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      Proskauer on International Litigation and Arbitration:
       Managing, Resolving, and Avoiding Cross-Border Business or Regulatory Disputes
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The following section discusses issues and pointers relevant to cross-border civil and internal corporate investigations.
  1. Practice Tips for Conducting an Internal Corporate Investigation

    Private corporations sometimes require U.S. counsel to conduct internal investigations abroad. There are numerous factors and issues to bear in mind when the practitioner is involved in such an investigation:

    1. Location of documents. Frequently companies will back up their electronic data and maintain the data in a single location that could be in a different country from where the data is produced. This policy can pose burdens on practitioners who travel to a company’s international offices expecting to access backed up electronic data.

    2. Government leaks. Practitioners may be confronted with situations where they must balance the benefits of cooperating with foreign government officials – by providing requested information – against the dangers that the information might be leaked by the government thereby causing harm to the company. In many foreign nations, government officials will freely provide to the press copies of documents produced to the government in connection with an investigation. Practitioners should consider ways to protect their clients in cases where a potential leak could seriously damage a client’s competitive advantage (e.g., trade secret) or be construed as a blanket waiver of the attorney-client privilege.

      1. Practice Tip: Practitioners sometimes choose to waive the attorney-client privilege and produce privileged documents to the U.S. government in order to cooperate with an investigation involving a client. Practitioners should be aware, however, that once produced to the U.S. government, foreign governments can potentially gain access to the such material through Mutual Legal Assistance Treaties.

    3. Information from Employees. The labor and employment laws of many countries are extremely protective of employees and allow employees to refuse to submit to questioning by company counsel who are conducting internal investigations. Privacy laws also may provide protections to employees that could excuse them from submitting to questioning by counsel. These laws can substantially hamper an internal investigation. If employees refuse to be questioned there may be little recourse besides relying on documentary evidence, which may not be sufficient. In order to remain apprised of these and other issues, the practitioner may want to retain local counsel early in the investigation. Local counsel can provide guidance on the jurisdiction’s labor and employment laws and how they may jeopardize the success of an internal investigation.

    4. Jurisdictional Issues. Large multi-national corporations frequently maintain a presence in a foreign nation through a subsidiary. The subsidiaries may be sufficiently independent from the parent company such that jurisdiction over the subsidiary does not necessarily provide jurisdiction over the parent or the parent’s other subsidiaries. Jurisdiction issues are extremely important where an employee of a subsidiary operating in a country different from the parent acts unlawfully and the U.S. government and/or a private litigant attempts to seek legal redress against the parent.

      1. When counseling a client with a subsidiary in a foreign nation, bear in mind that where U.S. courts have jurisdiction over the parent but not the subsidiary, courts have sanctioned the parent for failure to comply with court orders issued to the subsidiary. See, e.g. Cooper Indus., Inc. v. British Aerospace, Inc., 102 F.R.D. 918 (S.D.N.Y. 1984); Marc Rich & Co., A.G. v. U.S., 707 F.2d 663 (2d Cir. 1983); U.S. v. Vetco Inc., 691 F.2d 1281 (9th Cir. 1981).

  2. Laws Restricting Export of Data

    In connection with cross-border investigations, the practitioner may be confronted with a situation where documents or other evidence must be brought to the U.S. from abroad. In such case, the practitioner should be aware of laws in other countries that prohibit removal of personal data from those countries.

    1. EU Laws Regarding the Transfer of Personal Data. The European Union (“EU”) has enacted laws placing substantial limits on transmitting personal data outside of Europe.

      1. These limits have profound effects on many U.S.-based multinationals’ worldwide operations and can present problems for practitioners conducting internal investigations who want to transfer data from a European country to the U.S. for examination See Guide Chapter 28

      2. The EU’s restrictions on data transfers extend to intra-company transfers. Under the current EU legal scheme, no data can leave Europe unless the transmission goes to some “third country” that “ensures an adequate level of protection” — in other words, data about European individuals can only go into countries with data protection laws that the EU Commission considers “adequately” safeguard Europeans’ personal data. To date, the EU Commission has formally designated only Argentina, Canada, Guernsey, Isle of Man and Switzerland as “third countries” offering this “adequate level of protection.”

      3. The EU’s laws provide exceptions for when personal data may be transmitted outside of Europe to the U.S. or any other non-qualified country, if:

        1. the data subject has freely-given, unambiguous consent. EU data authorities take the position that a consent must specifically list the categories of data and the purposes for the processing outside the EU; in the employment context, consents may be deemed presumptively not freely-given, merely because of the imbalance in bargaining power between employer and employee, or

        2. the transfer is viewed as necessary pursuant to EU law.

      4. There is no prohibition against transmitting genuinely-anonymized data out of the EU—where the identity of the data subject is impossible to determine, the data transmission falls outside the scope of the directive.

    2. Blocking statutes. Some nations have enacted penal laws that prohibit exporting certain types of documents. A person may be subject to criminal penalties for violating a blocking statute. Despite these criminal penalties, U.S. courts have required the production of documents even where production may trigger a violation of the blocking statute. As a general matter, blocking statutes will not provide a means for a company or person within the jurisdiction of the U.S. to resist production of documents to the U.S. See generally 38 Tex. Int’l L.J. 87, 95-99; see also Strauss v. Credit Lyonnais, 242 F.R.D. 199 (E.D.N.Y. 2007) (federal Magistrate Judge directed discovery from the defendant non-US bank notwithstanding claims that the discovery was prohibited by French bank secrecy laws as well as by the French blocking statute). 

      1. Generally, if a foreign party is subject to personal jurisdiction in the U.S., courts in the U.S. will require the party to produce the documents despite the applicability of a foreign blocking statute. Some courts have reasoned that the blocking statute does not apply because the discovery occurs within the jurisdiction of the U.S.

      2. Foreign bank secrecy laws, for example, prohibit banks from disclosing account information. In Doe v. United States, 487 U.S. 201 (1988), the Department of Justice sought “Doe’s” foreign bank records. Initially, the foreign banks’ U.S. branches were subpoenaed for Doe’s records, but they resisted production based on their home nations’ bank secrecy laws. Prosecutors then moved for an order compelling Doe to waive protection for any and all applicable foreign bank accounts without specifically identifying which accounts existed where. The Court concluded that the generalized compelled waiver did not violate the Fifth Amendment.

    3. U.S. reaction to foreign blocking statutes. Blocking statutes are considered to be the product of foreign nations’ concern that U.S. courts are extending U.S.-style discovery obligations to the international setting. See 21 Sec. Crimes Section 4:38 n. 1. The Supreme Court has strongly criticized foreign efforts to stymie access to discovery in foreign countries by enacting blocking statutes. See Societe Nationale Industrielle Aerospatiale v. U.S. Dist. Court for Southern Dist. of Iowa, 482 U.S. 522 (1987).

    4. Blocking statutes in tax cases. Congress has enacted laws allowing the IRS in civil tax cases to command production of documents located in another country. Courts have concluded that a taxpayer may not resist production on the “reasonable cause” exception under I.R.C. § 982 on the grounds that the foreign country’s laws impose a civil or criminal liability for producing the documents. This prevents taxpayers from maintaining documents in countries with restrictive disclosure laws to resist disclosure of documents relevant to tax issues. See 58 Tax Law. 881, 897 (and case cited).

    5. Blocking statutes in antitrust cases. In antitrust cases, U.S. courts have ruled that foreign blocking statutes do not excuse a corporation present in the U.S. to resist producing documents located in a foreign country. See e.g. Arthur Andersen & Co. v. Finesilver, 546 F.2d 338, 342 (10th Cir. 1976).

    6. France has enacted a blocking statute which states:

      Subject to treaties or international agreements and the laws and regulations in force, it is prohibited for any person to request, seek or disclose, in writing, orally or otherwise, economic, commercial, industrial, financial or technical documents or information leading to the constitution of evidence with a view to foreign judicial or administrative proceedings or in connection therewith.

      1. One U.S. court has observed that the French blocking law was “solely designed to protect French businesses from foreign discovery” and differed from “other foreign laws whose subject is a specifically identified, legitimate interest.” Rich v. KIS California, Inc., 121 F.R.D. 254 (M.D.N.C. 1988).

      2. Exceptions through the Hague Convention. The French blocking statute makes an exception for discovery obtained through the Hague Evidence Convention.

    7. Practice Tip: Practitioners should consider advising clients with a presence in the U.S. that foreign blocking statutes do not obviate compliance with U.S. discovery. It may be necessary to retain local counsel in a foreign country to address the potential violation of a blocking statute.

  3. Formally Obtaining Evidence in Another County (for complete discussion please See Guide Chapter 13)

    1. The Hague Convention. The Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters, T.I.A.S. 7444, 23 U.S.T. 2555, 1970 U.S.T. LEXIS 497, authorizes obtaining evidence from other countries that are members of the convention. The Hague Convention is intended to streamline the process of obtaining discovery located abroad by bypassing the traditional Consular/diplomatic process. Rather than route requests through diplomatic offices, letters of requests for documents are sent directly through a Central Authority in each of the two countries involved. Id. at *23.

    2. Letters Rogatory. A letter rogatory is a request by a domestic court to a foreign court to obtain evidence from a witness for use domestically. Intel Corp. v. Advanced Micro Processors, Inc., 542 U.S. 241, 29 n. 1 (2004). The evidence sought may be testimony or documents. In addition, letters rogatory may be used to serve process or a judicial summons on a person or entity located in a foreign jurisdiction. The terms “letter rogatory” and “letter of request” are sometimes used interchangeably.

      1. A district court may compel a person within its jurisdiction to produce documents or provide testimony pursuant to a letter rogatory. 28 USC § 1782(a) (2007); Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241, 264 (2004).

        Practice Tip: Although litigation does not need to be “pending” or “imminent” to request or execute a letter rogatory, litigation must be “within reasonable contemplation”. For example, in Intel the Supreme Court held that a letter rogatory was proper because there had been a dispositive administrative ruling and review by the European courts was “within reasonable contemplation.” Id.

      2. A letter rogatory operates in accordance with the laws of the jurisdiction where it is issued. In the U.S., pursuant to 28 USC § 1782(a), a U.S. district court’s order issuing a letter rogatory received from a foreign jurisdiction:

          may prescribe the practice and procedure, which may be in whole or part the practice and procedure of the foreign country or the international tribunal, for taking the testimony or statement or producing the document or other thing. To the extent that the order does not prescribe otherwise, the testimony or statement shall be taken, and the document or other thing produced, in accordance with the Federal Rules of Civil Procedure.
      3. How to Obtain a Letter Rogatory. Letters rogatory are usually transmitted through diplomatic channels, between the proper designated authority in the two countries involved. The State Department may receive or transmit letters rogatory or requests for letters rogatory from or to foreign jurisdictions pursuant to 28 USCS § 1781. This does not preclude transmittal of a letter rogatory or request directly to the foreign or United States’ tribunal, officer, or agency to which such is addressed. The Office of International Affairs of the DOJ has arranged with a number of countries for the direct transmission of letters rogatory in criminal matters with the prosecutorial authorities in those countries. Obtaining Evidence Abroad in Criminal Cases, Michael Abbell, Transnational Publishers, Inc., (updated in 2007), p. 3-6.

      4. Preparing a Letter Rogatory. When preparing the documents for a letter rogatory, practitioners should review procedures of the foreign jurisdiction where evidence is located. Letters rogatory must be issued under court seal and all documents must be translated into the official language of the foreign country and must include a notarized affidavit from the translator. In addition, the following is a non-exhaustive list of pointers for preparing letters rogatory: (1) write in simple, non-technical English; (2) avoid unnecessary information; (3) be as specific as possible and avoid use of the terms “discovery” and “any and all documents” which may give the impression of a fishing expedition. Preparation of Letters Rogatory, U.S. Department of State website (For a list of the requirements for a letter rogatory, visit the Department of State’s website.)

      5. Obtaining evidence through letters rogatory is far more burdensome than through Treaty. U.S. courts are authorized to issue letters rogatory to a foreign tribunal pursuant to 28 U.S.C. § 1782 (2007), but the decision of whether to issue the order is left to the discretion of the court. Likewise, a foreign tribunal also has discretion whether to approve the letter rogatory request from a U.S. court. (In Re: Commissioner’s subpoenas, 325 F.3d 1287, 1290 (11th Cir. 2003)). The process is also highly time consuming. It may take from 6 months to a year to obtain evidence via letter rogatory. Practitioners should, therefore, be aware of whether evidence located in a foreign jurisdiction may be obtained by Treaty rather than letter rogatory.

      6. Practitioners can find specific guidance on how to prepare a letter rogatory at the U.S. Department of State web site. See Letters Rogatory, U.S. Department of State website, Bureau of Consular Affairs, http:// travel.state.gov /law/info/judicial/judicial_683.html?css (“Preparation of Letters Rogatory, U.S. Department of State website”).

  4. Extraterritorial Application of U.S. Law

    1. Overview. Cross-border investigations are increasingly frequent because of the expansive extraterritorial application of U.S. law. This legal phenomenon was noted by Justice Brennan in a dissenting opinion in which he observed: “The enormous expansion of federal criminal jurisdiction outside our Nation’s boundaries has led one commentator to suggest that our country’s three largest exports are now ‘rock music, blue jeans, and United States law.’” United States v. Berdugo-Urquidez, 494 U.S. 259, 280-81 (1990).

    2. The Sarbanes Oxley Act of 2002. This law imposed on corporations listed on a U.S. exchange, including companies located completely outside of the U.S., an audit committee requirement, expanded disclosure requirements, and a certification requirement, among other things. 53 Duke L.J. 833, 838-40; 1487 PLI/Corp 399, 490-92. Although Sarbanes Oxley may allow access to information from these listed companies in investigations and litigation in the U.S., some commentators have predicted that foreign nations will respond to Sarbanes Oxley’s extraterritoriality by similarly expanding the reach of their laws. 39 Intl’l Law 667.

    3. The Foreign Corrupt Practices Act. See Guide Chapter 27.

    4. Practice Tip:. Company officers in foreign countries may be subject to U.S. law, including those indicated above. Frequently non-U.S. citizens working in a foreign office are not aware that U.S. may apply to them. The practitioner should advise foreign business clients, or clients with offices in other countries, that U.S. laws may govern their conduct.

  5. Do Attorney-Client Privileges Apply In Private Cross-Border Investigations?

    1. Overview. Practitioners involved in internal matters, should consider to what extent communications between counsel and a client are protected under the law. Generally, in jurisdictions where the privilege is recognized, communications between outside legal counsel who are members of the local bar and a client are protected communications. European law, however, has not historically viewed communications between a company’s employees and in-house counsel to be similarly protected on the theory that in-house counsel are not sufficiently independent from the company to provide unbiased and neutral advice. 

      1. In one significant case from the 1980s, John Deere’s general counsel sent a memorandum to company managers located in Europe opining that company policies possibly violated European law. The European Commission was able to require the disclosure of that document, and it was used in connection with establishing a violation of European Commission antitrust law. See e.g. Re Deere & Co. v. Cofabel NV, Commission Decision of December 13. See also Guide Chapter 15 below discussing the recent Akzzo Nobel decision on this issue. 
      2. Practice Tip: A means of avoiding the above potential problem is to involve outside local counsel and have the counsel render opinions on sensitive matters. One problem with involving outside counsel, however, is the substantial cost. Also, outside counsel generally will not be able to render accurate opinions about a company’s practices until they have a detailed knowledge about the business practices, which results in further legal fees.

    2. Role of attorneys in foreign nations. In many foreign legal systems, attorneys occupy a much smaller niche within the legal system and other professionals are responsible for legal-related tasks that in the U.S. are performed by lawyers. For example, in Japan patent agents render opinions on issues regarding infringement and validity of patents even though they are not technically lawyers. Courts in the U.S. have considered communications involving patent agents to be protected by the attorney-client privilege. Likewise, non-lawyer specialists in Japan provide legal advice on corporate and tax matters and U.S. courts would potentially view their communications to be protected by the attorney-client privilege. See generally 20 Nw. J. Int’l L. & Bus. 145 170-76.

        Practice Tip:. There is no bright-line rule on whether the attorney-client privilege applies to communications involving non-lawyer professionals in foreign countries. Courts frequently determine whether the communication is protected under the laws of the country most affected by the issue. Golden Trade, S.r.L. v. Lee Apparel Co., 143 F.R.D. 514, 519 n.3 (S.D.N.Y. 1992); see also 66 Fordham L. Rev. 209, 232-38.

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