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Compliance and the Attorney-Client Privilege

Chief compliance officers have to work closely with the chief legal officer or general counsel on a number of important issues.  In certain circumstances, CCOs  have to be mindful of the importance of the company’s ability to assert the attorney-client privilege.  While CCOs tend to lean in favor of disclosure and transparency as an important principle in promoting a company’s compliance program, there are a number of situations when compliance requires protection of the attorney-client privilege.

Let’s be honest – lawyer can be blowhards and in litigation circumstances, lawyers can fail to see the big picture.  In recent years, litigators have sought to claim expansive interpretations of the attorney-client privilege.  Federal judges are expressing frustration at these broad claims of privilege and beginning to cut back on such claims by reminding attorneys that blanket claims of privilege by the presence of an attorney in a meeting or the listing of an attorney on an email are not going to be sustained.

Lawyers and compliance officers need to pay close attention to the attorney-client privilege, and make sure they take proper steps to protect and promote the use of privilege in appropriate circumstances.  When conducting serious internal investigations or reviewing significant compliance issues, a company’s ability to cloak such determinations with the privilege is critical to the review, the company’s decision and the remediation of the issue, if warranted.

To review the basics, the attorney-client privilege applies to:

  • Communications between an individual and an attorney (or someone acting at the direction of an attorney); and
  • Communications between a compliance officer and an in-house counsel can qualify for the attorney-client privilege so long as it is intended to seek, obtain or provide legal guidance or services.

Compliance officers frequently consult in-house attorneys for guidance on the law, development of compliance policies, and day-to-day discussion of legal implications of compliance issues.

A compliance officer may use legal advice from in-house counsel to provide guidance and respond to an employee question, enforce the company’s compliance policies and procedures, conduct investigation, take corrective actions, and provide reports to corporate leaders.

Courts are imposing increasing burdens on companies that broadly assert attorney-client privilege to compliance activities.  An example of this trend is a 2012 district court decision, U.S. ex.rel Baklid-Kunz v. Halifax Hospital Medical Center, Case No. 6:09-cv-1002, 2012 U.S. Dist. LEXIS 158944 (M.D. Fla. Nov. 6, 2012) (Copy Here).  Every compliance officer should be familiar with this case.

In a False Claims Act context, the magistrate judge addressed the application of the attorney-client privilege to emails and other communications, including the determination of whether compliance documents were prepared by or directed to in-house counsel and compliance staff.

The magistrate judge ruled that communications to an in-house counsel and corporate employees are not entitled to a presumption of privilege.  Specifically, the magistrate judge held that the following communications were not privileged: (1) compliance logs; (2) emails from in-house counsel and compliance personnel; (3) audits and fair market value communications by compliance, finance and case management departments.

A specific issue addressed by the court is important to remember – copying an in-house counsel on internal email will not entitle the company to assert the privilege over the communication.  To be privileged, the communications must directly involve the in-house counsel and for the purpose of seeking or providing legal advice.  Companies have to be mindful of this important limitation when communicating about legal and compliance issues.

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