Advice of Counsel: An Effective Shield

Companies hire lawyers for a reason.  Hopefully, they do so for more than one reason.  Lawyers provide several important benefits, contrary to all the jokes and ridicule against the profession.

The attorney-client privilege encourages confidential communications between business actors and attorneys.  As the Supreme Court has stated, “[t]he purpose of the privilege is to encourage clients to make full disclosure to their attorneys.”  In addition, assuming a business acts on the basis of the attorney’s advice, the client has an added protection under the law – an advice of counsel defense. 

Compliance programs should include procedures which build in proof of advice of counsel in resolving a compliance decision.  How would this work?

When conducting due diligence of a potential third party, a file should be assembled which includes all the information and documentation developed during the due diligence process.  At the conclusion of this process, in-house or outside counsel should review the file, prepare a brief memo analyzing the issues, and reach a conclusion as to going forward with the third party agent, couched in appropriate words. 

This last step is critical.  The company is relying on the attorney’s advice in deciding to go forward.  It has an extra layer of protection by documenting and acting on the basis, in part, of the attorney’s conclusion. 

An advice of counsel defense can be effective.  If established, the defense shows that the defendant lacked the necessary criminal intent, or mens rea, to commit the crime.  The advice-of-counsel defense is only available if the alleged crime requires specific intent.  A large number of crimes require specific intent – e.g. obstruction of justice; fraud; false claims.  The defense has never been raised in an FCPA case, but there is no logical reason why it could not be raised. 

The advice-of-counsel defense is only available if the advice was sought before action was taken since the individual has to establish that he or she relied on the advice.  In practice, the advice of counsel should be sought whenever there is a grey area which can be resolved through legal advice.  In seeking such advice, it is important for the employee to disclose all relevant and material facts. 

It is important for companies to document and keep accurate records of requests for legal advice and responses to such requests, as well as the documents provided to counsel for review.  It will be much easier for a defendant sustain an advice of counsel defense if they made contemporaneous records indicating what documents were disclosed to attorneys, as compared to having to determine what was disclosed at a later date. In addition, contemporaneous records will have more credibility with a jury.

The advice of counsel defense does not come without risks and legal complications.  The advice-of-counsel defense waives the attorney-client privilege protecting communications between a client and their counsel. A defendant may not both use the advice-of-counsel defense as both a sword and a shield.  The question of the extent of such waiver is often litigated and a significant risk when relying on such a defense.  Courts are reluctant to extend the waiver of the privilege far beyond the specific question of the advice at issue in the case.   

In this risky enforcement environment, compliance programs have to integrate practical steps to ensure that advice of counsel can be raised as a possible defense.  Criminal cases are extremely hard to prove when there is evidence that the company believed that the legality of its actions was unclear, sought advice of counsel, and then relied on that advice before engaging in the alleged criminal conduct.

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2 Responses

  1. Jon May says:

    Thank you Michael. Now I have to scrap the draft of my post on the Advice of Counsel Defense in FCPA investigations. You are absolutely correct, or course. Companies must document advice received in the course of compliance regardless of whether they choose to disclose it. It is a very powerful defense that in the right case can save the day. But blessing compliance may be the easy case. What if the company seeks to engage in conduct that counsel knows DOJ would not permit but which counsel believes is perfectly legal under the statute. How do you play that?

  1. May 15, 2012

    […] The FCPAProfessor continues to needle Mark Mendelsohn and responds to Howard Sklar. Mike Volkov recommends an “advice of counsel” provision in a company compliance program. The FCPAmericas blog notices […]