On 8 May 2017, the English High Court of Justice handed down judgement in The Director of the Serious Fraud Office (SFO) v. Eurasian Natural Resources Corporation Limited (ENRC), in which the SFO sought a declaration to compel ENRC to produce certain documents under s.2(3) of the Criminal Justice Act 1987 (CJA 1987) as part of its criminal investigation into the activities of ENRC, its subsidiaries, officers and employees, which it opened in 2013.
The decision clarified the application of Legal Professional Privilege (LPP) for documents created by lawyers and forensic accountants during internal corporate investigations and could have a significant impact on the way companies and their advisors deal with whistleblowing allegations in the UK.
In 2011, following allegations of fraud, bribery and corruption in its Kazakhstan and African mining operations, ENRC engaged external lawyers and forensic accountants to conduct an internal investigation. ENRC engaged Dechert LLP (Dechert) to undertake the internal investigation, along with forensic accountants Forensic Risk Alliance (FRA). Although disputed by ENRC, the investigation prior to early 2013 was deemed by the SFO to be part of a self-reporting process by ENRC, characterised by the regular liaising of ENRC with the SFO on its progress with the internal investigation.
In April 2013, shortly after ENRC removed Dechert as its external counsel, the SFO opened a criminal investigation. As part of the investigation, the SFO exercised its powers pursuant to s.2 of the CJA 1987 and issued notices against various entities and individuals, including ENRC, to compel the production of documents. ENRC refused this request on the basis that the documents were protected by LPP on the basis of litigation privilege and/or legal advice privilege.
The Disputed Documents
The SFO claimed that certain documents generated during the investigation undertaken by Dechert and FRA into ENRC’s activities between 2011 and 2013 were not subject to LPP. ENRC disputed this. A summary of the disputed documents and privilege claimed by ENRC is shown in the table below:
|Description of documents||Privilege claimed|
|Category 1||Interview notes prepared by Dechert with ENRC’s employees, former employees and third parties||Litigation privilege and, alternatively, legal advice privilege|
|Category 2||Documents generated by FRA during its books and records review which focused on identifying controls, systems weaknesses and potential improvement points||Litigation privilege, with rights reserved for legal advice privilege|
|Category 3||Documents indicating or containing factual evidence as presented by Dechert to ENRC’s Board during March 2013||Legal advice privilege and, alternatively, litigation privilege|
|Category 4||Documents referred to in a letter to the SFO in August 2014, including FRA reports, communications enclosing FRA reports and work product emails between ENRC’s head of M&A and senior ENRC executives||Litigation privilege for FRA work product and legal advice privilege for ENRC emails where ENRC head of M&A was a Swiss-qualified lawyer|
The High Court held that LPP applied only to Category 3 documents, which were subject to legal advice privilege. All remaining categories were rejected.
In addressing the application of litigation privilege, the court made a distinction between contemplation of a criminal investigation and a criminal prosecution. The court stated that ‘the reasonable contemplation of a criminal investigation does not necessarily equate to the reasonable contemplation of a prosecution’. In practical terms, work product compiled in assessing the substance of allegations of criminality through an internal investigation would not attract litigation privilege until such a point as criminal prosecution was reasonably contemplated by the company.
Implications for Corporate Investigations
It is reported that ENRC will appeal the decision to the Court of Appeal. However, legal commentary to date appears focused on the implications of the decision to the protection afforded to documents produced during internal investigations.
In particular, commentators note concern with the impact of the decision on a company’s willingness to carry out internal investigations responding to whistleblower allegations, or to do so with the same thoroughness, where privilege may no longer be available to documents that arise from the investigation. The decision might also make companies less reluctant to cooperate fully with the SFO and therefore make its gathering of facts and information in relation to an investigation more difficult.
Conversely, it has been suggested that the decision may encourage companies to self-report at an earlier stage with little to any fact-finding work being carried out by the company and its advisors and the onus being put on the SFO to investigate further.
For forensic practitioners, the court’s finding that privilege did not attach to the work product of FRA under categories 2 and 4 has implications for all aspects of work produced when engaged on internal investigation assignments. In each investigation, the strategy and execution of this work will need to be carefully evaluated to ensure balance is achieved between a thorough, documented and objective investigation and the protection of work product generated for the purpose of taking legal advice or contemplating litigation. Establishing and documenting a clear foundation and objectives for an investigation will also be important in protecting potential LPP to the extent possible.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions, position, or policy of Berkeley Research Group, LLC or its other employees and affiliates.