Global Litigator. Internal Investigations and the Specter of State Action

• Author: Frederick T. Davis
• Pages: 17-19

17VOL 46 | NO 3 | SPRI NG 2020

Global Litigator

FREDERICK T. DAVIS

The author is a lecturer in law at Columbia Law School.

INTERNAL

INVESTIGATIONS

AND THE SPECTER

OF STATE ACTION

Internal investigations by private attor-

neys into potential criminal violations are

big business. Some have led to legal bills

in the tens of millions of dollars; others,

even higher.

In the United States at least, they ap-

pear effective as a tool for negotiating

outcomes to alleged crimes by corpora-

tions. The Corporate Prosecution Registry

tracks the large and growing number of

corporations that reach some form of

negotiated outcome—a guilty plea, a de-

ferred or non-prosecution agreement, or

a conditional declination or dismissal—

and the very small number of corpora-

tions that go to trial on criminal matters.

Many, probably most, of the negotiated

outcomes involved some form of an in-

ternal investigation.

While successful and, for attorneys,

profitable, internal investigations may

be facing a threat. When prosecutorial

involvement in them increases, the in-

vestigation may no longer be viewed as

either “private” or “voluntary” and may

be viewed instead as a form of state action.

That carries significant consequences.

Distinguishing A mong Internal

Investigations

To understand the risk, we must distin-

guish among several undertakings that are

sometimes grouped together as “internal

investigations” but are really quite differ-

ent from each other. At its simplest, any

client must take steps so that a lawyer con-

sulted on a criminal matter understands

the relevant facts, without which any legal

advice would be worthless. In most cir-

cumstances, factual inquiry by an attorney

is covered by some form of a professional

privilege. Upjohn v. United States, 449 U.S.

383 (1981), famously established that in

the United States, an informative, defen-

sive investigation—regardless of whether

conducted by an in-house counsel or a re-

tained outside attorney—is covered by the

attorney-client privilege and work-prod-

uct protections benefiting the corporation.

By contrast, outside the United States,

the confidentiality of such an inquiry may

not be so robust or automatic. In-house

corporate counsel may not be consid-

ered “attorneys” for purposes of any ap-

plicable professional privilege. And the

jurisprudence in some countries is unclear

or evolving on the precise parameters of

professional privileges relating to a cor-

porate inquiry.

But if properly managed with a wary

eye to local variants, a corporation should

be able to engage an attorney to learn rel-

evant facts, yet never be forced to share

the fruits of such an investigation with a

prosecutor.

At the other end of the spectrum, cor

-

porations embarrassed by publicity sur-

rounding a potentially criminal event may

make a public announcement that they are

retaining a prominent law firm to conduct

an investigation and ultimately publish

its findings. That kind of an investigation,

which is not specifically done for criminal

defense, may raise questions at the mar-

gin, such as whether the law firm’s drafts

are accessible to discovery in related liti-

gation; but by definition there is little or

no concern about the confidentiality of

the lawyers’ core findings, as they are de-

signed from the outset to be published

upon completion.

Between those poles lie circumstances

in which prosecutorial involvement may

significantly change important dynam-

ics. In many circumstances, a confidential

investigation may lead a corporation to

direct its attorney to approach a prosecu-

tor to negotiate an outcome. In some in-

stances, a company’s attorneys may reach

out to a prosecutor very early in an inves-

tigation, sometimes even at its outset, to

coordinate the investigation.

Early coordination may have advan-

tages for both sides. For the prosecutor,

it can permit so-called de-confliction, by

which the prosecutor orders an investigat-

ing attorney to defer interviewing certain