FCPA Matters and Attorney-Client Privilege – As If Things Weren’t Bad Enough

Testimony

A company is the target of a grand jury investigation into alleged violations of the U.S. Foreign Corrupt Practices Act (“FCPA”), which makes it illegal for U.S. companies to pay foreign officials to gain or retain business. A grand jury serves a subpoena on the firm’s former attorney to compel the lawyer’s testimony, based on an exception to the attorney-client privilege. The issue is brought before the Third Circuit—which found that the crime-fraud exception applied and required the attorney to testify about his client before the grand jury.

You heard this correctly: The lawyer was compelled to testify about matters concerning his client. This decision was immediately appealed and the decision was upheld on appeal.

FCPA Investigation

“Crime-fraud” Exception

Exceptions to attorney-client privilege may arise when there is an overriding public policy, as enunciated by the court or a fiduciary responsibility to another party, such as a shareholder. A “crime-fraud” exception to the privilege allows disclosure of information communicated by the client in an attempt by the client to use the lawyer’s services to commit or cover up a crime or fraud.

American Bar Association

Sadly, FCPA investigations are not rare and this one arose from the consulting company’s business transactions with a bank headquartered in the United Kingdom, owned by several foreign governments.

The firm was helping obtain financing from the bank for oil and gas projects. For all projects, the banker, an official, was the individual responsible for overseeing the financing process, and the consulting firm made payments totaling more than $3.5 million to the banker’s sister. No evidence showed that the banker’s sister worked on or was involved in any of the projects.

Things Get Interesting

According to the decision, the attorney had a number of brief, innocuous interactions with the consulting company, its corporate client, about one of the successful financing projects. Then, concerns arose with the project, and the client shared its plan to pay the banker to ensure the project progressed swiftly, as the banker had threatened to slow down the approval process.

The attorney did some preliminary research into the FCPA, and asked his client whether the bank was a government entity and whether the banker was a government official. As a result, the attorney advised the client not to make the payment.

Despite this advice, the client insisted that the proposed payment did not violate the FCPA and told the attorney that they would go ahead with the payment. The lawyer gave its client a copy of the FCPA, and the attorney and the client ended the professional relationship.*

Overturning the Oldest Privilege

The attorney-client privilege is known as the “oldest of the privileges for confidential communications known to the common law.” It protects communications between attorneys and clients for the purpose of obtaining or providing legal assistance to the client. The protection is intended to encourage full and frank communication between attorneys and their clients, thereby promoting the broader public interest.

The court told us that when it comes to using the crime-fraud exception to overturn the attorney-client privilege:

… the party seeking to overcome the privilege … must make a prima facie showing that (1) the client was committing or intending to commit a fraud or crime, and (2) the attorney-client communications were in furtherance of that alleged crime or fraud.

Because it may be difficult if not impossible to prove that the exception applies without first knowing the contents of the communications themselves, the Supreme Court has previously held that courts may use an in camera private review to establish the applicability of the exception. In this instance, the Appeals Court found that the lower court had used the correct standard and did not abuse its discretion.

Implications of This Decision

U.S. FCPA investigations and prosecutions are serious business. As one law firm called it, “this decision has the potential to chill clients from seeking advice in the first place.”

Yes, and now we know that where firms have sought legal advice on FCPA matters, as many are likely to have done, in certain limited situations there is the chilling potential that these conversations may be used against them.


* Pages 4-5 in the decision. The court noted that even this vague description of the interaction between the attorney and the client would ordinarily be protected by the attorney-client privilege, as notedabove. However, finding that the crime-fraud exception applies, the court is now able to explain the underlying circumstances.

About Ann Longmore

Ann is Executive Vice President of Willis' Executive Risks practice. Based in New York, she has been with the compa…
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