Internal investigations in the light of current decisions of the Federal Constitutional Court on secure client documents

With three decisions of 27 June 2018, the Federal Constitutional Court (Bundesverfassungsgericht, "BVerfG") held that the constitutional complaints of a company, the law firm commissioned by it and three lawyers in the law firm were inadmissible.

The claimants had appealed against search and seizure warrants of the local court (Amtsgericht) and their confirmation by the Regional Court (Landgericht) Munich I. Under the warrants, files and data had been seized in the Munich offices of a US law firm which concerned an internal investigation commissioned from this law firm in connection with possible exhaust gas manipulation.

The statements of the BVerfG on the reasons for not granting certiorari are remarkable. For the first time, the BVerfG makes it very clear: Constitutional law by no means ensures that documents collected within the framework of internal investigations and stored at the lawyer's office cannot be seized. Not only the results of an internal investigation, but also the "raw data" generated during the investigation - in particular minutes of any employee surveys or secured e-mails - can thus be made available to the investigating authorities. An exception to this principle should only be made if the company commissioning the investigation is in a situation similar to that of a party charged with a crime.

The legal background of the decision and the consequences for practice resulting from it are briefly described below:

Background: The relationship between the company and the lawyer

Since companies in Germany cannot be defendants in criminal proceedings, the client relationship between a company and its lawyer is not subject to the same comprehensive protection that exists between the defendant and his/her defense lawyer. In particular, the freedom from seizure of so-called defense documents (cf. §§ 97, 160a German Code of Criminal Procedure (Strafprozessordnung, "StPO") is generally not guaranteed when advising companies. This also applies to internal investigations, as the BVerfG has now clarified.

The situation is different, however, if the company is in a situation similar to that of a person charged with a crime. In such a case, the relationship of trust between the company and the lawyer means that the documents in the law firm are not accessible to the state. According to the case law of the BVerfG, however, such a situation similar to that of a person charged with a crime only exists if there is a danger "from an objective point of view" that a fine will be imposed on the company (§ 30 German Act on Administrative Offenses (Gesetz über Ordnungswidrigkeiten, "OWiG")) or that proceeds realized by the company from possible criminal offences will be confiscated (§§ 73 et seq. German Criminal Code (Strafgesetzbuch, "StGB"), 29a OWiG). In the opinion of the BVerfG, the company to have a position similar to that of a person charged with a crime if there is only "the mere possibility or probability of an offense" or when a company "merely fears a future investigation procedure directed against it and, against this background, obtains legal advice". What is required is a "sufficient suspicion" of a criminal offence or breach of a supervisory duty (§ 130 OWiG) by a manager, which serves as a link for the "punishment" of the company.

Problematic consequences for practice

In practice, this means: If a company lacks a position similar to that of a person charged with a crime, documents from internal investigations can be confiscated in a law firm. Although the BVerfG has merely determined in legal terms that the seizure-friendly case law of the Regional Court Munich I is constitutional, a different interpretation of the Code of Criminal Procedure cannot be ruled out. In practice, however, it is to be expected that the Munich opinion will now prevail.

This, in turn, is problematic: Whereas it has been customary to provide the investigating authorities only with the results of an internal investigation, in future there is a risk of comprehensive access to all "raw data", i.e. survey protocols, IT forensic evaluation reports, e-mail searches, etc., located in the law firm (or the company). The accordingly precludes filtering of the findings. Internal investigations that are carried out in connection with investigative proceedings even entail the risk that all discovered grievances - and no longer just those directly relevant to the proceedings - will also become known to the investigating authorities, possibly resulting in new proceedings.

Advice is needed

The resolutions of the BVerfG thus place the management of a company in a dilemma: On the one hand, the management is obliged to investigate (and put an end to) any criminal offences committed from within the company as soon as the management becomes aware of them. The management is only entitled to exercise discretion with regard to the manner of clarification (selection measures), but not with regard to whether the clarification should take place (resolution measures). If the management does not comply with this obligation and the company suffers a loss as a result, the managing directors may even be held to have committed a criminal breach of fiduciary duties under § 266 StGB and could also be personally liable for any losses.

On the other hand, the results of an internal investigation can also cause financial harm to a company. If, for example, bribery payments by an employee to acquire orders for the company are discovered (§ 299 StGB), the revenue generated from the orders could be confiscated by the criminal prosecution authorities (§ 73 StGB) and the company could be fined (§ 30 OWiG) (as happened in the context of the so-called corruption affair at Siemens). Management must also protect the company against such harm.

The duty of disclosure, thus, conflicts with the risk of sanctions, which in turn is considerably increased by the possibility that results of an internal investigation might be seized. The company virtually provides the evidence for its own punishment with the documents collected and produced within the framework of the internal investigation. While the individual person charged with a crime can easily hand over incriminating documents to his/her defense lawyer, thereby protecting them from seizure, this applies only to a limited extent to companies. The documents in an internal investigation intended to uncover possible violations and collect corresponding material would only be protected if the situation is similar to that of a person charged with a crime. Business managers are, therefore, well advised to seek advice on the necessary weighing of interests. It should also be examined whether any affected subsidiaries should establish their own client relationships with the law firm that carries out internal investigations, because only then can they benefit from the protection of the client relationship. If the mandate is based only on the parent company, the corresponding documents can be seized in proceedings against the subsidiary (or its responsible party) according to the case law of the Regional Court Munich I approved by the BVerfG, even if the subsidiary is in a situation similar to that of accused person charged with a crime.

Advantage of German law firms

The constitutional judges also ruled the US law firm cannot invoke the fundamental rights under the German Constitution (Grundgesetz) since the US firm is not a "domestic legal entity" due to the lack of a registered office in Germany or the European Union. The fact that the law firm had an office in Munich did not change this, since only the location of the main office is determinative and the main office was not located in Germany or the EU. In the present case, the (German) lawyers of the law firm were also unable to plead that their own fundamental rights had been violated during the search of the law firm.

Summary of practical information

How the new decision of the BVerfG will affect the conduct of internal investigations in Germany remains to be seen. The legislature is called upon to create legal certainty here, because internal investigations have long been an essential component of responsible compliance. In any event, managers who learn of criminal offences committed within the company should promptly discuss with a defense lawyer whether and to what extent an internal investigation is being initiated.

(BVerfG, Orders of 6 June 2018, Ref.: 2 BvR 1405, 1780/17; 2 BvR 1287, 1583/17; 2 BvR 1562/17)

Stefan Glock, Attorney at Law
Dr Jan Felix Sturm, Attorney at Law
both Hamburg