Attorney-Client Privilege • Crime-Fraud Exception • Foreign Corrupt Practices Act
In re Grand Jury Subpoena, PICS Case No. 14-0299 (3d Cir. Feb. 12, 2014) Fisher, J. (23 pages).
District court applied proper standard in determining whether to conduct in camera examination of attorney and properly found that crime-fraud exception to attorney client privileged applied. Order enforcing grand jury subpoena affirmed.
Corporation and client (intervenors) are the targets of an ongoing grand jury investigation seeking to determine whether they made corrupt payments to obtain business in violation of the Foreign Corrupt Practices Act.
Corporation, as financial advisor to several companies seeking financing from bank, closed two deals with banker, and received $8 million in success fees. A few months later, corporation paid more than $3.5 million to banker’s sister, who was not involved in any of the transactions.
Attorney had worked with client, president of corporation, to close one of the two deals with bank. In the context of that case, and before corporation transferred funds to sister, client explained to attorney that he planned on paying banker to ensure that the project progressed swiftly, as banker was threatening to slow down the approval process. Attorney did preliminary research, found the Foreign Corrupt Practices Act, and asked client whether bank was a government entity and whether banker was a government official. Although attorney could not ascertain given his limited research whether the planned action was legal or illegal, he advised client not to make the payment. Despite this advice, client insisted that his proposed payment did not violate the FCPA, and informed attorney that he would go ahead with the payment.
In its investigation of intervenors, grand jury subpoenaed attorney, and government sought an order directing attorney to testify based upon the crime-fraud exception to the attorney-client privilege.
The U.S. District Court for the Eastern District of Pennsylvania conducted an in camera examination of attorney and determined that the crime-fraud exception applied, i.e., that there was reasonable basis to suspect that intervenors intended to commit a crime when they consulted attorney and they could have used the information from that meeting in furtherance of a crime. The court com-pelled attorney to testify before the grand jury.
Intervenors appealed, challenging, inter alia, the court’s decision to conduct an in camera examination and its ultimate determination that the crime-fraud exception applied. District court stayed its order pending appeal.
The U.S. Court of Appeals for the Third Circuit affirmed the order enforcing the subpoena.
The attorney-client privilege ceases to operate where the desired advice refers to future (as opposed to prior) wrongdoing. Under the crime-fraud exception, the party seeking to overcome the privilege must make a prima facie showing that: (1) client was committing or intending to commit a fraud or crime; and (2) the attorney-client communications were in furtherance of that alleged crime or fraud. Given the difficulty to prove that the exception applies without delving into communications themselves, courts may use an in camera review, provided there is a factual basis adequate to support a good faith belief by a reasonable person that in camera review of materials may reveal evidence to establish that the crime-fraud exception applies. (See United States v. Zolin, 491 U.S. 554 (1989) (applying rule to documented materials)). District court properly adopted this standard in the proceedings below. Its factual basis was the government’s affidavit which contained details from the FBI investigation and attorney’s statement to FBI that he was consulted about a financing project. The court was not required, as intervenors argue, to use a more stringent standard because the testimony is oral rather than documented. Zolin still applies.
Furthermore, evidence shows that the crime-fraud exception to the attorney-client privilege applies in that client intended to make illegal payment to banker to ensure that the project was approved in a timely manner and payment occurred in the same month that bank approved the project financing.
Moreover, the advice was used “in furtherance” of a crime or fraud; attorney advised client that he should not make a payment and also provided information about the types of conduct that violate the law. Specifically, attorney’s questions about whether or not bank was a governmental entity and whether banker was a government official would have informed client that the governmental connection was key to violating FCPA. This would lead logically to the idea of routing payment through banker’s sister, who was unconnected to bank.