurisdictions. On the one hand, companies usually require the services of a law firm in the respective country due to their expertise in the local legal system and in order to establish contact with the local authorities.
On the other hand, according to the case law of the German Constitutional Court, this creates vulnerability in terms of constitutional protection against coercive measures by German investigating authorities.
Auffermann sees cooperation models between German and foreign consulting units as a solution to this problem. “The internal investigation must be explicitly commissioned and carried out by the law firm that has its head office in Germany, and any documents prepared must also remain on its premises,” according to the expert on white-collar crime law.
Looking ahead
For attorney Altenburg the consequences of the Federal Constitutional Court’s decision are not in line with the plans of the German Federal Government. In its coalition agreement until 2021, the German government has undertaken to establish that companies involved in investigatory proceedings would benefit from performing any internal clarification of facts relevant under criminal law.
This puts companies under pressure to initiate internal investigatory measures in cases of suspicion. The decision of the Federal Constitutional Court in the VW case has now unsettled many companies.
“It remains to be seen whether this new area of conflict will be resolved by the legislative efforts and whether the level of protection for companies and their lawyers will be adjusted within the context of the planned legislative reform,” Altenburg sums up.
With regard to the proposed legislation on sanctions for companies and on internal investigations, Auffermann is confident that “the core principles of legal privilege regarding the prohibition on seizure will remain intact”.
Author: Fee Rahel Schlaegel
Photo credit: Mehr Demokratie, Mündliche Verhandlung in Karlsruhe (7555287074), CC BY-SA 2.0