The Case For (and Against) Privilege: Key Considerations for Corporations During Investigations

1. Momentum’s 11th Annual A.C.E.S. Compliance Summit: Anti-Corruption, Export Controls, and Sanctions • The Case For (and Against) Privilege:Key Considerations for Corporations During Investigations • APRIL 18, 2018 Ash MishraChief Compliance Officer Mars, Incorporated Lauren SchlangerAssistant General Counsel, Litigation & Investigations BAE Systems, Inc. Ellen C. SmithExecutive Counsel, International Trade Compliance Director Baker Hughes, a GE company Tirzah LollarPartner, Government Investigations & White Collar Criminal Defense Vinson & Elkins LLP

2. Agenda • Privilege Basics • Barko Decision • Best Practices for Investigations • Establishing and Maintaining Privileges • Investigation Protocols • Who Should Investigate? • Document Purpose of Investigation and Role of Counsel • Dealing with Individuals • Recording, Reporting and Sharing Investigation Results • Dealing with the Government • International Considerations

3. Privilege - The Basics

4. What is it you need to protect? • Privileged information and attorney work product created prior to the event under investigation (previous internal investigations, or other legal advice related to the present issue, etc.) • Privileged information and attorney work product originating as a result of the event under investigation (responsive internal investigations, interviews with employees in immediate aftermath, notes and work product assessing the issue, etc.)

5. Attorney-Client Privilege and Attorney Work Product • The attorney-client privilege applies to communications between attorneys and clients where the communication: • Is made by a client or client’s representative to a lawyer or a lawyer’s representative • Is made for the purpose of securing legal advice • Is made in confidence • The work product doctrine protects work product generated by attorneys or their agents in preparation for litigation: • Opinion work product: Mental impressions, conclusions, opinions, or legal theories of an attorney • Fact work product: Facts contained in work product divorced from the attorney’s assessment of those facts

6. Regulatory Obligations and Privilege Post-Barko • Internal investigations undertaken as part of a mandatory compliance program or because of internal controls (which are required by variety of federal laws) are protected as privileged as long as obtaining or providing legal advice is a significant purpose of the communication. • DC Circuit recognized that there are often overlapping purposes for a communication (such as one legal and one business), so finding a single primary purpose is an “inherently impossible task.” In re Kellogg Brown & Root, Inc.,756 F.3d 754 (D.C. Cir. 2014) (Barko decision). • In other words – legal and business purposes are not mutually exclusive.

7. Regulatory Obligations and Privilege Post-Barko • Public companies – internal control requirements (FCPA, 15 U.S.C. § 78m(b)(2); SOX 15 U.S.C. § 7262). • Government contractors: • FAR 52.203-13 Contractor Code of Business Ethics and Conduct: requires code of conduct, and diligence to prevent and detect criminal conduct, disclosure of “credible evidence” of crime involving fraud, conflict of interest, bribery, or gratuity violations or of the civil False Claims Act. • FAR 52.203-7 Anti-Kickback Procedures: requires reasonable procedures designed to prevent and detect kickbacks and disclosure upon “reasonable grounds” to believe that a kickback occurred.

8. Regulatory Obligations and Privilege Post-Barko • DC Circuit recognized that often legal advice is required to determine whether there is a disclosure obligation. • Similarly, legal advice is required to decide whether to make a voluntary disclosure. • Takeaway point: • Companies can conduct internal investigations to comply with regulatory obligations AND protect that investigation, • provided that obtaining or providing legal advice is a significant purposeof the investigation.

9. Best Practices:Establishing and Maintaining Privileges During Investigations

10. Implement Investigation protocols • An orderly process is easier to control: • Create and implement an investigation protocol to respond to complaints and issues (whether reported through a hotline or elsewhere) • Establish a core group of personnel who are responsible for investigating issues as they arise; ensure that information obtained during an investigation is provided only to those with a need to know • Create and train those with investigation responsibilities about steps to be taken and documentation that will be created and maintained • Carefully safeguard any documentation created during an investigation and limit distribution as needed

11. Who Should Investigate? • Involve counsel at the outset for the [significant] purpose of obtaining legal advice (and document it). • Consider outside v. inside counsel. • Consider lawyers v. non-lawyers. • Consider other third parties – forensic auditors, accounting firms, local counsel, experts. • Factors to consider: expense, resources, expertise, independence, demonstrate company takes compliance seriously.

12. Role of in-house counsel • In theory, the attorney-client privilege and work product doctrine apply to in-house and outside counsel equally • However, in-house counsel often provide advice containing both legal and business elements • Communications with in-house counsel only protected when the attorney is acting as a legal advisor, often determined by a “predominant purpose” test • Was in-house counsel acting in the role of a lawyer? • Was the in-house counsel giving legal or business advice, or a mix of both?

13. Role of In-House and Outside Counsel – Other Countries’ Laws • Other countries’ laws (including U.K.) define scope of privilege for in-house and outside counsel much more narrowly • English High Court in two recent cases ruled that notes and interview memoranda created in internal investigations are not protected. • Ordered production of lawyers’ notes and interview memoranda – in one case to prosecutors and in another to private litigants. Serious Fraud Office .v Eurasian Natural Resources Corporation Ltd [2017] EWHC 1017 (QB); The RBS Rights Issue Litigation [2016] EWHC 3161 (Ch). • ENRC highlights distinction in U.K. between internal fact-finding investigation to prepare for government investigation & avoid prosecution (no litigation privilege) v. mounting defense to criminal prosecution (privilege applies). • RBS suggests work product created by internal investigations outside the U.K. could still be subject to discovery in litigation within the U.K. • Involved notes and memoranda created by lawyers during internal investigation in response to SEC investigation in U.S.; decade later forced to turn over in civil shareholder litigation in the U.K.

14. Relying on Non-Legal Resources • Not practical for all companies to rely exclusively on legal departments to conduct investigations: • Many companies rely on audit and financial teams • Many companies’ compliance departments are outside of the legal function • Where non-legal resources are employed, ensure that legal resources are involved and directing the work that is being performed: • Carefully document that the investigation is being directed by the legal function (whether in-house or external counsel) • Train non-legal personnel who will support investigations on privilege and investigation protocols

15. Relying on Non-Legal Resources • During investigations, companies often employ forensic accountants and other special consultants • Documents or communications generated by or including third parties generally are not protected; however, • Kovel Doctrine: Consultants that are necessary to the rendering of legal advice can share in the privilege (communication must satisfy other privilege elements). United States v. Kovel, 296 F.2d 918 (2d Cir. 1961). • Functional Equivalent: A third party who is “functional equivalent” of employee of the company can be within the privilege (must have significant relationship to client and transaction). In re Beiter Co., 16 F.3d 929 (8th Cir. 1994). • Independent consultant who was sole representative for company at meetings and interacted with company’s principals on daily basis. In re Beiter. • Consultant who communicated with third parties on company’s behalf, managed employees, and was company’s primary agent in communicating with corporate counsel. United States v. Graf, 610 F.3d 1148 (9th Cir. 2010). • Outside investigator who conducted investigation that ordinarily would have been conducted by employee but for concerns of bias. Davis v. City of Seattle, No. C06-1659Z, 2007 WL 4166154 (W.D. Wash. Nov. 20, 2007).

16. DOCUMENT PURPOSE OF INVESTIGATION AND (PROMINENT) ROLE OF COUNSEL • Carefully craft litigation holds and engagement letters (counsel and other third parties) • Send out a document retention notice immediately, drawing broad lines around what may be covered by any eventual litigation to arise from the emergency • Document privilege (providing legal advice) and work product (anticipation of litigation) • Establish and document that all fact gathering performed is being done at direction of counsel to enable counsel to provide legal advice regarding the matter under investigation

17. Creating work product protection • Appropriately mark notes, summaries, etc. generated as attorney work product • It is particularly important to mark documents that do not reflect attorney-client communications (i.e., documents that are only protected as work product)

18. How to deal with witnesses • Ensure that any internal fact-gathering interviews include and document an Upjohn statement (no “magic words”), UNLESS the strategic choice is made to represent individuals during investigation: • We represent the company and not any individuals, including you. • Because we are lawyers for the company, this conversation is covered by the attorney-client privilege – a legal confidentiality. • That privilege belongs to the company, and the company may choose to waive it by sharing the information we discuss today. • We ask that you keep this conversation confidential. • Any questions? Can we proceed? • Company counsel can represent individual employees provided there is no conflict, but there may be other reasons to avoid this.

19. How to deal with witnesses • Goals and considerations • Learn from employees what led to the matter under investigation – employees represent a critical source of information • Whether you decide to represent the individuals or not, you must always make the relationship clear – either with a documented Upjohn warning or by documenting the attorney-client relationship • Implications of the Yates Memo (Sept. 2015) • Increased focus on individual accountability for corporate misconduct • Cooperation credit available only if company discloses all relevant facts about individuals involved; no credit for limited disclosures

20. How to deal with witnesses • Pros • If the individual is still on site during the investigation, representation ensures you can control the information flowing to the government and know what the government knows. • No need to rely on the company’s privilege to protect your communications with the individual. • May prompt the individual to be more forthcoming in disclosing facts to you. Cons • Company loses the exclusive ability to control waiver of the privileged/protected aspects of that individual’s communications or work product related to the individual. • Possibility that an unknown conflict may exist between the individual and the corporate client. • Red tape associated with initiating the relationship (especially if the individual is not still on site and will not be interviewed imminently). • Potential optics with regulators. • Pros and cons of individual representation

21. How to deal with witnesses • Preferable not to record witness interviews. • Attorney or person acting at attorney’s direction should draft summary of interview marked attorney-client privileged and attorney work product. • Process is same for former employees and interview should be privileged. In re Allen, 106 F.3d 582, 605-06 (4th Cir. 1997) (Upjohn privilege can extend to former employees).

22. Considerations for Recording and Sharing Results of Investigations

23. Maintaining Privileges • How to Document investigations • Considerations about whether and how to record investigations: • Risks related to comprehensive report and road map • Concerns that can arise if an investigation is not documented • Importance of training for those personnel responsible for creating reports • Fact versus conclusions • Legal analysis regarding application of law • Controlling dissemination beyond control group

24. Maintaining Privileges • Internal Disclosure of Investigation Findings • Companies must be thoughtful about sharing investigation findings: • Many constituents will want information about results and closure of investigations – Boards, Audit Committee, executives, reporting and involved personnel • Widening the dissemination of investigation findings further jeopardizes privilege • Does this person need to know? • If yes, how much? • Many companies want to conduct training that includes “lessons learned” • Anonymized facts are best for widely disseminated training

25. Maintaining Privileges • Pressure from Third Parties • Companies are increasingly pressured to report the results of investigations to third parties: • Outside auditors may pressure companies to provide investigation findings or hold clean audit opinions • Underwriters in financial transactions routinely seek information about open investigations and dealings with regulators • Financial entities involved in debt and other financings similarly will seek investigation details • Important to recognize that privilege does not extend to these parties; waiver can result • Government regulators are increasingly willing to subpoena third party auditors and finance organizations for work files • Even oral downloads that are committed to writing by third party auditors and financial organizations can be obtained by government compulsion

26. Maintaining Privileges • Waiver and Scope • Disclosing summaries of investigative findings can waive privileges. SEC v. Herrera, No. 17-20301-CIV, 2017 WL 6041750(S.D. Fla. Dec. 5, 2017); Doe 1 v. Baylor Univ., 320 F.R.D. 430 (W.D. Tex. 2017). • Disclosure to SEC of oral summaries of interview notes and memoranda waived work product protection in Herrera. • In Baylor, public disclosure of outside counsel’s factual findings and recommendations waived attorney-client privilege but not work product protections. • Consider the relationship between company and third party to whom the disclosure is made. • In Herrera, disclosure to the SEC waived protections, but work product shared with outside auditor remained protected. • The court emphasized that SEC was an adversary of the company it was investigating, while the auditor and company shared a common interest.

27. Protecting Privileges When Facing Government Regulators

28. Investigations Involving the government • Search Warrants / Raids • Search warrants and dawn raids happen – important to understand in advance: • Who within the legal function / outside counsel should be notified • Companies should have some form of training in place to ensure a more orderly process • Understand or quickly determine where the individuals and data sources most likely to have attorney-client communications or work product are so that government can be put on notice of possible privilege issues

29. Investigations Involving the Government • Search Warrants / Raids • Do NOT obstruct a search or investigation by the government, BUT • Company personnel should be instructed that they may talk to FBI or other authorities if they choose (do not instruct them that they are obligated to talk) • Once company is aware of an investigation, legal personnel may request to be present during all interviews, even if not representing the individuals (if representing, then demand to be present) • Note where and what is searched by the government for purposes of raising any immediate privilege issues with regulators

30. Investigations involving the government • Privilege requests • Some government entities have long had policies prohibiting the agency from requesting that companies waive privilege except in limited circumstances and only with approvals • Other agency priorities and guidance, however, may detract from spirit of historical guidance: • Yates Memo • SEC focus on “gatekeepers” • FCPA Pilot Program • Guidance not consistent across agencies

31. Investigations involving the government • Making disclosures • Some companies are subject to mandatory disclosures (such as government contractors) • How to disclose required information without waiving privileges • Considerations when making disclosures: • Are we obligated to disclose under applicable laws, regulations, etc.? • Other disclosures required (e.g., auditors require it, SEC filing, potential purchaser) • If we are not obligated to disclose, what are the pros of disclosing? • Getting “credit” for a voluntary disclosure, particularly if we think it is likely that regulators will learn of the conduct through some other means (e.g., disgruntled employees, competitors). • Directing the conversation/shaping the course of the investigation with the regulators.

32. Investigations involving the government • Cooperation Credit • Privilege waiver not intended to be a prerequisite to cooperation credit, but companies often feel the pressure: • Reinforce desire to cooperate but to also protect valid privileges; • Attempt to find ways to communicate facts that the government desires without providing impressions or findings; • Distinguish up front routine compliance matters that may not be protected from investigation matters that may be protected; • Avoid written presentations and white papers and instead rely to the extent practical on in-person meetings and providing non-privileged factual evidence; • Provide attorney proffers on what could be reported by company personnel to set the potential scope for privilege protection; • Mark all documents provided in connection with any settlement discussion as FRE 408.

33. Investigations involving the government • waiver • Companies must appreciate that waiver as to government agencies will likely be viewed as waiver as to all: • Case law regarding partial or selective waiver not favorable • Often for large, public investigations, shareholder litigation is a real possibility, and the plaintiffs firms are sufficiently sophisticated to demand any productions made to the regulators in discovery • Even FOIA-marked protections are not absolutely protected from later disclosure

34. International Considerations

35. International Considerations • Privilege protections are often more limited – or even non-existent – in other jurisdictions. • U.S. courts have at times refused to recognize privilege for foreign lawyers, particularly in countries where law licenses are not required to practice. • Foreign locations will have different (or non-existent) standards for application of attorney-client privilege in their own jurisdiction. • China as an example: • In-house are not required to hold a legal license and typically do not qualify for the attorney-client privilege under U.S. law • Does not recognize attorney-client privilege at all • Internal investigations conducted to ensure or verify compliance with U.S. laws and regulations will likely “touch base” with U.S. regardless of where the investigation is conducted or who conducts it. • If investigation involves foreign laws or takes place in a foreign location, consult with local counsel to determine what to do in order to create and maintain whatever privileges are available.

36. Questions?

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