Regulatory Concerns: increase in scrutiny of US counsel following corporate scandals

In-house lawyers are under a higher level of scrutiny in the US than ever before and the trend could affect counsel on this side of the Atlantic, senior lawyers told the International Bar Association's annual corporate counsel conference in Budapest last week.


Logan Robinson, general counsel at Metaldyne in Michigan, said the extreme regulatory reaction in the US - following the Enron, Worldcom and Parmalat scandals - had led to a large increase in the number of prosecutions of in-house counsel.


He told delegates it was almost always the general counsel whose conduct was scrutinised. He said raising the defence that they were a generalist lawyer, who did not understand a particular issue, would not ap-pease the Securities and Exchange Commission - the agency responsible for administering federal securities laws in the US.


'It takes the view that if you don't know enough, you need to seek the expert legal or technical advice of someone who does,' said Mr Robinson.


He added that a recent case under the Sarbanes-Oxley Act created a strict liability offence for company lawyers who had failed to take the necessary action to prevent a fraud.


Mr Robinson said: 'It's hard to be optimistic, but things do change and correct. One hopes there will be moderation, but I don't see it happening yet.'


John Heaps, head of Eversheds' litigation and dispute management group in London, told delegates there was a trend in the UK on the part of government and regulators to personalise and criminalise conduct when a regulatory breach occurred.


'The increase in legislation and regulation puts the spotlight on individuals at the helm and the exposure of the in-house lawyer to liabilities and claims increases,' he suggested, adding that the biggest challenge was the uncertainty about what type of conduct would be regarded as criminal. 'Everyone knows that stealing is criminally wrong but what about the destruction of documents?'


Lawyers should be aware that what they might think of as being innocuous may now have potential consequences, he advised.


Mr Heaps said the role of the in-house lawyer had grown in importance and complexity over recent years and they now assumed responsibility for a wide spectrum of business activities reaching far beyond the giving of legal advice, so they needed to be sure of their duties and obligations.


He added: 'There is a growing concern that the traditional protection enjoyed by in-house counsel of legal professional privilege is weakening, as regulatory authorities are leaning heavily on companies under investigation not to rely on it.' This has discouraged written records of advice, which can place in-house lawyers in difficulties if their advice is subsequently called into question.