August 22, 2011
Practice Group(s):
Legal Privilege for Information in
Investigations in Germany
Corporate
Summary
Companies conducting internal investigations of potential misconduct often turn to outside counsel in
order to maximize the company’s ability to protect the confidentiality of the information developed in
the investigation. Under the German Code of Criminal Procedure (Strafprozessordnung, StPO),
information held by outside attorneys is generally protected from disclosure. At the same time, it
remains unclear as to what extent individual members of corporate governing bodies can also rely on
such protection. This was emphasized by the recent publication of the full text of a ruling of the
Regional Court (Landgericht) of Hamburg (decision 608 Qs 18/10). The Hamburg decision shows that
the improvement amendment of section 160a of the German Code of Criminal Procedure
(Strafprozessordnung, StPO) at the beginning of this year (see alert of 2 February 2011), which sought
to strengthen the applicability of legal privileges, has not solved the issues creating the legal
uncertainty.
Basic Scenario
Corporations often conduct internal investigations to determine whether they or their personnel have
breached laws and/or internal company rules. In most cases, corporations turn to external lawyers to
perform this work. One reason for that, particularly in cases with potential criminal aspects, is that the
confidentiality of information in the care of external attorneys is legally protected. Attorneys have a
right to remain silent as a witness (see section 53 para 1 no. 3 StPO), they enjoy absolute protection
against prosecutorial investigation measures (section 160a StPO); conversely, attorneys who disclose
confidential information without a prior waiver of privilege will be punishable under section 203 of
the German Criminal Code (Strafgesetzbuch, StGB).
The Hamburg judgment referred to above, signals the need for caution about who can rely on the legal
privilege protection. In that case, the court approved the seizure of investigation materials in the care
of the law firm conducting the investigation. The supervisory board (Aufsichtsrat) of a bank had
retained an external law firm to conduct an investigation into alleged breaches of duty by members of
the management board (Vorstand). In the course of the investigation, the law firm interviewed
members of the management board and employees and created notes of these interviews. The
interviewees were promised confidentiality by counsel conducting the interviews. The public
prosecuting authority demanded the interview notes for purposes of its investigations against members
of the management board and, when the law firm refused to produce the documents, ultimately
succeeded in getting court approval for the seizure of these documents.
The primary basis for the decision by the Hamburg court was that there had been no attorney-client or
similar relationship under which documents of the law firm could have been protected against seizure
pursuant to section 97 para 1 no. 3 StPO. Indeed, recognizing a client relationship not only with the
corporation (as represented by the supervisory board), but also with the allegedly implicated members
Legal Privilege for Information in Investigations
in Germany
of the board of management, would have put the law firm in an untenable position, bringing it close to
committing a criminal betrayal of client confidences.
The Hamburg court’s decision has not been without controversy, and there are good arguments for
contrary positions in both relevant case law and in legal literature. Even though in this particular case
it may have been justified to deny privilege protection to the management board members who were
themselves subjects of the investigation, the decision touches on a dilemma resulting from the formal
distinction between the corporation and the individuals who act as legal representatives of the
corporation. Corporations and their governing bodies are legally obligated to investigate potential
irregularities and misconduct by corporate personnel. At the same time, the individuals who act as
legal representatives of the corporation may be held accountable for such misconduct, if only for a
failure to enact adequate internal controls and supervision. Under these circumstances, the relationship
between the company, its lawyers, and the individuals acting as legal representatives of the
corporation will invariably have a personal element, in which the individual director takes advice from
the law firm about how to act in his or her capacity as legal representative of the corporation.
This situation was recognized by the decision last year of a local court (Amtsgericht) of Bonn
(decision 51 GS 557/10) in a case where, during the course of an investigation, the external law firm
conducted interviews and consulted with board members who had not been specifically targeted in the
investigation. In that case, the court held that the legal privilege extended both to the corporation and
to individual board members. The external attorney, who had been released from his confidentiality
obligations by the corporation but not by individual board members, successfully invoked the
privilege and could not be forced to disclose confidential information about his conversations with the
individual board members.
It remains to be seen whether other local or regional courts follow the Hamburg decision, and what
higher courts will rule in similar cases. In the meantime, advisors must be cognizant of these
uncertainties about the protection offered by legal privilege as to information in internal
investigations.
Practical Recommendations
These decisions reaffirm several practical recommendations for those involved in internal
investigations:
• When conducting an internal investigation, particular care should be taken about defining who the
client is. For a corporate investigation, an external law firm will usually be retained by the
corporation, meaning that the client is, first and foremost, the corporation. However, the corporate
entity acts through its officers and board members. For a stock corporation, that is the management
board, and in special cases (in particular vis-à-vis the members of the management board) it can be
the supervisory board. After the Hamburg court's decision, it would be prudent for external
lawyers not to promise confidentiality to anyone who might be implicated in the subject matter of
the investigation.
• Interviewees should be informed as to who is a party to the attorney-client relationship. If the
corporation is the client, this has to be explained, as well as the fact that the corporation can decide
to waive the privilege and release the attorney from his or her confidentiality obligation.
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Legal Privilege for Information in Investigations
in Germany
• Finally, the terms of reference for an investigation should accurately reflect the mandate of the
external law firm. As a practical matter, the law firm's role in conducting an investigation will
always include the provision of legal advice to individuals, in their capacity as legal
representatives of the corporation. If this is accurately set out in the terms of reference, it will assist
the law firm to argue that a personal element inevitably was part of its job, and that the relationship
should be privileged, at least as long as the relevant individual does not become subject to the
investigation.
Authors:
Dr. Wilhelm Hartung
wilhelm.hartung@klgates.com
+49.30.22.00.29.220
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