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Article: September 2019: French Defenses Against Foreign Legal Proceedings May Be Getting a Boost

Business Litigation Reports

In the United States, all attorneys are entitled to the benefits of attorney-client privilege and work product doctrine whether they work for a private law firm, a corporation, or the government. But in France (and to an extent the rest of Europe, where legal privilege is generally less robust for in-house counsel than in the United States), in-house counsel has no such privilege. An in-house counsel’s correspondence with other company employees on legal matters, as well as that counsel’s memoranda and notes, are subject to discovery in foreign litigation. At the same time, U.S. courts have been largely hostile to claims by French companies (and indeed, all foreign litigants with similar claims) that producing relevant documents located in France will subject them to prosecution in France under the French “blocking statute”—a domestic law that imposes criminal penalties for producing documents in a foreign country.

Perhaps because their internal legal correspondence and memoranda are not protected from discovery and the rarely-enforced blocking statute is a poor deterrent to cooperation with foreign regulators, French companies historically have been the subject of some of the largest criminal settlements by foreign companies with the U.S. Department of Justice (“DOJ”). Now, voicing concerns that the United States is using DOJ enforcement as a weapon in the international economy, a French politician has proposed that France fight back by: (1) strengthening its blocking statute to impose greater penalties on French companies that produce documents in foreign litigation absent a French court order; and (2) expanding the concept of legal privilege to include in-house counsel. The ultimate result of these recommendations is unclear, but French companies should probably not consider them a silver bullet to U.S.-based criminal investigations or civil litigation.

In the United States, courts generally extend the attorney-client privilege to attorneys that are working “in-house” at a business organization. The company is the “client,” and the in-house attorney’s communications with employees of the company can be protected from subsequent discovery, so long as certain conditions are met. See, e.g., Upjohn Co. v. United States, 449 U.S. 383, 395 (1981). This in-house attorney-client privilege can be especially important during a company’s internal investigation into potential wrongdoing, particularly where in-house attorneys lead a preliminary investigation before outside counsel is retained.

By contrast, though the French legal system does provide legal privilege to attorneys, the privilege does not extend to in-house counsel. That is, there is no legal privilege covering communications between the counsel and any other company employees, even if the employees have come to the in-house counsel specifically to discuss a legal issue. See, e.g., C-550/07 P, Akzo Nobel Chemicals Ltd and Akcros Chemicals Ltd v European Commission, 2010 I-08301 (European Court of Justice case interpreting French law on legal privilege and holding that French in-house counsel’s work is not protected because: (1) in-house counsel in France are not formally avocats; and (2) in-house counsel lack sufficient independence from their employers). This creates a situation where in-house attorneys’ correspondence and work product can be used by a foreign authority during its investigation, or be the subject of a production order in foreign civil litigation.

The impact on French companies exposed to U.S. criminal investigations or civil discovery demands is exacerbated by the fact that U.S. courts tend to take a dim view of another potential protection: the so-called blocking statute. In France, the blocking statute prohibits any French company from producing documents in a foreign litigation, absent a French court order. See Article 1bis, French Penal Code Law No. 68-678 of July 26, 1968, amended by Law No. 80-538 of July 16, 1980 (the French “blocking statute”). Though violations of the blocking statute are a criminal offense and are punishable by fines and prison, there has been only one conviction in the 50-year history of the blocking statute.

Despite the potential criminal penalties that French companies face, U.S. courts tend to order French companies (and all foreign companies subject to a blocking statute in their domestic market) to produce documents, regardless of any penalties they may face in their home countries. See, e.g., In re Vivendi Universal S.A. Secs. Litig., 2006 WL 3378115 (S.D.N.Y. Nov. 16, 2006) (ordering French company to produce documents after weighing four factors, including the hardship of compliance in light of the French blocking statute and the competing interests of the United States in enforcing its laws and France in regulating its domestic companies).

These two factors—the lack of legal privilege for in-house counsel and an under-enforced French blocking statute—may explain why French companies have been well represented on the list of foreign companies with large settlements with U.S. regulators. Consider, for instance, if the French blocking statute imposed more serious criminal penalties for non-compliance and was routinely enforced: French companies might then be much less likely to cooperate with a U.S. criminal investigation by turning over documents (including unprotected internal legal correspondence and memoranda) in response to a criminal subpoena, which would make it much more difficult for DOJ to ultimately prove its case. Such circumstances may lead to fewer or smaller settlements by French companies as they block U.S. investigations.

Instead, recent settlements by French companies with DOJ have been substantial, including:

  • In May 2013, Total S.A., a French oil company, entered into a Deferred Prosecution Agreement with the DOJ in connection with allegations of foreign bribery and agreed to pay $398 million in penalties and disgorgement;
  • In June 2014, BNP Paribas S.A., a French financial institution, pleaded guilty to violating U.S. sanctions against conducting business with Cuban, Iranian and Sudanese entities and agreed to pay an $8.9 billion penalty;
  • In December 2014, Alstom S.A., a French power and transportation company, pleaded guilty to Foreign Corrupt Practices Act violations and agreed to pay a $772 million fine; and
  • In June 2018, Société Générale, a French financial institution, entered into a Deferred Prosecution Agreement with the DOJ in connection with its role in interest rate manipulation and agreed to pay $1.3 billion in fines and penalties to U.S. and French authorities.

French MP Raphaël Gauvain certainly believes there is a connection between the weak French blocking statute and the lack of legal privilege for in-house counsel on the one hand, and the large penalties paid by French companies to U.S. regulators on the other. Further, he believes that U.S. authorities are intentionally targeting French companies as a form of economic sabotage, and have been more successful than they otherwise would have been due to these factors. Mr. Gauvain recently authored a report recommending that France protect French companies from foreign authorities by, among other measures: (1) strengthening the existing French blocking statute by providing greater penalties for companies and individuals that do not comply with it; (2) providing additional resources for French companies that report to the authorities any request that would potentially place them in violation of the blocking statute (such as a foreign civil production order); and (3) expanding the scope of legal privilege to encompass communications with, and work product by, in-house counsel. See Raphaël Gauvain, Claire D’Urso & Alain Damais, Rétablir la souveraineté de la France et de l’Europe et protéger nos entreprises des lois et mesures à portée extraterritoriale, June 26, 2019.

The fate of these recommendations remains to be seen. The report has been transmitted to French Prime Minister Edouard Philippe for further study and potential action. However, it is unclear if the proposed changes would have any impact on French companies subject to U.S. criminal investigation or civil litigation. While in-house counsel legal memoranda and correspondence may have aided DOJ investigations into French companies in the past, they are far from the only sources of information about potential criminal wrongdoing. And in civil litigation, the hardship to the company facing a discovery order from a U.S. court is only one factor to be considered in deciding whether to compel production in contravention of a foreign blocking statute; increasing the hardship by strengthening the French blocking statute may not meaningfully affect a U.S. court’s analysis, given that the statute appears to be rarely enforced and only a single individual (but no French company) has ever been convicted of violating the blocking statute. Ultimately, while the report may be a political boon to Mr. Gauvain and Mr. Philippe in criticizing U.S. enforcement actions, any changes in the French blocking statute or legal code may have minimal impact on French companies ensnared in U.S. criminal investigations or civil litigation.