Interviews in corporate internal investigations: admissibility and the role of ILAs

This article examines the admissibility in English criminal proceedings of interviews conducted in corporate internal investigations. This is an underexplored subject. There are two possible reasons for this. First, the practice of internal investigations, and the relationship between an internal investigation and the criminal process, has received no judicial scrutiny in England beyond a small number of Crown Court trials.[1] Second, in most internal investigations, the rationale for interviewing employees is to establish the facts so that the corporate client receives advice about the extent of any misconduct and the remedial action it should take. The company and its lawyers may therefore give little consideration to the admissibility in any future criminal proceedings of the interview records they create.

One could be forgiven for thinking that the SFO is similarly uninterested in this question. Over the past two years, the SFO has asserted the primacy of its role in the evidence-gathering process: it has sometimes dismissed the necessity or value of an internal investigation, and has repeatedly suggested that corporate suspects will not be co-operating if their lawyers conduct interviews before the SFO has had the opportunity. On the other hand, the SFO has made no secret of its desire to obtain the records of such interviews, and has advocated that true co-operation entails the waiver of privilege over the records, or even that the records might not attract privilege. The SFO’s wish to have it both ways is a reminder that admissions made by employees in an internal investigation may constitute valuable material for a prosecutor. This is particularly so if the employee exercised the right to silence in an interview under caution with a State investigator, refused to attend the interview under caution, or gave exculpatory explanations in the interview under caution which contradicted what was said in the internal investigation.

Given the escalating emphasis on corporate criminal compliance, and the connected growth in internal investigations, the admissibility of interviews conducted by investigations lawyers is likely to become an increasingly important issue, and not just for the individual who is interviewed. It is also relevant to the criminal exposure of a corporate suspect, especially if the individual constitutes its “directing mind”, such that any finding or plea of guilt against or by the directing mind, based on what he admitted to in an internal investigation, would necessarily lead to the corporate co-defendant being convicted.

There is no straightforward answer to whether interviews in internal investigations are admissible in criminal proceedings. Their admissibility will depend on how the interview is conducted and recorded. Whilst there is no judicial or professional guidance regulating such interviews, there is nonetheless a framework – derived from case law, statute and professional ethics – with which all investigations lawyers should be familiar. Accordingly, this article starts by outlining this framework, before considering how compliance with this framework determines the question of admissibility.

The Upjohn warnings

Broadly speaking, investigations lawyers in the UK will adopt one of three positions before interviewing one of their client’s employees in an internal investigation:

1. Suggest to the employee that he may wish to consult an independent legal advisor (“ILA”) and, at the start of the interview, deliver the Upjohn warnings

2. Not suggest an ILA but, at the start of the interview, deliver the Upjohn warnings

3. Not suggest an ILA and not deliver the Upjohn warnings

The Upjohn warnings derive from the seminal US case of Upjohn Co v United States[2], in which the Supreme Court held that communications between a company’s lawyers and its employees are privileged, but the privilege belongs to the company and not the employees. Thus, in an internal investigation in the United States, the company controls privilege, including the decision as to when privilege might be waived to secure leniency from a Government agency. In a number of cases subsequent to Upjohn, the US courts have admonished companies whose investigations lawyers failed to make it sufficiently clear to their clients’ employees prior to commencing the interviews that (1) they represented the company and not the employees; (2) that the interview was privileged to the company and not to the employees; and (3) that the company might waive its privilege and disclose the matters discussed in the interviews to a Government agency. These words of caution to interviewees have become known as the Upjohn warnings and have become an almost universally accepted practice in US internal investigations.

Whilst Upjohn and the subsequent US cases are not binding in England, the Upjohn warnings have been adopted by a number of English investigations lawyers as a means of protecting themselves from potential criticism and clarifying to their clients’ employee how the interview records might be used by their employers. However, there is no judicial or professional guidance promulgated in England addressing whether the Upjohn warnings go far enough in cautioning an interviewee about the potential use of the interview in English criminal proceedings. Even sophisticated employees may fail to understand the warning concerning privilege, and no part of the Upjohn warnings explicitly alerts the employee to the fact that what he says might be admissible in evidence against him, or that he might wish to seek independent legal advice. Are the Upjohn warnings sufficient in terms of the protection they afford to investigations lawyers and the interviewee, or should investigations lawyers, prior to commencing their interviews, be administering a caution akin to that administered to suspects in English criminal investigations?

When might investigations lawyers be obliged to caution interviewees?

Where an investigation concerns allegations of criminal (as opposed to regulatory) misconduct, investigations lawyers should first consider section 67(9) Police and Criminal Evidence Act 1984 (“PACE”), which provides that: “persons other than police officers who are charged with the duty of investigating offences […] shall in the discharge of that duty have regard to any relevant provision of a Code [i.e. a PACE Code of Practice].”

If section 67(9) applied to an internal investigation, the investigations lawyers would be bound to follow any relevant provision of the PACE Codes of Practice. It is unclear what might constitute a “relevant provision” for the purposes of an internal investigation, and many provisions in the PACE Codes of Practice are entirely irrelevant. However, it is likely that the most relevant provisions would include the interviewee’s right to legal advice (PACE Code C 6.1) and the right to receive a caution (PACE Code C 10.1), i.e. a warning that the interviewee has a right to silence and that anything he says might be used in evidence against him. These provisions, if they applied, would protect the interviewee in more far-reaching ways than the Upjohn warnings.

In what circumstances would investigations lawyers develop a sufficient nexus to the criminal process to fall within section 67(9) PACE such that PACE Code C applies? The “duty of investigating offences” under section 67(9) PACE is not limited to State actors such as SFO, FCA or HMRC investigators[3] discharging their statutory functions. The duty may also derive from private law contracts including those under which store detectives or similar security officers are engaged.[4]

In the context of private law contracts, there is no case that examines the practice of investigations lawyers, but there are two Court of Appeal decisions that provide useful guidance. The first is R v Twaites and Brown.[5] The defendant was interviewed under caution by police on an allegation that she had defrauded her employer. She answered questions and made no admissions. Subsequently, and prior to a disciplinary hearing, she was interviewed without a caution by two “commercial investigators” appointed by her employer, and confessed to acting dishonestly. The statement of her confessions was conveyed to the police, after which it was served as evidence by the prosecution. She was convicted and appealed, claiming that the statement of her confessions was obtained in unreliable circumstances. The question of whether the conduct of the commercial investigators brought them within section 67(9) PACE was not considered at trial. The Court of Appeal quashed her conviction on the basis that the trial judge, in determining the admissibility of her confessions, misdirected himself by failing to consider section 67(9) PACE. Stocker LJ observed that: “the investigators seemed to behave as if they were so engaged [to investigate offences under section 67(9) PACE] once the scope of their enquiries reached the point of taking a statement which could be used by the prosecution.”

The second pertinent case is R v Welcher[6], in which the defendant made admissions of receiving bribes in a series of internal disciplinary interviews conducted with the Chief Engineer of his company, at the conclusion of which the defendant was dismissed for gross misconduct. When interviewed by the police, who had been given the records of the disciplinary interviews, the defendant denied committing the offence. At the defendant’s trial he was cross-examined on the inconsistencies between his disciplinary and police interviews and he was convicted. On appeal the defendant argued that the Chief Engineer was caught by section 67(9) PACE, but had failed to conduct the disciplinary interviews in accordance with PACE Code C, with the result that it was unfair for the records of these interviews to have been admitted in evidence. The Court of Appeal upheld the conviction, and distinguished Twaites, holding that the Chief Engineer was not “charged with the duty of investigating offences” under section 67(9) PACE because he had been investigating the defendant’s conduct as an employee, which was a necessary part of the employer/employee relationship, and he was therefore “seeking to determine what recommendations to make to the company’s disciplinary panel”.

In light of the reasoning in Twaites and Welcher, investigations lawyers will fall outside section 67(9) PACE if they are performing a purely fact-finding exercise and are not making any value judgments about those facts. They will also fall outside section 67(9) PACE if the purpose of their work is to advise their client about disciplinary actions that may be taken against their client’s employees, or the client’s compliance with its regulatory obligations. They will edge closer to crossing the section 67(9) PACE threshold if the purpose of conducting interviews is to advise their client whether criminal conduct occurred, which employees may be culpable in this conduct and whether the client should report itself to the SFO or another prosecutor. But even then, it would be difficult to argue that they are “charged with the duty” of investigating offences given that the interviews would be characterised as an investigation into the interviewees’ conduct as employees, and their compliance with their company’s disciplinary policies, notwithstanding that the records of the interviews might subsequently be disclosed to a prosecutor.

In practice, section 67(9) PACE is only likely to apply to an internal investigation if it is proceeding in parallel to a criminal investigation with which the corporate is co-operating. A prosecutor may seek to dictate the timing and format of the internal interviews and, as already mentioned, may encourage the corporate to waive privilege over the interview records as a hallmark of co-operation. If the corporate acceded to the prosecutor’s requests, the investigations lawyers would be gathering the accounts of their client’s employees, and passing the interview records to the prosecutor. The corporate would do this knowing not only that the prosecutor would review these records to assess the strength of the evidence that criminal offences had been committed, but also that the records could potentially be used in the SFO’s investigation and/or prosecution. It is only in these circumstances that investigations lawyers might be construed as discharging their contractual duty to their client to “investigate offences”, and might fall within section 67(9) PACE. In most internal investigations, however, performing this kind of delegated investigative function is rare, and there currently seems no prospect that the SFO would condone it. Accordingly, in the majority of investigations, it is difficult to see how investigations lawyers would be under an obligation to caution interviewees in accordance with PACE Code C.

Investigations lawyers may question why it matters whether they fall within section 67(9) PACE. After all, they cannot be prosecuted or sued if they ignore the PACE Codes of Practice. There are arguably two dangers. The first danger is that the lawyers could suffer reputational damage if they are criticised in a public judgment for failing to consider PACE Code C. The second danger is that they may be regarded as acting unethically.

The ethical dimension

The interviewers in Twaites and Welcher were not solicitors, and were not therefore bound by the strict ethical code by which solicitors must abide. An investigations lawyer, like every other lawyer, has an ethical duty to act in the client’s best interests under mandatory principle 4 of the Code of Conduct published by the Solicitors Regulation Authority (“SRA”). In an interview with an employee, however, the lawyer’s duty to act in the client’s best interests may come into conflict with the duty, under Chapter 11.1 of the SRA Code of Conduct, not to take unfair advantage of a third party. This duty under Chapter 11.1 applies equally to litigious and non-litigious work. The SRA Code of Conduct specifically warns solicitors against taking unfair advantage of an opposing party’s lack of legal knowledge when they have not instructed a lawyer. Indeed, in March 2015, the SRA published guidance stating that a solicitor may be unduly prioritising a client’s interests if the solicitor exploits another party’s lack of legal knowledge.

An investigations lawyer might therefore be construed as taking unfair advantage of an unrepresented employee in an internal investigation if section 67(9) PACE is engaged but PACE Code C is ignored. Alternatively, even if section 67(9) PACE is not engaged, an investigations lawyer could still be construed as taking unfair advantage of an unrepresented employee if he allows the employee to incriminate himself during the interview, or if the employee is disadvantaged in other ways because he is denied access to legal advice and representation.

Investigations lawyers may regard this as an extreme proposition, and will rightly be cautious about suggesting that all interviewees might wish to consult an ILA. They will be concerned, with justification, that consulting an ILA may cause the employee to be less forthcoming than he might have been, or even to cease cooperating with the investigation. These outcomes might not be in their clients’ best interests. But the ethical reality is that their clients’ best interests are rarely absolute. These interests must be balanced against ensuring that employees are treated fairly and understand the ramifications of being interviewed.

Absent any professional guidance from the Law Society or SRA, it is impossible to derive a positive ethical duty on investigations lawyers always to suggest that their clients’ employees might wish to seek independent legal advice. But when interviewing employees who are suspected of committing criminal offences, as opposed to regulatory or disciplinary misconduct, it is, at the very least, arguable that the duty under Chapter 11.1 would be engaged and would not be discharged simply by delivering the Upjohn warnings. However, this duty would be discharged, and no professional criticism could sensibly be levelled at the investigations lawyers by the SRA, if they delivered the Upjohn warnings and suggested that the interviewee at risk of incriminating himself might wish to consult an ILA, which might be before an interview or during it.

The question of admissibility

If a prosecutor sought to adduce as evidence the record of an interview conducted in an internal investigation, the interviewee wishing to challenge the admissibility of this evidence would have two main arguments at his disposal.

First, he could argue that he was compelled under his employment contract to attend the interview, and that his answers should not therefore be used against him under the well-established principles of self-incrimination in Saunders v United Kingdom.[7] This argument is unlikely to be successful. Breaching an employment contract by refusing to attend an internal interview, and potentially precipitating disciplinary proceedings, is wholly different from the criminal sanctions that arise from a refusal to attend a compelled interview conducted by the SFO or FCA. Whilst an employee in an internal interview has no legal right not to incriminate himself, he could have chosen not to do so.

The second, more fruitful, argument would be based on sections 76(2)(b) and 78(1) PACE. Section 76(2)(b) PACE provides that, where the prosecution seeks to rely on a confession, it must prove beyond reasonable doubt that it was not obtained as a result of “anything said or done which was likely, in light of the circumstances existing at the time, to render unreliable any confession that might have been made in consequence thereof”. Section 78(1) PACE provides that a Court may refuse to admit evidence if “it appears to the Court having regard to all of the circumstances, including the circumstances in which the evidence was obtained, the admission of the evidence would have such an adverse effect on the fairness of the proceedings that the Court ought not to admit it.” In practice these sections are typically argued together. It therefore makes sense to consider both sections simultaneously, first by reference to investigations in which section 67(9) PACE is engaged, and then by reference to those investigations in which it is not.

Admissibility of the interview record where section 67(9) PACE is engaged

If section 67(9) PACE is engaged, would a failure to have regard to relevant provisions of the PACE Codes of Practice render the internal interview inadmissible under sections 76(2)(b) or 78(1) PACE? The case law suggests that, if investigations lawyers ignored the relevant provisions in PACE Code C identified above, it would not lead to the automatic exclusion of the interview record, although it is likely, on its own or together with other factors, to lead to exclusion.

Whilst each case turns on its facts, there are important precedents in which an interview record was held to be inadmissible because it was not recorded until the following day[8]; because there was a failure to caution and to show the suspect the interview record[9]; because a suspect was questioned before access to a solicitor was permitted and the suspect was subsequently denied access to the interview record[10]; and because police officers failed to mention the right to legal advice, failed to caution and failed to record the interview.[11] The common thread in these decisions is that the interviewee suffered actual prejudice as a result of the failure to observe the protections of PACE Code C.

Conversely, technical breaches of PACE Code C resulting in no actual prejudice to an interviewee have generally resulted in decisions holding that the interview record is admissible. For example, an interview record was not excluded where HMRC investigators failed to use the exact wording of the caution but it was nonetheless clear that the interviewees had been warned to seek legal advice and were aware that their answers might render them liable to criminal proceedings.[12]

Thus the case law suggests that, where section 67(9) PACE is engaged, the interview record is likely to be admissible provided the internal interview was conducted and recorded in a way which ensured that the interviewee was not prejudiced by reference to the relevant provisions in PACE Code C identified above. If these provisions were ignored, and it is clear that this ignorance caused actual prejudice to the interviewee, it is likely that the interview record would be inadmissible.

Admissibility of the interview record where section 67(9) PACE is not engaged

If section 67(9) PACE is not engaged, what factors might lead to the interview record being excluded under sections 76(2)(b) or 78(1) PACE? Putting aside exceptional circumstances demonstrating bad faith on the part of the investigations lawyers (e.g. false propositions being posited to an interviewee to induce a confession), the most pertinent argument in favour of exclusion will arise if the interviewee misunderstood the context of the investigation in which he answered questions, as happened in the Court of Appeal case of R v Smith.[13]

In Smith, the defendant Chairman and Managing Director of a bank was interviewed by a manager from the Bank of England concerning the propriety of his purchase of certain securities. At first instance the Court held that the Bank of England manager did not fall within section 67(9) PACE because the sole purpose of the interview was to investigate the bank’s regulatory obligations. However, the Bank of England manager was aware, prior to conducting the interview, that the defendant had been the subject of a separate whistle-blowing report alleging fraud. When the defendant was later charged with fraudulent trading and other criminal offences, the record of the Bank of England interview was used as evidence against the defendant and he was convicted. On appeal, the defendant argued that he had been under the impression that his Bank of England interview was concerned solely with obtaining information about the impact of the security purchase on the market, and not about his criminal involvement. The Court of Appeal agreed with the trial court that section 67(9) PACE was not engaged, and observed that the Bank of England manager was therefore guilty of no impropriety for failing to consider PACE Code C. However, the Court of Appeal also observed that the principles of PACE Code C may nonetheless assist the Court in considering its general discretion to exclude unfair evidence under section 78(1) PACE. This reflects section 67(11) PACE, which provides that: “in all criminal or civil proceedings any Code shall be admissible in evidence; and if any provision of a Code appears to the Court or Tribunal concerning the proceedings to be relevant to any question arising in the proceedings it shall be taken into account in determining that question.”

In considering the application of section 78(1) PACE to the facts of this interview, the Court of Appeal was particularly troubled by two matters. First, that the Bank of England manager was not merely trying to “establish the facts” through the interview, but having been informed about the allegation of fraud, was also using the interview for a secondary purpose, which was to decide whether the police should be informed about the interviewee’s conduct. Second, that the defendant had not sought appropriate legal advice prior to being interviewed because he understood that the sole purpose of the interview was to discuss the impact of the security purchase on the market. There was thus a mismatch between the perceptions of the Bank of England manager and the interviewee concerning the purpose and potential use of the interview. On this basis, the Court found that it had been unfair to admit the interview record under section 78(1) PACE, and quashed the conviction.

The case of Smith thus demonstrates that, even if an investigations lawyer does not have the “duty of investigating offences” under section 67(9) PACE, PACE Code C enshrines certain principles of fairness, particularly access to independent legal advice, which may be relevant to a Court’s assessment as to whether an interview record should be admissible. The case suggests that, in investigations where the interviewee is suspected of parallel criminal offences, the admissibility of the interview record may turn not only on whether the Upjohn warnings were delivered in full such that the context of the investigation was properly explained, but also on whether an ILA was offered.

Investigations lawyers should be aware of a connected point. Any challenge to the admissibility of the interview record would potentially involve the investigations lawyers in an uncomfortable experience, in that they could be summonsed to the Court by the defendant’s lawyers on a voir dire admissibility hearing under section 78(1) PACE. If that happened, they would be asked questions by the judge and the defendant’s lawyers about their conduct of the interview in the internal investigation and why, for example, they did not suggest the possibility of independent legal advice after the interviewee started to incriminate himself, despite their ethical duties under the SRA Code of Conduct. If the investigations lawyers were criticised by a judge, either in the trial court or on appeal, the reputational damage to their firm and their client could be significant. Even if the defendant’s lawyers were unsuccessful in their application to exclude the internal interview record, the investigations lawyers may still have endured a difficult day in court, and one which could have been avoided altogether. However, if an ILA had been offered to the defendant during the internal investigation, it would, it is submitted, be almost impossible to challenge the admission of the evidence and no criticism could sensibly be levelled at the investigations lawyers in the voir dire hearing.

Conclusions on admissibility

Four general principles can be derived from the statutory provisions and case law summarised above:

1. If section 67(9) PACE is engaged and the investigations lawyers have regard to the relevant protections of PACE Code C, the interview record is likely to be admissible against the interviewee in criminal proceedings.

2. If section 67(9) PACE is engaged but the investigations lawyers ignore the relevant protections of PACE Code C (the source of the dispute in Twaites), the interview record is unlikely to be admissible, even if the Upjohn warnings are delivered.

3. If section 67(9) PACE is not engaged and the Upjohn warnings are delivered, the interview record is likely to be admissible, with the proviso that section 67(11) PACE means that PACE Code C, particularly the right to independent legal advice, might remain relevant to determining its admissibility under section 78(1) PACE (the position in Smith).

4. If section 67(9) PACE is not engaged and the Upjohn warnings are not delivered, the interview record may well remain admissible (as it was in Welcher), but any argument for exclusion under section 78(1) PACE will be stronger than it would have been had the Upjohn warnings been delivered.

Given the significance of creating evidence during an internal investigation which may be admissible against the interviewee (and the implications that may have for the criminal exposure of the corporate), investigations lawyers should be careful not to lose sight of these principles. The danger is that investigations into suspected criminality are characterised by some investigations lawyers, and are therefore perceived by the employees they interview, as entirely insulated from criminal practice and procedure, such that the due process protections afforded to those suspected of committing criminal offences, and the ethical duties of the investigations lawyers, become irrelevant. If these matters are ignored, the employee may well be left in a position of ignorance. He is likely to give little or no thought to whether what he says in the internal interview could be used against him in a criminal trial.

Even if the interview record is inadmissible, that is not the end of the matter. If disclosed to the SFO, the interview record could provide fertile lines of enquiry leading to the employee or the corporate being charged with a criminal offence. The employee is thus exposed in manifold ways, and for his own benefit would always be advised to consult an independent criminal lawyer who understands the ramifications of being interviewed, including the admissibility of the interview record in any existing or future criminal proceedings.

Potential benefits of an ILA for the corporate

Having an ILA represent an interviewee is not simply in the interviewee’s interests. Instructing an ILA for employees suspected of criminal conduct brings a number of benefits for the corporate. First, it pre-empts any potential judicial criticism of their lawyers for ignoring section 67(9) PACE and the protections of PACE Code C. Second, it pre-empts any professional criticism that the lawyers may have acted unethically by taking unfair advantage of their client’s employees. Third, it reduces the risk that the methods of the investigations lawyers would be criticised by a Court in a voir dire hearing under section 78(1) PACE.

Finally, there is a misconception, unfortunately perpetuated from time to time by the SFO, that the first account given by an interviewee is always the best account, and that permitting an ILA to advise the interviewee will smother or distort this first account, such that the truth is warped or suppressed. Whilst this theory may hold water in isolated cases, it is far more frequently the case that, if an employee has the benefit of legal advice, he will be able to deliver a more considered, coherent and reliable account in his interview, and one in which the proper commercial context of any documents can be explained. As such, the investigations lawyers will have a better understanding of the facts, and a more reliable platform from which to deliver informed advice to their corporate client about the action they should take. Such action may include making early contact with regulators or prosecutors leading to leniency applications or other forms of co-operative disposal including non prosecution and deferred prosecution agreements.

By analogy, if the company’s director received a notice compelling him to attend an interview with the SFO at which he had to answer questions, the company would no doubt wish for him to receive any documents in advance of the interview. The company would also wish for him to receive legal advice prior to and during the interview, so that he could answer questions carefully and reliably, knowing that his evidence might be used by the SFO to bring criminal charges against others in the company or the company itself. The SFO is not obliged by law to permit the attendance of an interviewee’s lawyer at a compelled interview, and in the majority of internal investigations there will be no legal or ethical requirement to permit an ILA to accompany and advise an interviewee. However, given the likelihood that the interview record in an internal investigation may become admissible evidence in criminal proceedings, suggesting an ILA who can work constructively with the investigations lawyers will frequently be of mutual benefit to the company and the employee.

[1] See, for example, the OFT’s BA cartel prosecution; the SFO’s prosecution of Victor Dahdaleh for alleged corruption; and the current SFO prosecution of Tom Hayes and others for alleged conspiracy to defraud in relation to LIBOR.

[2] Upjohn Co v United States 449 U.S. 383 (1981).

[3] R v Okafor, 99 Cr App R 97; R v Director of Serious Fraud Office ex p Saunders [1988] Crim LR 837 DC.

[4] R v Bayliss, 98 Cr App R 235 CA.

[5] (1991) 92 Cr App R 106 CA.

[6] [2007] Crim LR 804 CA.

[7] [1996] 23 EHRR 313.

[8] R v Delaney (1988) 88 Cr App R 338.

[9] R v Doolan [1988] Crim LR 747.

[10] R v Chung (1991) 92 Cr App R 314.

[11] R v Absolam (1988) 88 Cr App R 332.

[12] R v Gill [2003] 4 All ER 681.

[13] [1994] 1 WLR 1396.