In May 2019, Chief Judge Colleen McMahon of the United States District Court for the Southern District of New York issued a noteworthy – and much-commented upon (PDF: 198 KB) – ruling with significant implications for the conduct of corporate internal investigations by outside law firms. United States v. Connolly, No. 16-CR-370 (S.D.N.Y. May 2, 2019). Judge McMahon’s basic holding was that if there is “extensive coordination” between lawyers conducting a corporate investigation and the prosecutor’s office with whom they are in discussions or negotiations, the lawyers’ acts are “fairly attributable to the government” under the reasoning of Garrity v. New Jersey, 385 U.S. 493 (1967), thus raising the question whether statements obtained by the lawyers have been “compelled” by state action and therefore cannot be used directly or indirectly to inculpate the declarants. The target of the court’s pointed criticism was basically the government: by extensive “outsourcing” of a criminal investigation, Judge McMahon warned, a prosecutor’s office risks procedural error that could imperil a prosecution. Judge McMahon’s opinion is also notable for a reason that has not been the subject of analysis and should be of grave concern to lawyers who conduct internal investigations internationally: under her reasoning, such lawyers face a real risk of criminal prosecution under what are known as “blocking statutes” in countries where the lawyers conduct interviews or otherwise gather evidence.
The LIBOR Investigation of Deutsche Bank and the Black Prosecution
This case is an outgrowth of the lengthy, multi-faceted investigation of possible rate manipulation related to the London Inter-Bank Offered Rate, known as LIBOR. In 2010, federal authorities commenced an inquiry into the possible involvement of Deutsche Bank, and the bank turned to law firm Paul, Weiss, Rifkind, Wharton & Garrison LLP (“Paul Weiss”) for advice. Paul Weiss was tasked by the bank with conducting an investigation of the matter, and subsequently the bank shared with federal investigators the fruits of the firm’s very extensive inquiry, including a “White Paper” summarizing their findings and “laying out a roadmap of the case against Deutsche Bank and various individuals . . . .” Much of Judge McMahon’s opinion consists of colorful (and occasionally scathing) descriptions of the government’s detailed involvement in many phases of Paul Weiss’s purportedly “private” and “voluntary” investigation. Judge McMahon began by noting that Deutsche Bank essentially had no choice but to do such an investigation, at one point commenting (with explicit reference to The Godfather) that the “offer” to do one was one that the bank “could not refuse” for fear of losing its license. Referring to copious (and candid) emails between federal investigators and Paul Weiss lawyers working on the investigation, Judge McMahon noted that “the Government gave Deutsche Bank/Paul Weiss marching orders” about how to proceed, and that in at least one instance a Paul Weiss lawyer was instructed to “approach [an employee] interview as if here were a prosecutor;” at one point, Deutsche Bank even “asked the Government for ‘permission’ to interview its own employee.”
Among the many witnesses interviewed by Paul Weiss was Gavin Black, a Deutsche Bank officer who three times appeared for interviews without counsel. The fruits of his interviews were transmitted to the government, and presumably figured in the overall White Paper report. In 2016, he and a co-defendant were indicted federally for bank and wire fraud. After a jury trial in September and October 2018, both were convicted on some of the counts against them; as of this writing, they have not yet been sentenced.
Black’s Kastigar and Allen Motions
Prior to trial, Black argued that the case against him should be dismissed because it was tainted by coerced admissions he had made to the United Kingdom’s Financial Conduct Authority (FCA), relying on United States v. Allen (PDF: 511KB), a 2017 Second Circuit decision (of which I wrote a short analysis in these pages). Allen basically held that statements coerced by, or given under immunity to, a foreign authority cannot be the basis for a U.S. prosecution consistently with the Supreme Court’s holding in Kastigar v. United States, 406 U.S. 441 (1972). Black then renewed this motion after conviction, now focusing on the significance of his statements to Paul Weiss. He argued that if he could demonstrate that he gave information to Paul Weiss as a result of official coercion, and that the U.S. prosecution was “tainted” by direct or indirect use of his statements, his conviction must be vacated and the case dismissed – as had been the case in Allen.
Judge McMahon agreed with Black’s legal analysis, and sharply criticized the government’s legal defense as being “not just unconvincing, but unworthy.” She found that because neither Deutsche Bank nor Black had any real choice as to whether to participate in the Paul Weiss investigation, and given the meticulous and controlling participation of the government therein, under Garrity, Black’s statements were compelled by state action, and could not be used against him (directly or to develop “fruits”) without violating his Fifth Amendment right against compelled self-incrimination.
After a long and careful analysis clearly designed to highlight to the government the risks of “outsourced” investigations, Judge McMahon nonetheless denied Black’s application, noting that the government had in fact made no direct or indirect “use” of his statements, and even if it had, any error would have been “harmless” because the evidence against Black at trial was “overwhelming.”
The Implications of Judge McMahon’s Ruling
Judge McMahon was clearly incensed by what she perceived to be the government’s practice of “routinely outsourcing its investigations into complex financial matters to the [corporate] targets of those investigations, who are in a uniquely coercive position vis-à-vis potential targets of criminal activity.” The court offered no criticism of Paul Weiss, nor of Deutsche Bank for having authorized the internal investigation; indeed, Judge McMahon noted that they had achieved a “conspicuous success” in negotiating a favorable outcome. Much of the considerable commentary about the ruling has thus appropriately focused on how government investigators may need to limit their coordination of lawyer-led investigations to avoid a risk that a future prosecution may suffer the outcome reached in Allen and be dismissed.
Judge McMahon had no occasion in the case before her, however, to consider the implications of her ruling on lawyers conducting international investigations, who must reckon with a phenomenon apparently not present in Connolly: foreign so-called “blocking statutes,” which may subject lawyers conducting interviews or gathering information overseas to criminal prosecution.
Blocking Statutes and Their Possible Application to Internal Investigations
The term “blocking statutes” is a general description of laws that attempt to impose territorial sovereignty over access to information (including witness testimony) by prohibiting or limiting the international transfer of information gathered locally for use by a foreign government. The most notorious of these is the French version, originally drafted in an (unsuccessful) attempt to protect French companies from having to turn over information or data located in France in response to U.S. litigation discovery demands, a position ultimately rejected by the Supreme Court in Aérospatiale v. U.S. District Court, 482 U.S. 522 (1987). As currently written, it provides that anyone located in France or of French nationality who transfers information of potential economic significance outside of France for use in a “judicial or administrative proceeding” commits a crime, unless the transfer is conducted pursuant to a bilateral or international agreement to which France is a party. A number of other countries have similar provisions. These laws have often been controversial in U.S. litigation. U.S. District Judge Jed S. Rakoff, for example, refused to apply the French statute to a discovery demand before him on the ground that it had not been regularly enforced in France, although, in the same opinion, he did give effect to a similar Swiss law. But there is significant and growing reason to be concerned that lawyers – particularly U.S. lawyers – who violate such laws may face unpleasant consequences. In 2006, a Franco-American lawyer was convicted by a French court for conducting an interview in France for use in U.S. litigation; more recently, France has created an Anti-Corruption Agency to monitor and reinforce application of the blocking statute in certain circumstances, and, in June 2019, an influential parliamentary report known as the Rapport Gauvin urged more forceful enforcement of the law.
As drafted, blocking statutes apply only where there is some form of state action. Compliance with discovery demands in commercial international arbitration, for example, does not violate blocking statutes because private arbitration is not an “administrative” or “judicial” proceeding. Likewise, a purely private internal investigation – done solely at the request, and for the use, of a company in order to inform itself and obtain legal advice – would not appear to violate any blocking statute (although it may violate database protection and other privacy-oriented laws).
But Judge McMahon’s opinion highlights a dilemma long known to practitioners of international investigations: Is there a risk that an investigation conducted with significant governmental supervision and control might be considered part of a “judicial” or “administrative” proceeding? Judge McMahon’s opinion – and especially her meticulous factual analysis of a remarkably close coordination between prosecutors and a private law firm, which is likely to be considered surprising, if not appalling, to readers in Europe and elsewhere – make it compellingly clear that some investigations purportedly conducted on a “voluntary” and “private” basis are in fact neither, but rather constitute purposeful state action that blocking statutes were designed to prevent.
The risk identified here is neither hypothetical nor unforeseeable. As internal investigations mushroom, it is inevitable that one might be brought to the attention of a local government who would not be happy about it; an interviewed witness, for example, may well complain to local authorities after being interviewed by an American lawyer. In that instance, the analysis Judge McMahon conducted with notable insight into U.S. practices would instead be conducted in a local criminal proceeding by a foreign judge who, more likely than not, would find it easy to conclude (as I have noted elsewhere) that U.S. criminal procedures impinge on the rights of other nations and their citizens.
I have recently opined that differing practice-of-law and professional principles may “mess up” an internal investigation conducted by U.S. lawyers overseas. Judge McMahon’s opinion is a warning that such investigations may have personal consequences for the participating lawyers as well.
Frederick T. Davis is Of Counsel in the New York and Paris offices of Debevoise & Plimpton LLP, and a Lecturer in Law at Columbia Law School. In July 2019, Cambridge University Press published his book American Criminal Justice: An Introduction.
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