Legal privilege under fire

The increasing scrutiny of law firms is also a result of the globalization of litigation risks, driven by either a public or private prosecution interest.

Investor suits are standard practice today, and antitrust damages claims have become established too. The most recent European amendment on the latter even allows potential plaintiffs to demand the release of documents – a rule resembling discovery in the US. And in the VW affair, customer class actions are creeping into Germany via the back door. The US system of litigation so loathed by in-house lawyers is getting closer.

One victim of globalization of sorts is Jones Day. The Munich public prosecution department seized documents originating from the internal investigation at VW, which was demanded by the US authorities. The argument was that Jones Day had failed to work in a lawyerly manner. While some took this to mean the end of the rule of law was approaching, others found the search a logical consequence of the encroachment of US “internal investigations”. Just a few months ago, British courts also ruled that only a tiny number of the documents originating from investigations are covered by legal privilege.

The Jones Day search probably caused such a commotion because it could have caught many firms equally flat-forted. Jurists have been debating for years how to reconcile German legal privilege, US litigation modalities and companies’ compliance efforts. Another reason for this is the legally shaky status of lawyers, who, as ombudspersons, are fundamental parts of many compliance systems.

It is about the basics: does the protective shield of the lawyer/client relationship still have the correct format? With the Jones Day case, the Federal Constitutional Court (Bundesverfassungsgericht) will now tackle the issue of internal investigations for the first time. No one is venturing a prediction on the ruling yet. Some even fear that VW might turn out to be the proverbial bad case that makes bad law.

But legal privilege is coming under fire from other sides as well. The Panama Papers case, at the center of which was the firm Mossack Fonseca, unveiled the next risks for lawyers: money laundering. Firms have almost never reported suspected cases before now. The new EU Directive aims to provide at least a little help. And it goes even further: because of Panama, Brussels has now decided to oblige tax advisors and lawyers to report dubious investment models. Legal privilege is becoming negotiable.

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