Evidence gathering and investigative techniques
Covert phase
Is there a covert phase of the investigation, before the target business is approached by the government? Approximately how long does that phase last?
Prior to the target business being advised of an investigation, agencies seek to gather information from other parties either voluntarily or by using their compulsory powers. That could include specific covert techniques but will not inevitably do so.
The next stage of the investigation will usually involve the investigating agency contacting the target business to advise that an investigation has commenced. The agency will likely request the disclosure of documents and seek to interview relevant witnesses, either voluntarily or using powers designated to the particular agency by statute (eg, the Serious Fraud Office (SFO) using its powers of compulsion under section 2 of the Criminal Justice Act 1987).
There is no law requiring agencies to inform businesses that investigative steps are being taken. It is not uncommon for agencies with dual regulatory and enforcement functions to gather evidence for enforcement action against a target business under the auspices of its regulatory or supervisory function (notably the Financial Conduct Authority (FCA) or Her Majesty’s Revenue & Customs (HMRC)). For this reason, it is essential to consider the impact of all responses provided to an authority irrespective of the context in which it is provided.
If an agency considers that its investigations are to be best advanced by the use of covert techniques and not informing the business, then they will adopt that approach, including the execution of a search warrant (ie, a dawn raid) without notice.
Any covert investigations, such as surveillance and the interception and collection of communications data, must be undertaken in accordance with the Regulation of Investigatory Powers Act 2000 or the Police Act 1997 (for physical surveillance and the use of covert human intelligence sources (CHIS)), and under the Investigatory Powers Act 2016 (the IP Act – for electronic surveillance). The IP Act can be used by specified government agencies on the basis of national security, and for the purposes of detecting crime, preventing disorder, public safety, protecting public health or in the interests of the economic wellbeing of the United Kingdom. There is no time limit on how long a phase of covert investigations may last.
What investigative techniques are used during the covert phase?
Before advising a target business of an investigation, agencies may obtain information by interviewing witnesses or requesting the disclosure of documents from other parties.
Specific covert techniques include:
- intercepting communications (intercepted communications are not admissible in criminal or regulatory proceedings in the United Kingdom);
- the use of human sources (ie, CHIS);
- conducting intrusive surveillance;
- obtaining communications data; and
- computer penetration.
Investigation notification
After a target business becomes aware of the government’s investigation, what steps should it take to develop its own understanding of the facts?
Aside from the retrieval and review of relevant documents and electronic data, the obvious step is to conduct interviews with relevant employees as part of an internal investigation. However, doing so carries a risk. The SFO suggests businesses should carefully consider whether it is best to interview employees or to limit the ambit of an internal investigation to document review only. Any final decision will need to take into account the facts and circumstances of the case, and the business concerned, bearing in mind any obligation or duty owed to its employees and shareholders.
If an internal investigation is decided upon, its parameters should be carefully considered and documented by the business. Although the position is open to dispute, particularly in light of the decision in the case of The Director of the Serious Fraud Office v Eurasian Natural Resources Company (ENRC) [2018] EWCA Civ 2006, the employment of external lawyers may enable the business to assert that legal professional privilege can be claimed. Otherwise, the internal investigation may be (and in practice, often is) disclosable to the authorities. Indeed, it will often be in the interests of the company for it to be disclosed. The Courts’ continuing need to deal with privilege arising in the context of government and corporate investigations was apparent in two 2020 cases, Civil Aviation Authority v R (on behalf of the application of JET2.com Ltd) [2020] EWCA Civ 35 and Sports Direct International plc v The Financial Reporting Council [2020] EWCA Civ 177. In summary, the cumulative effects of the rulings are:
- confirmation that the ‘dominant purpose’ test applies to any legal advice privilege claim;
- regarding communications sent to multiple recipients (ie, lawyers and non-lawyers or legal advice contained within a chain of communications), legal advice from a lawyer maintains its privileged status;
- email attachments need to be separately assessed for privilege in document review; and
- privilege cannot be asserted for non-privileged documents merely because they are attached to privileged communications.
Evidence and materials
Must the target business preserve documents, recorded communications and any other materials in connection with a government investigation? At what stage of the investigation does that duty arise?
Even when a target business has been informed that an investigation has commenced, there is no legal duty to preserve material; however, the destruction of evidence is itself a criminal offence. Section 2(16) of the Criminal Justice Act 1987 provides that a person who knows that the police or the SFO are conducting or may conduct an investigation into allegations of serious or complex fraud and destroys, conceals, falsifies or otherwise disposes of relevant documents (or causes the same) is guilty of an offence. There is also the general common law offence of conspiracy (agreement) or attempting to pervert the course of justice that might apply if any material is destroyed. Extreme caution is required in the destruction of any material during an ongoing investigation, even where company policies operating normally provide for that.
Persons or entities regulated by the FCA or CMA also have a duty to cooperate with investigations, which includes the preservation of material.
Providing evidence
During the course of an investigation, what materials – for example, documents, records, recorded communications – can the government entity require the target business to provide? What limitations do data protection and privacy laws impose and how are those limitations addressed?
Some agencies have the power to issue notices compelling a person to answer questions about matters relevant to an investigation, or to otherwise furnish information or to produce documents (including information recorded in any form). Failure to comply would constitute contempt of court. Generally, the criteria for issuing a compulsion notice are that there are reasonable grounds for suspecting that wrongdoing has occurred and that there is a reasonable belief that the recipient of the notice is in possession of relevant information or documents.
The agencies may also apply to a court for a search and seizure warrant. To issue the warrant, the court must be satisfied that the company has failed to comply with an obligation to produce documents or would do so such that to give notice may seriously prejudice the investigation.
The statutory framework for data processing for the purpose of law enforcement is contained in Part 3 of the Data Protection Act 2018. When processing data for law enforcement purposes a competent law enforcement authority must adhere to several guiding principles to process the data lawfully and fairly:
- the purpose of the processing must be specified, explicit and legitimate;
- the personal data processed must be adequate and not excessive to the purpose for which it was processed;
- the data must be accurate;
- the data must not be kept longer than is necessary; and
- the data must be processed in a manner that ensures its appropriate security.
As a result, careful scrutiny is required by law enforcement agencies to establish the basis and purpose of their decision to process data.
A company has data protection obligations of its own under the UK General Data Protection Regulation to its customers and its staff. Notwithstanding the power of law enforcement bodies, the company must ensure that it meets its obligations and that sharing personal data is permitted within the regime applicable to law enforcement bodies. Even greater restrictions are applicable to the sharing of personal data outside the United Kingdom.
On what legal grounds can the target business oppose the government’s demand for materials? Can corporate documents be privileged? Can advice from an in-house attorney be privileged?
As a general rule, notices or court orders may not compel the production of a document that is legally privileged, nor may legally privileged material be seized pursuant to a warrant. This applies to material subject to legal advice privilege and litigation privilege (commonly known together as legal professional privilege). However, it is often impractical to identify privileged material at the time of seizure, such that potentially privileged material may need to be seized for the data separation to occur at a later stage. In these circumstances, the material will be subject to independent review and must be returned without the investigative team having sight of it if that material is later determined to be privileged.
The rules governing legal professional privilege apply to both external and in-house counsel, except in cases relating to European Commission law (typically, cartels or competition cases), where privilege cannot be claimed in respect of communications between in-house lawyers and employees. The scope of legal professional privilege in relation to internal investigations was clarified by the Court of Appeal in Eurasian Natural Resources Corporation (ENRC) [2018] EWCA Civ 2006, which confirmed that notes between company lawyers and its employees were protected on the basis that the purpose of heading off, avoiding or settling litigation was a purpose that ought to be protected by litigation privilege.
The effect of this ruling was to confirm that corporates are able (and in fact encouraged) to undertake internal investigations in the knowledge that, where proceedings are in ‘reasonable contemplation’, documents produced by the internal investigation will be protected.
Production orders granted by a court can be challenged if, for example, the information in the application made to the court contains incorrect or inadequate information, as can determinations about whether seized material is or is not privileged.
Certain confidential material, such as journalistic material or personal records acquired or created in the course of business, may also be protected from seizure, but not generally from a production requirement. However, certain documents held in confidence may be protected. For example, in FCA or HMRC investigations, there are reasonable arguments to suggest that the recipient of a notice who is not a person under investigation may refuse to provide documents held under an obligation of banking confidence. In those circumstances, the notice should be addressed to the banking institution.
Employee testimony
May the government compel testimony of employees of the target business? What rights against incrimination, if any, do employees have? If testimony cannot be compelled, what other means does the government typically use to obtain information from corporate employees?
Where a company is suspected of committing a criminal offence, an agency cannot arrest or compel a business to attend an interview. The company can, however, be invited to nominate a duly authorised representative to attend an interview and answer questions on its behalf. In those circumstances, certain agencies (including the SFO and HMRC) may issue a notice compelling a person to answer questions or otherwise furnish information.
Persons who receive a notice compelling them to answer questions may not, without reasonable excuse, refuse to answer those questions. Privilege against self-incrimination is not a reasonable excuse as statements obtained from a person under compulsion may not, save in limited circumstances, be used in evidence against them personally.
In circumstances where investigators have concluded that there are reasonable grounds to suspect an individual of having committed a crime, where necessary and appropriate, he or she can be arrested by the police for the purpose of conducting an interview under caution, during which the individual does not have to respond to the questions. In such circumstances, the interview will normally take place at a police station. Whether arrested or not – and, in many cases, interviews can be arranged by appointment, thereby avoiding arrest – the individual maintains the right not to incriminate himself or herself.
Under what circumstances should employees obtain their own legal counsel? Under what circumstances can they be represented by counsel for the target business?
All persons interviewed under caution (ie, after being arrested or attending an interview by appointment) have a right to be represented by a solicitor during questioning. If an employee is interviewed by those conducting an internal investigation in equivalent circumstances (ie, there is a suspicion of wrongdoing) the employee should obtain or be offered independent legal representation.
Persons who receive a notice from the authorities compelling them to answer questions, including where they have been identified as witnesses are not entitled to legal representation as of right, although they are generally given a reasonable opportunity to arrange this. Such representation should be independent of the representation of their employer. In circumstances where a target business, as well as one or more of its employees, is under investigation, the employee should seek separate representation.
In February 2018, the SFO amended its guidance regarding the process for inviting and handling requests for compelled witnesses to be accompanied by a lawyer to ensure that lawyers acting for a corporate suspect do not also attend with compelled witnesses, reducing the risk that confidential information will be shared between witnesses and suspects during the investigative stage.
It is also advisable for an employee who has been compelled as a witness to obtain independent counsel, even if the business is not under investigation and the investigation relates to the conduct of a single employee.
Sharing information
Where the government is investigating multiple target businesses, may the targets share information to assist in their defence? Can shared materials remain privileged? What are the potential negative consequences of sharing information?
There is nothing to prevent businesses from sharing information but, in practice, it is often preferable to keep matters confidential. Every case will be different and will require careful consideration of the facts and the potential for future conflicts of interest to arise. If sharing is to take place, a common-interest privilege agreement would be the norm.
The possible negative consequences of sharing are that a business may inadvertently share information that may assist the investigating agency or there may be compelled disclosure in respect of that information. A business could also potentially undermine its position in relation to the other businesses under investigation by sharing information. Ill-considered sharing could also interfere with the investigation and the business could be in danger of perverting the course of justice, a criminal offence. This is an area where care is required.
Investor notification
At what stage must the target notify investors about the investigation? What should be considered in developing the content of those disclosures?
In many instances, the fact of an investigation will have been made public by the investigating agency; for example, the SFO often announces on its website when a business is under investigation.
If an investigation has not been made public by the investigating agency, then a company listed on the stock market has a duty to inform investors that an investigation has commenced. If the company is a private limited company, in principle the same duty does not apply, and the decision about whether to notify investors will be a commercial one.
Any disclosure should be kept factual and should, in most cases, be very brief, simply setting out the fact that an investigation has commenced and that the business is cooperating fully.
Law stated date
Correct on
Give the date on which the information above is accurate.
16 June 2020.
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