US law firms not protected by German constitutional rights - the end of compliance in Germany?

In its decisions dated 27 June 2018, the Federal Constitutional Court claims that US law firms are not protected by the relevant fundamental constitutional rights against dawn raids and seizures.

Facts

In connection with a criminal investigation conducted in the US relating to manipulated emissions of diesel vehicles, Volkswagen AG entrusted the international law firm Jones Day with carrying out internal investigations, providing legal advice and representing it vis-à-vis US law enforcement authorities. To investigate the facts, Jones Day's lawyers reviewed a large number of documents within the Volkswagen group and conducted group-wide employee interviews. Lawyers from the Munich office were involved in the mandate and kept relevant investigation records in their local office.

At the request of the public prosecutor's office, which has been investigating for suspicion of fraud and other offences, the Munich District Court has ordered a search of Jones Day's offices and seized numerous files and electronic data on site in early 2017. The complaints lodged against the search warrant and the confirmation of the seizure, however, were unsuccessful. Jones Day and some of its lawyers individually filed constitutional complaints against this.

Decision of the Federal Constitutional Court

In its decisions dated 27 June 2018, the Federal Constitutional Court did not accept the constitutional complaints, claiming that the US law firm Jones Day was not protected by the relevant fundamental constitutional rights. In addition, the court did not recognise any infringement of the rights of the individual lawyers working at Jones Day.

The constitutional complaints of the law firm Jones Day, which is organized in the legal form of a partnership under the law of the State of Ohio, were inadmissible in the absence of the complainant's right of appeal. The firm is not protected by fundamental rights, since it is not a domestic legal person within the meaning of Article 19 (3) of the German Constitution (Grundgesetz, “GG”).

According to Article 19 (3) GG, domestic legal persons are holders of fundamental rights, insofar as these are essentially applicable to them. Foreign legal entities cannot invoke material fundamental rights. The wording and meaning of Article 19 (3) GG do not allow for an extensive interpretation through expanding its effect to foreign legal persons regarding material fundamental rights.

The only exceptions are foreign legal entities domiciled in the European Union. Basic right protection under the constitution must be extended to them if they have sufficient connection to Germany. This connection must make the application of fundamental rights appear appropriate in the same way as for domestic legal persons.

To answer the question as to whether a foreign or domestic legal entity is involved, the location of the entity’s registered office is decisive. A legal person’s seat is determined by the actual centre of its activities. In the case of activities at several locations, the seat is to be determined by the location of the actual head office. The main administrative seat is the place where the supreme administrative body makes most of its decisions on management, or where the company management’s fundamental decisions are effectively implemented in current management acts.

The Federal Constitutional Court analysed the structure of the law firm Jones Day and concluded that it is based in the US. Only about 500 of the more than 2,500 lawyers are employed in Europe and most of the offices are located in the US.

The office location in Germany, however, is, in itself, not sufficient to give Jones Day a right to appeal in Germany. In an earlier decision, the Federal Constitutional Court ruled that a constitutional complaint by a foreign law firm may be admissible under certain conditions. However, this is only the case if there is an independent organisational structure and a domestic centre of activity. The fulfilment of these conditions was not claimed by Jones Day.

Furthermore, the constitutional complaints lodged by individual lawyers in their own name are also not admissible, given that the individual lawyers were not violated in their own fundamental rights.

Implications

It is too early to tell what the exact repercussions of the Federal Constitutional Court’s decision on the conduct of internal investigations and, speaking more broadly, on compliance in Germany will look like. Answers, however, will have to be sought for a number of questions, ranging from which law firms may reasonably be entrusted with the conduct of internal investigations for organisations in Germany and, equally important, whether it is well-advised for companies to carry out such investigations at all if they run the risk of the documents being found and created during such investigations falling into the hands of prosecutors - an interesting contrast to the current political agenda, which calls for enhanced compliance efforts by companies and more (and more thorough) internal investigations. It is certainly not the end of compliance in Germany, but it is a decision which calls for answers to some new questions.

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