What you need to know in the context of anti-corruption corporate compliance
Companies recognise that they must assess and manage risk in relation to bribery and corruption compliance; the question is, how to do so without opening a Pandora's box? It is imperative that companies can act without fear that resulting documents and communications may be disclosed, whether to a regulator, the Australian Federal Police or otherwise. Legal privilege is therefore an important first consideration.
Domestically, creating and protecting privilege in both civil proceedings and criminal investigations is complicated. Globally, this complexity is further exacerbated, with each jurisdiction having its own rules and some jurisdictions having no concept of privilege at all.
6 tips to create and protect privilege
Baker & McKenzie's top 6 tips to create and protect legal privilege in this context, under Australian law:
Don't wait and see. Waiting until misconduct is alleged, suspected or uncovered is a high risk strategy. Seize control in order to undertake the risk assessment process in an ordered and sensitively managed fashion rather than have to deal with a later crisis.
Involve the right team. Involve external lawyers when sensitive compliance documents are likely to be created or communications made. Labels such as "Privileged and confidential" or "for the purposes of legal advice" are only effective when used correctly.
Structure the team. In order to maximise the prospect that privilege will apply, consultants such as accountants or other companies involved in compliance work who are not legal advisors should be engaged by external lawyers with a detailed scope of work. The lines of communication must also be carefully managed so that privilege is created and protected.
Establish a protocol. Confidentiality is at the heart of a claim to privilege. Establish a protocol that provides for clear containment of the risk assessment process including who is involved, how documents are to be created and with whom they may be shared. The rule of thumb is to avoid creation of unnecessary documents and communications and limit recipients.
Thoughtful record-keeping. Whilst a company may seek to claim privilege over much of the review process, certain documents flowing from the assessment should be retained on an open basis to assist in demonstrating to a regulator the existence of adequate procedures and the robustness of the company's compliance regime.
Look beyond Australia. Be aware that legal privilege is not a universal concept. Significant jurisdictional differences exist that may require specific consideration of local laws.
In Australia, the relevant test used to determine if a document or communication is privileged is the 'dominant purpose' test. The dominant purpose for creating the document or making the communication must be either:
Legal advice (specifically its provision or receipt); or
Litigation (if the document or communication is created or made during, in anticipation or contemplation of litigation in Australia or overseas, in which the privilege holder is or may be a party).
Privilege disputes involving documents or communications prepared by in-house lawyers have attracted greater judicial scrutiny in Australia. This is because in-house lawyers typically are perceived to have a close relationship with management and potentially participate in commercial aspects of the business.
With the 2 May 2012 High Court decision in the James Hardie case, there is now a precedent whereby in-house lawyers who are also the company secretary risk being deemed to be an officer of the company. This may further limit privilege attaching to documents created by in-house lawyers.
Some jurisdictions, including the European Union, do not recognise privilege for in-house lawyers at all. These factors may impact upon the dominant purpose for which a document is created or a communication is made.
In-house lawyers who represent multi-national businesses should also be mindful of the additional risk to privilege from the intermingling of documents or revealing confidential or privileged information to people in related companies or members of a corporate group.
In an Australian criminal investigation, an individual's right to exercise their privilege against self-incrimination is well known. Statute can modify the extent of the privilege. However, corporations in Australia have no privilege against self incrimination.
The privilege holder in Australia is the client, not the lawyer. If the privilege holder's conduct is inconsistent with the confidential nature of the document or communication, waiver may be found to have occurred. With some very limited exceptions, once waived, privilege cannot be restored.
Please refer to the Baker & McKenzie Global Privilege Handbook for more on the circumstances when a document can be given to a third party without waiving privilege or the loss of confidentiality. The Privilege Handbook also considers situations where government regulators can require that a privileged document be disclosed.
Given the lack of enforcement of Australian anti-bribery laws and with suppression orders in place for current prosecution matters, there is limited guidance on what the Australian Federal Police, ASIC or other industry regulators may be able to access from company documents and communications.
It is well established that communications between a lawyer and client which facilitate a crime or fraud are not protected by privilege. In the 2006 Australian Wheat Board (AWB) decision, Justice Young considered the scope of this exception. As this case involved corruption allegations, it is relevant to note that Justice Young held that 10 documents over which the AWB claimed legal privilege were not privileged as a consequence of the fraud exception.
Justice Young's reasoning confirmed that the fraud exception to legal privilege encompasses fraud, criminal activity and actions taken for illegal or improper purposes, and also extends to 'trickery' and 'shams'.
The AWB case may broaden the application of the fraud exception in relation to corruption cases if it can be shown that the communications which are claimed to be privileged were made in furtherance of, or as a step preparatory to, the commission of the fraud or wrongdoing.
The AWB case further illustrates the need for lawyers (including in-house lawyers) to be vigilant about the circumstances in which privilege is sought to be utilised.
Taking all possible steps to maximise the prospect that an anti-corruption assessment will be cloaked in privilege is the most effective tool a company can employ to mitigate the additional risks that stem from internal investigations and risk assessments.