Third Circuit Lets Feds Subpoena FCPA Suspects’ Attorney To Appear Before Grand Jury

It’s no fun being the target of a federal grand-jury investigation, even less so when the stiff penalties of the Foreign Corrupt Practices Act are looming.

But for one corporation and its managing director, the challenge became even more daunting after the Third Circuit ruled last week that their former attorney can testify to the grand jury about communications between lawyer and client that might be relevant to the investigation.

In what it admitted was “a close case,” the Third Circuit upheld the decision of U.S. District Judge Gene E.K. Pratter that the communications were not protected by the attorney-client privilege because they were used to aid a crime or fraud.

This is far from the first time a court has invoked the so-called “crime-fraud exception” to allow otherwise-protected attorney-client discussions to be revealed. But what makes the Third Circuit’s decision in In re Grand Jury Subpoena unique is how innocuous and brief the discussions between client and attorney were.

In this case, the targeted corporation is a consulting firm headquartered in Pennsylvania that is under investigation for its dealings with a bank in the United Kingdom. The lawyer involved worked for free out of the company’s office but practiced independently. To make up for his lack of rent, the attorney would occasionally give the company’s managing director legal advice on a variety of matters.

At one point, the managing director told the attorney that he planned on paying a banker to make sure that the financing from the British bank came through for an oil-and-gas project. The attorney did some research and discovered the FCPA’s anti-bribery provisions. The lawyer could not ascertain whether the payment would be legal or illegal and told the managing director not to pay the banker. But the managing director rejected the advice and told the lawyer that he planned on making the payment anyway. The lawyer gave the managing director a copy of the FCPA, and the pair had no further discussions on the topic.

The Third Circuit acknowledged that the communication between attorney and client “was brief” and “consisted mainly of informing Client of the applicable law and advising that he not make the payment.” But the Court ruled that the questions the managing director had posed and the information the attorney “could gain” from the questions were sufficient to conclude that Judge Pratter had not abused her discretion in applying the crime-fraud exception.

The Third Circuit went to great pains to explain the limited reach of its decision. The court noted that the crime-fraud exception only when the client is committing or intending to commit a crime “at the time” he or she consults the lawyer. It does not apply, the court explained, “where a client consults an attorney about a possible course of action and later forms the intent to undertake that action.”

But for companies seeking legal advice under the FCPA and the lawyers who represent them, In re Grand Jury Subpoena still creates a dilemma. On the one hand, companies need solid legal advice to help them navigate the nuances of the FCPA, and lawyers need for their clients to trust them to be able to provide the best advice possible. On the other, if corporate leaders don’t believe their discussions with counsel will be kept confidential, they are less likely to seek the advice they need, and attorneys will be less able to help steer their clients clear of conduct that violates the FCPA.

In other words, beware unintended consequences: By placing attorney-client communications before grand juries, the government and the courts may be making it harder to prevent fraud.