DPA’s and Legal Advice Privilege – A Wolf in Sheep’s Clothing?

A Wolf found great difficulty in getting at the sheep owing to the vigilance of the shepherd and his dogs. But one day it found the skin of a sheep that had been flayed and thrown aside, so it put it on over its own pelt and strolled down among the sheep.

In Three Rivers District Council and ors v Governor of the Bank of England (No 6) [2005] 1 AC 610, the House of Lords considered the scope of legal advice privilege that attached to communications passing between the Bank and its legal advisors following the collapse of BCCI. It was powerfully argued by the Claimants that the natural use of privilege is to conceal from the court relevant material. The oddity of a public institution such as the Bank of England seeking to conceal matters from view was also highlighted by Sedley L.J. in the lower courts.

Fortunately, the House of Lords resisted such arguments and agreed that legal advice privilege was “not confined to telling the client the law; it must include advice as to what should prudently and sensibly be done in the relevant legal context”. Legal advice privilege attaches to advice, including presentational advice, relating to the rights, liabilities, obligations or remedies of the client under either private or public law. Lord Rodger explained why this is so important:

“…In the absence of a waiver by the client, communications between clients and their lawyers for the purpose of obtaining legal advice must be kept confidential and cannot be made the subject of evidence. Of course, this means that, from time to time, a tribunal will be deprived of potentially useful evidence but the public interest in people being properly advised on matters of law is held to outweigh the competing public interest in making that evidence available.”

David Green QC had famously highlighted impending battles over claims by organisations to legal advice privilege. But in perhaps a more subtle approach, the SFO’s position appears to now use the siren-song of a DPA to focus on the level of co-operation from an organisation, which will inevitably include its approach to privileged material. David Green has even stated that an organisation “does not have to waive privilege” but noted “the bar is high if the prosecutor is to convince a judge that a DPA, rather than prosecution is in the interests of justice”.

On 30th November at Southwark Crown Court, Leveson L.J. approved the first DPA in the United Kingdom between the SFO and Standard Bank plc. Standard Bank is the UK subsidiary of Standard Bank Group Ltd, South Africa’s largest banking group. His interim and final approvals of the relevant DPA go to some length to emphasise the significance of Standard Bank’s wholesale disclosure of its investigation report and associated documents upon which it was based.

Without overtly referring to “privilege”, the judge found it to be “of particular significance” that Standard Bank plc had quickly provided the full investigation report to the SFO. More detail was provided in his preliminary judgment:

“[T]he weight given to an organisation’s self-report depends on the totality of the information that an organisation provides to the prosecutor…Specifically, the organisation must ensure in its provision of material as part of the self-report that it does not withhold material that would jeopardise an effective investigation and, where appropriate, prosecution of individuals involved…[C]o-operation includes identifying relevant witnesses, disclosing their accounts and the documents shown to them…”

This judicial adoption of the words from DPA Code of Practice obliquely obliges an organisation seeking to enter into a DPA to give serious consideration to voluntarily waiving any claim to legal advice privilege, including its investigation material. The COP itself provides:

“Co-operation: Considerable weight may be given to a genuinely proactive approach adopted by P’s management team when the offending is brought to their notice, involving within a reasonable time of the offending coming to light reporting P’s offending otherwise unknown to the prosecutor and taking remedial actions including, where appropriate, compensating victims. In applying this factor the prosecutor needs to establish whether sufficient information about the operation and conduct of P has been supplied in order to assess whether P has been co-operative. Co-operation will include identifying relevant witnesses, disclosing their accounts and the documents shown to them. Where practicable it will involve making the witnesses available for interview when requested. It will further include providing a report in respect of any internal investigation including source documents.”

Such material will obviously be useful in the identification and prosecution of individuals. Some organisations may see it as a sensible reputational and economic decision to waive privilege to any internal report with a view to potentially preventing a prosecution of the company, should the SFO ever discover a problem. However, this may be short-sighted.

Despite the judicial endorsement of the DPA Code of Practice, the decision to waive privilege remains vexed. Assuming that the “dominant purpose” of an internal investigation is for the organisation to obtain legal advice on whether to self-report, the consequences of self-reporting and waiving privilege with a view to negotiating entry into a DPA are obviously far-reaching. Aside from the uncertainty over the outcome of any DPA negotiations once the SFO has been tipped off to possible criminality (let alone the court’s approval of any proposed DPA), there must remain a real risk that any individuals prosecuted as a result of such disclosure may see the facts and the organisation’s relevant policies in a materially different way to the organisation that has just “shopped” them to the SFO. That individual’s view of events may then be presented to a jury by skilled advocates who explore the reason why the organisation was so keen to enter into a DPA.

One key condition of the DPA is that it does not provide any protection against prosecution for conduct not disclosed by the organisation prior to the date on which the Agreement came into force. Also, a DPA specifically enables the SFO to institute fresh proceedings if the SFO believes that the organisation provided “inaccurate, misleading or incomplete information” to the SFO and it knew, or ought to have known, this to be the case.

It is, therefore, possible to envisage circumstances in which an individual, who is prosecuted as a result of a self-report and waiver of privilege by the organisation, highlights flaws in the provision of information by the organisation during the DPA negotiations and disclosures. Even if the organisation was not aware of the true position when entering into its DPA negotiations, it may be subject to prosecution if it ought to have known the true position. Having voluntarily waived privilege for the purpose of attempting to negotiate its entry into a DPA, it becomes very difficult (if not impossible) for the organisation to then resist a subsequent decision to prosecute. In contradistinction to the statutory obligation to provide information to the SFO contained in a s.2 CJA 1987 notice (and the concomitant protection against the subsequent use of statements provided under compulsion in criminal proceedings), the organisation has voluntarily waived any privilege against self-incrimination.

Given these uncertainties and the enormous economic and reputational impact of a wrong decision to waive privilege in its investigation material, the decision to self-report and whether to waive privilege will undoubtedly remain a complex and crucial decision for any organisation. This first DPA was relatively straightforward: it involved a single transaction with defects in the organisation’s compliance regime. It did not involve knowledge or participation in payment of the bribe. The FCA had already imposed a fine of £7.6m for Standard Bank’s failures in its anti-money laundering controls of which the SFO was aware at the time of the DPA. Aside from the fines and penalties already imposed on Standard Bank, the decision to self-report and voluntarily disclose material appears to have paid off – so far.

It may prove very difficult for any organisation in the future to enter into a DPA if it seeks to assert legal advice privilege in relation to material. But it is worth pausing to consider the potential ramifications of “co-operation” with the SFO that extends to voluntarily waiving a privilege that the House of Lords has seen fit to robustly defend.