When the U.S. Department of Justice opened an investigation against Volkswagen AG (“VW“) and its subsidiaries Audi AG (“Audi”) and Volkswagen Group of America, VW instructed an international law firm to conduct an internal investigation and to represent it (i.e., only VW) before the U.S. Department of Justice. The lawyers, including German lawyers based in the firm’s Munich office, conducted the internal investigation throughout the Volkswagen group. Audi, though not a client of the law firm, allowed the internal investigation within its sphere and accessed the internal investigation’s findings via VW. In January 2017, VW and the U.S. Department of Justice concluded a plea agreement covering 2.0 liter diesel engines designed and produced by VW and installed in VW and Audi vehicles and 3.0 liter engines designed and produced by Audi and installed in VW vehicles.
The same diesel engines became the subject of criminal investigations by the German public prosecutors in Brunswick (2.0 liter engines) and Munich (3.0 liter engines). The Munich prosecutors first conducted a preliminary investigation, in the course of which VW’s lawyers, with VW’s consent, gave several oral presentations on the status of their internal investigation. In March 2017, following the publication of the plea agreement with the U.S. Department of Justice, the Munich prosecutor opened a formal investigation for fraud and searched the law firm’s Munich office for pertinent documents on the 3.0 liter engines. The criminal court’s underlying search warrant had denied legal privilege. It said that there was no identified suspect yet (the criminal investigations were still against unknown persons at the time) and held that the ban to search and seize documents within the possession of a lawyer was intended to protect the trust only of a suspect vis-à-vis his or her lawyer. The search and seizure of documents found in the Munich office were subsequently confirmed and upheld by the Munich courts, only data stored on a server located in Belgium was released and any copies destroyed for want of letters rogatory. In and after June 2017, the Munich prosecutors named four persons as suspects in the criminal investigations and also opened administrative proceedings against Audi, which, as a legal entity, cannot become a suspect in criminal investigations under German criminal law.
VW, the law firm and the three German lawyers based in the Munich office of the firm who were involved in the internal investigation lodged constitutional complaints against these measures and obtained an interim order from the Federal Constitutional Court placing the documents under seal pending the decision over the constitutional complaints.
The constitutional complaints were unsuccessful. In its orders of June 27, 2018, the Federal Constitutional Court dismissed the constitutional complaints as inadmissible and in any event without merit. The Federal Constitutional Court held that VW had no recognized legal interest (Rechtsschutzbedürfnis) to assert a violation of the constitutional protection of the home against searches because the search was not conducted at VW’s but at the law firm’s premises. As concerns VW’s constitutional so-called right to informational self-determination (Recht auf informationelle Selbstbestimmung) which protects against extensive collection, storage, use and processing of personal data, the Federal Constitutional Court did acknowledge that the seizure of documents and their review might impair VW’s freedom of economic activities because a subsequent trial might reveal business and trade secrets to the general public, or damage VW’s reputation. However, the seizure of documents was deemed justified under constitutional law regardless. The Federal Constitutional Court reviewed the measure for arbitrariness and the violation of specific constitutional law, and found it to be constitutional.
In particular, the Federal Constitutional Court had no objection against the criminal courts’ view that documents exchanged between an individual or a company on the one hand and the defense lawyer on the other hand are only protected against seizure in case the client, based on objective criteria, can reasonably be expected to become the subject of an investigation. The mere possibility or fear that criminal/administrative investigations against the client will be initiated is not sufficient. Since Audi was not the client of the law firm, and VW was not targeted in the Munich investigation, the seizure of documents at the office of VW’s law firm was deemed lawful (the Federal Constitutional Court noted, however, that the seized documents must not be used in the Brunswick investigation directed against VW). According to the Federal Constitutional Court, constitutional law does not require to construe the statutory protections against seizure under the attorney-client privilege more broadly, in particular in light of the public interest in the effectiveness of law enforcement.
The decision has already been widely criticized, as the potential seizure of documents made available to a lawyer in the context of an internal investigation before criminal or administrative proceedings have been initiated hardly promotes the use of internal investigations as part of an effective compliance system. Among the first reactions to the ruling was thus a “cry for reform” to the German legislator to revise the rules on legal privilege.
The ruling of the Federal Constitutional Court should serve as a reminder that careful planning is necessary when conducting internal investigations in Germany to enhance the potential to retain such protections as German law may not afford to legal privilege.