Confiscation of documents during internal investigations: disappointingly formal standpoint of German Federal Constitutional Court– but companies will not be defenceless in the future
Today, the German Federal Constitutional Court decided on the constitutional complaints brought by Volkswagen AG, law firm Jones Day and three lawyers from Jones Day against the search on the firm’s premises and the confiscation of documents for the internal investigation being performed on behalf of Volkswagen AG. The Court rejected them, even though interim injunctions had already been granted twice prohibiting Munich II Public Prosecutor’s Office from evaluating the documents seized. The Federal Constitutional Court (press release) unfortunately resorted to a disappointingly formal viewpoint.
The constitutional complaint filed by Jones Day and the lawyers was rejected merely for formal reasons, stating that as a law firm with its principal place of business in a non-EU state Jones Day does not have constitutional rights. The Court claimed that individual rights of the Jones Day lawyers working in Germany were not affected either.
But the constitutional complaint by Volkswagen AG was also thrown out on what are ultimately unconvincing grounds. The Court maintained that documents from internal investigations are only exempt from confiscation if the company is subject to a preliminary investigation or affected by confiscation in a preliminary investigation or was likely to find itself in such a position depending on the status of the preliminary investigation. It maintained that the company’s mere fear that it may be affected by a preliminary investigation in the future was not sufficient.
Thus the Federal Constitutional Court gives priority to the interests of effective prosecution over the company’s interests in defending itself. The alleged risk that evidence could be deliberately shifted to the lawyer’s sphere seems remote, however, since lawyers, being involved in the administration of justice, are not allowed to participate in acts that serve to obstruct justice. The Court stated that although at the time of confiscation criminal proceedings had already been brought against Volkswagen AG and its employees, the confiscation did not take place in these proceedings but in other proceedings by a different public prosecutor’s office against Audi AG. It added that this was not included in the scope of protection of Jones Day’s mandate, either. By taking this view, however, the Federal Constitutional Court fails to recognise that a close relationship of trust between a company and its lawyers also exists outside criminal investigations, especially if they have been instructed to carry out an internal investigation. Moreover, it fails to take into account that companies are already required to conduct an internal investigation under the provisions of company law if there is a suspicion that crimes or regulatory offences have been committed, especially where company groups are involved.
Despite this decision, companies will not be defenceless during internal investigations in relation to information obtained by lawyers in this context. In many cases it will be possible to create structures offering good prospects for recognition of an exemption from confiscation that cannot be challenged by the courts. In company groups, it will be necessary to make sure during internal investigations at affiliated companies at least that an instruction is issued by the responsible bodies of the company concerned, accompanied by a release from the duty of confidentiality towards the parent company for the lawyers who are instructed. The functional separation of the investigation into the facts by a law firm engaged to carry out the internal investigation and the defence of the company on the basis of the facts established in this way by another defence lawyer that is often pursued so as to achieve greater independence will have to be put to the test. If both functions are combined in one law firm, it is more likely that the exemption from confiscation will be recognised.
In the end, the Federal Constitutional Court’s decision is unlikely to be the last word on the issue of exemption from confiscation of documents during internal investigations. In the government’s Coalition Agreement, the creation of a body of laws was announced that is intended to also deal with the legal questions of internal investigations, and in particular the conditions for confiscating the documents obtained in the process. This legislation is keenly anticipated.
Any Questions? Please contact: Dr. Julia Sophia Habbe, Dr. Christian Pelz
Practice Group: Compliance & Investigations, Litigation, Arbitration & ADR