Back in May, the U.K.’s corporate crime investigator, the Serious Fraud Office (SFO), won the right to gain access to a raft of documents that a Kazakh mining company at the centre of a bribery and corruption investigation claimed were protected by professional privilege. At the time, the decision was hailed as being both “landmark” and “profound” with potentially wide-reaching ramifications. Now that company has won the right to appeal.
In an order published in October, the U.K.’s Court of Appeal said it would hear the case, adding that an appeal by the Eurasian Natural Resources Corporation (ENRC) had a “real prospect of success.”
The initial High Court judgment, handed down in May, ruled in favour of the SFO, which had brought a civil claim challenging ENRC’s assertion that documents generated during the company’s own internal investigation into alleged incidences of bribery and corruption were privileged. The agency disputed this, and the High Court agreed.
Most countries operate some form of legal privilege that allows companies to withhold certain types of documents from investigatory scrutiny under certain circumstances. But enforcement bodies have become increasingly frustrated that companies under investigation may be hiding key evidence under the guise that it is “privileged,” and these agencies are now more prepared to challenge the concept in court if organisations don’t turn over documents to reach a deal.
At the heart of the case is what documents are defined as being covered by “legal advice privilege” and “litigation privilege” under U.K. law, as both concepts provide different levels of legal protection under differing circumstances. For instance, legal advice privilege protects confidential communications between a lawyer and a client for the purpose of giving or receiving legal advice. Litigation privilege, on the other hand, applies to communications and documents that have been prepared for the dominant purpose of defending legal proceedings, or where legal proceedings are reasonably anticipated.
The judge ruled that the bulk of the documents at the centre of the ENRC case were not covered by litigation privilege (with the exception of a report prepared by law firm Dechert for the ENRC board into possible corrupt activities in its African operations). This meant that the SFO could legally obtain them. She also ruled that an investigation is not the same as adversarial litigation—such as civil or criminal proceedings—so companies could not expect the same level of privilege.
The judgment reads: “The dominant purpose for which those documents were created was to enable reports to be prepared to show to the SFO and presentations to be made to the SFO, at a time when the relationship was collaborative rather than adversarial.”
The SFO officially launched its criminal probe into ENRC in 2013 over its acquisition of mines and mineral assets in the Democratic Republic of Congo, home to some of the world’s richest stocks of copper and cobalt. ENRC—which has since changed its name to Eurasian Resources Group and has delisted—has said that it has “zero tolerance” for corruption. The SFO investigation is ongoing.
“If the ruling is upheld, it potentially has the perverse effect of discouraging firms from self-reporting for fear of the consequences. Without the protection of legal professional privilege, firms may find it difficult to conduct effective internal investigations.”
Joe Egan, President, Law Society
On news that the company could appeal, a spokesperson for ENRC said: “This was a decision which in our view seems to penalise ENRC for responsibly taking steps to thoroughly investigate the allegations so that it could properly understand what had happened and what should be done. It certainly would not seem to encourage corporate transparency and good governance going forward.”
Law firms are following the case closely. At a result of the original High Court judgment handed down in May, lawyers have questioned which documents might be subject to legal privilege, and which might not. Many have suggested that litigation privilege no longer covers documents and interview records created during internal investigations in anticipation of future criminal proceedings, for example. And if the Court of Appeal upholds the original ruling, legal experts fear it could have “profound implications” for corporate internal investigations, as well as for self-reporting incidences of possible bribery and corruption.
Companies have long claimed that documents created during internal investigations into allegations of wrongdoing are protected by privilege, including interviews with key witnesses. In the United Kingdom, while the SFO is at pains to point out that it respects the rights of companies to claim privilege, it believes some lawyers are making spurious privilege assertions over internal investigations to obstruct its inquiries.
In a well-known interview in February 2015 with The Times, SFO director David Green said: “These companies call in outside lawyers, who make a lot of money by doing an investigation and are the first to interview key witnesses at the coal face, then claim privilege—it is absolutely ludicrous.”
Green’s position on privilege has been repeated by senior SFO staff at numerous conferences. And in March 2016 Lord Neuberger, president of the Supreme Court, warned that businesses may be unable to claim legal professional privilege over documents arising from internal investigations that regulators ask to see.
As such, the ENRC case has prompted criticism of the SFO which, according to some lawyers, has “waged a war” against what it believes to be unjustified claims of legal privilege—a charge the agency denies, although it adds that it is “not afraid to challenge over the top claims.”
In recent years, the SFO has tried to encourage businesses to self-report corporate crime, with mixed success. In fact, such an inducement may be practically dead, as some lawyers argue that the recent deferred prosecution agreement (DPA) with Rolls-Royce may have blown self-reporting out of the water, given that it was approved even in the absence of a self-report—a historic first. Lawyers suggest the deal may mean that factors other than self-reporting, particularly whether a company has waived privilege (as Rolls-Royce did) to secure a settlement, will be more important in determining whether they secure a DPA.
The ENRC case and privilege
This May in the case of Director of the Serious Fraud Office v. Eurasian Natural Resources Corporation (ENRC), Justice Andrews at the High Court found in favour of the SFO, which had challenged an assertion made by ENRC, a Kazakh mining company, that certain documents generated in the context of an internal investigation were privileged and, thus, did not need to be handed over to prosecutors.
In 2011 ENRC launched an internal investigation in response to allegations of potential fraud, bribery, and corruption in Kazakhstan and Africa made by a whistleblower. That same year, the SFO became involved. It contacted ENRC, drew its attention to the SFO’s self-reporting guidelines, and suggested a meeting. There followed a lengthy period of dialogue between ENRC and the SFO, including a series of meetings in which ENRC updated the SFO on the progress of its internal investigation.
In 2013, however, the SFO commenced a criminal investigation into ENRC’s alleged criminal activities. Although the SFO had been given a report into whistleblower allegations of fraud at an ENRC subsidiary in Kazakhstan, it never received the company’s “self-report” on corruption allegations in the DRC. As part of its investigation, the SFO issued notices to ENRC to produce documents relevant to the investigation, exercising its powers under section 2(3) of the Criminal Justice Act.
However, the company claimed that notes from internal investigation interviews carried out by its law firm, Dechert were covered by two types of legal protection: litigation privilege and legal advice privilege. The former protects documents prepared for litigation, or if a dispute is in progress; the latter protects communications made in confidence between a lawyer and their client for the purpose of providing legal counsel.
ENRC had argued that there were four categories of documents that were privileged and so refused to produce them as part of the SFO’s investigation against it. These were interview notes taken by ENRC’s external legal counsel of numerous individuals relating to the events being investigated; documents generated by forensic accountants; documents indicating or containing the factual evidence presented by ENRC’s external legal counsel to ENRC’s board in relation to the investigation; and finally, documents referred to in a letter that the company sent to the SFO itself (including forensic accountant materials and two e-mails sent between ENRC’s head of M&A and senior ENRC executives).
In her decision, however, Justice Andrews held that privilege applied only to the documents indicating or containing the factual evidence presented by ENRC’s external legal counsel to ENRC’s board in relation to the investigation. These, she said, were subject to legal advice privilege.
She also rejected all other claims of privilege made by ENRC. The ramifications of such a decision are wide-ranging: it means that litigation privilege does not apply to documents prepared for a criminal investigation, as opposed to a prosecution. It also means that litigation privilege does not apply to documents prepared for the dominant purpose of avoiding prosecution (as opposed to preparing a defence brief).
The judgment also reinforced the idea that legal advice privilege does not apply to the records of a fact-finding or evidence-gathering process (because these do not constitute legal advice), nor to lawyers’ notes or other working papers.
Graham Huntley, founding partner of Signature Litigation, which acted for ENRC, said after the High Court ruling: “The effect of this decision is that it is much harder to claim litigation privilege in the criminal context than in a civil one. This is unprincipled and illogical.”
ENRC sought to appeal the decision, and the Court of Appeal in October granted permission. It also said that “the grounds of appeal have a real prospect of success.”
The SFO is not the only U.K. enforcement agency that has come under fire for trying to strong-arm companies under investigation into waiving privilege. Lawyers have also criticised the Financial Conduct Authority for using similar tactics by trying to make financial firms reveal privileged documents during routine investigations.
And it’s not the first time that the SFO has had run-ins over what constitutes “privileged” information, either. The agency had a similar issue in its criminal investigation into Barclays’ emergency cash call with Qatari investors during the financial crisis. The issue was resolved in 2016 when the bank—after a private hearing—partially waived privilege on thousands of documents. On 20 June this year, the SFO charged Barclays PLC—the parent company of Barclays Bank—and four former executives with conspiracy to commit fraud, as well as providing unlawful financial assistance over the bank’s dealings with Qatar at the height of the financial crisis.
However, one lawyer (who declined to be named) says that the ENRC case is a reminder of “how narrow the scope of legal advice privilege is intended to be,” and adds that “it would be dangerous to believe a lawyer taking notes in an internal investigation can automatically assume that those notes can be swept under the carpet.”
In the Royal Bank of Scotland (RBS) rights issue case from last year, for example—which saw the bank’s shareholders try to recover their investment losses—the judge held that notes of interviews with current and former employees of a corporation as part of an investigation by in-house and external lawyers are not privileged as a matter of English law. Furthermore, the court also confirmed that English privilege rules should be applied in cases before the English court so that, even though the interview notes were likely to have been privileged as a matter of U.S. law, they were not privileged as a matter of English law.
The Law Society, the legal profession’s regulatory body, has slammed the original High Court ruling on the ENRC case, stressing that anything that undermines professional privilege risks threatens the entire justice system. It believes that the May ruling provided a narrow interpretation of legal advice privilege and litigation privilege, and that there are worrying ramifications for corporations trying to do the right thing in conducting internal investigations and self-reporting potential issues to the relevant authorities.
On 10 November the Society said it was seeking permission to intervene in the case because the High Court ruling has profound implications for when—and how—companies and their employees are protected by privilege. “The right for anyone to communicate confidentially with their lawyer is a fundamental part of our legal system and we want to ensure that this right is protected for all of us, including corporations,” said Law Society President Joe Egan in a statement.
“If the ruling is upheld, it potentially has the perverse effect of discouraging firms from self-reporting for fear of the consequences,” said Egan. “Without the protection of legal professional privilege, firms may find it difficult to conduct effective internal investigations,” he added.