Corporate Alert 02 February 2011 Author: Dr. Wilhelm Hartung wilhelm.hartung@klgates.com +49.30.22.00.29.220 K&L Gates includes lawyers practicing out of 37 offices located in North America, Europe, Asia and the Middle East, and represents numerous GLOBAL 500, FORTUNE 100, and FTSE 100 corporations, in addition to growth and middle market companies, entrepreneurs, capital market participants and public sector entities. For more information, visit www.klgates.com. Amendment of German Code of Criminal Procedure broadens Scope of Legal Professional Privilege Recent developments have created a forceful additional reason for German companies conducting internal investigations of potential wrongdoing to consider engaging private, external counsel for these matters. Beginning 1 February 2011, German law will afford attorneys (Rechtsanwälten) significantly enhanced confidentiality protections for information and findings deriving from the relationship with their clients, due to an amendment of section 160a German Code of Criminal Procedure (Strafprozessordnung, StPO). These newly expanded privileges do not extend to certified public accountants (Wirtschaftsprüfer) or tax advisors (Steuerberater), and there is no firm legal basis for in-house attorneys (Syndikusanwälte) to claim the same kind of privilege as attorneys in private practice. To ensure benefiting from the enhanced privilege, it is advisable in any internal corporate investigation to clearly mark privileged and confidential (paper and electronic) documents as such, and to ensure that only attorneys and clients have access. Caution is advised for correspondence with executives or employees of the corporation concerning the findings of the investigation, as these persons – should they have to be considered as third parties outside of the attorney-client relationship – may not fall within the ambit of the confidentiality protection by the legal privilege. In a client relationship with a corporation (as opposed to a natural person), the only individuals qualifying as “the client” would be the legal representatives of the body corporate, e.g., members of the board of management (Vorstand) of a stock corporation (Aktiengesellschaft) or, under special circumstances, members of the supervisory board (Aufsichtsrat). 1. Amendment of Statute On 27 December 2010, the “Act to Strengthen Confidential Relationships with Attorneys in the Law of Criminal Procedure” was published in the German gazette. The Act, which enters into effect on 1 February 2011, amends section 160a StPO, and enhances the protection afforded to attorneys by the legal privilege in criminal investigations. Under the law as amended, attorneys may no longer be subject to any investigatory measures concerning criminal matters in which they are providing advice. The amendment also prohibits the monitoring (e.g., wiretaps) of such attorneys and their offices can no longer be searched for files of clients under criminal investigation. Corporate Alert The new law increases the protection of confidentiality of client communications with their external counsel. Previously, section 160a StPO offered attorneys only relative protection against criminal investigations. The statute required a proportionality test to consider whether the interests in favour of investigating/prosecuting outweighed the interest in maintaining confidentiality and stated that, if the matter did not concern a criminal offense of relatively high importance, investigatory interests generally could not be considered to outweigh the interests in confidentiality (Section 160a StPO para. 2 sentence 1, second half sentence). Under the amended law, such a proportionality exercise will no longer be required. 2. Practical Relevance for Legal Privilege in Corporate Investigations The amendment is of particular relevance for internal corporate investigations of potential criminal matters. Oftentimes, external advisors are retained to conduct these investigations to maximize the ability to maintain confidentiality for the investigation and its findings. As amended, section 160a StPO raises the protection for attorneys to the highest level – one that that previously applied only to priests, criminal defense attorneys and members of parliament. In the U.S., attorneys have always enjoyed significantly greater confidentiality protections. For this reason, it has been of critical importance that in U.S. investigations, accountants be retained to assist the attorneys conducting the investigations, in order to bring their work within the scope of the attorneys’ privileges. Otherwise, the information obtained and analyzed by the accountants would not be protected. The amendment of section 160a StPO provides significant advantages to the retention of external attorneys for corporate investigations in Germany. The retention of accountants or tax advisors to conduct investigations will now leave confidential information more exposed to investigation by public prosecutors than it would be if attorneys were conducting the investigation. Just as the previous version of section 160a StPO had been criticized for the differentiation between different groups of persons who all have a statutory right to remain silent when questioned as witnesses, the new formulation has also not remained without objection. Particularly the professional bodies of accountants and tax advisors in Germany have not seen any justification in their different treatment under the new law. Nevertheless, the act has been passed into law in this form. 3. Issues for In-house Attorneys The protections applicable to certified public accountants and tax advisors remain unchanged. For them, there continues to be a proportionality requirement, i.e., they enjoy only relative protection of confidentiality. Prior to the amendment of section 160a, attorneys had the same limited protections as CPAs and tax advisors – i.e., they had the same right to remain silent when questioned as a witness pursuant to section 53 para. 1 no. 3 StPO. For that reason, when deciding whether to retain accountants or attorneys to conduct an investigations, the degree of confidentiality protection did not play a role in the decision. Since the decision of the Court of Justice of the European Union (“ECJ”) in the Akzo Nobel case (Akzo Nobel Chemicals Ltd et. al. v Commission, Case C-550/07 P), clients facing investigations by the European Commission can no longer rely on the protection of confidentiality by legal professional privilege for their in-house lawyers. In Germany, the legal difficulties distinguishing between legal advice and general business activities of in-house attorneys make it imprudent to assume that in-house lawyers admitted as attorneys can benefit from the newly extended protection of section 160a StPO in the same fashion as attorneys in private practice. 02 February 2011 2 Corporate Alert In any case, it is recommended in any investigation for attorney documents, files and correspondence at the corporation to be clearly marked as such and to ensure that only (external) attorneys can access them. Caution is advised when corresponding with directors, officers or employees of the corporation concerning the findings of the investigation, as these persons – should they have to be considered as third parties outside of the attorney-client relationship – may not fall within the ambit of the confidentiality protection by the legal privilege. In a client relationship with a corporation (as opposed to a natural person), the only individuals qualifying as “the client” would be the legal representatives of the body corporate, e.g., members of the board of management (Vorstand) of a stock corporation (Aktiengesellschaft) or, under special circumstances, members of the supervisory board (Aufsichtsrat). Anchorage Austin Beijing Berlin Boston Brussels Charlotte Chicago Dallas Dubai Fort Worth Frankfurt Harrisburg Hong Kong London Los Angeles Miami Moscow Newark New York Orange County Palo Alto Paris Pittsburgh Portland Raleigh Research Triangle Park San Diego San Francisco Seattle Shanghai Singapore Spokane/Coeur d’Alene Taipei Tokyo Warsaw Washington, D.C. 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