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15 Sep 23

Understanding the Crime-Fraud Exception for Federal Subpoenas

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Last Updated on: 20th September 2023, 09:55 pm

Understanding the Crime-Fraud Exception for Federal Subpoenas

The attorney-client privilege is an important part of the American legal system. It allows clients to speak openly with their lawyers without worrying that what they say can be used against them. But this privilege isn’t absolute – there are exceptions, including the “crime-fraud exception.” This is an important but sometimes misunderstood concept. Let’s break it down in simple terms.

What is the attorney-client privilege?

The attorney-client privilege protects communications between a client and their attorney from being disclosed without the client’s consent. The purpose is to encourage open and honest communication so the attorney can provide good legal advice. Without the privilege, clients might be reluctant to tell their lawyers everything relevant to their case.

There are a few requirements for the privilege to apply:

  • There must be an attorney-client relationship
  • The communication must be confidential
  • The communication must be for the purpose of obtaining legal advice, not business or personal advice

If these elements are met, neither the attorney nor the client can be forced to reveal the contents of their privileged discussions in court. The client is the holder of the privilege and can choose to waive it if they wish.

What is the crime-fraud exception?

The crime-fraud exception is a limitation on the attorney-client privilege. It says that the privilege does not apply to attorney-client communications that further ongoing or future criminal or fraudulent activity.

The main policy rationale is that the privilege should not protect communications made with the intention of committing or covering up a crime or fraud. That would be contrary to the purpose of encouraging lawful and ethical legal advice.

Of course, attorneys themselves cannot knowingly assist with a crime or fraud – that would be unethical and illegal. But the crime-fraud exception applies even if the attorney is unaware that their advice is being misused. The client’s intent controls.

When does the crime-fraud exception apply?

For the crime-fraud exception to apply, two main elements must be met:

  1. The client must have been engaged in or planning a crime or fraud when the communication occurred
  2. The communication must have been related to or in furtherance of the crime or fraud
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The exception usually only applies to ongoing or future crimes or fraudulent schemes, not past ones. Communications about past crimes normally remain privileged.

Figuring out if the exception applies can be tricky. The judge will look at the context and content of the attorney-client communications. Relevant factors can include:

  • The client’s intent – were they knowingly planning or engaged in a crime or fraud?
  • The nature of the alleged crime or fraud
  • The timing of the communications versus the alleged crime or fraud
  • Whether the attorney’s advice actually furthered or concealed the crime or fraud

It’s a high bar – the party trying to overcome the privilege must provide evidence that the exception likely applies. This often requires testimony from other witnesses or documents showing criminal or fraudulent intent.

How is the crime-fraud exception applied?

If there is evidence that privileged attorney-client communications may fall under the crime-fraud exception, a few steps take place:

  1. The party seeking the communications files a motion asking the court to apply the exception
  2. The court holds an evidentiary hearing to evaluate if the exception likely applies
  3. If the court finds there is sufficient evidence, it can order disclosure of the communications
  4. The communications may then be admissible as evidence in a case

The key point in this process is the evidentiary hearing where the court assesses the proof. The moving party has to establish a factual basis that the communications were in furtherance of a crime or fraud. This is sometimes called a “prima facie” case. If they can’t, the privilege remains intact.

What are some examples of the crime-fraud exception?

Here are a few examples of situations where courts have applied the crime-fraud exception to overcome attorney-client privilege:

  • A defendant consults a lawyer on how to commit tax fraud or properly falsify a tax return. The communications are not privileged under the crime-fraud exception.[1]
  • A CEO seeks legal advice on how to defraud investors in a Ponzi scheme. The communications must be disclosed.[2]
  • A client engages in a fraudulent business and asks their attorney to help cover it up. The cover-up communications would not be privileged.[3]

In each case, the client had criminal or fraudulent intent and the attorney-client communications were intertwined with the unlawful scheme. Allowing the privilege to apply would have protected misconduct.

What are the limits on the crime-fraud exception?

The crime-fraud exception is limited in some important ways:

  • It only applies to communications furthering crimes or fraud – the exception does not allow fishing expeditions for evidence of other bad acts
  • It generally requires an ongoing or future crime or fraud, not past misconduct
  • The party invoking the exception must prove to the court that it likely applies
  • The exception applies narrowly on a communication-by-communication basis – entire attorney-client relationships are not subject to disclosure
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So the privilege remains strong in most situations. The exception is reserved for cases of clear evidence of abuse of the privilege for unlawful ends.

Does the crime-fraud exception apply to work product?

In addition to the attorney-client privilege, attorneys’ work product is also generally protected from disclosure. This includes materials prepared in anticipation of litigation. But just like attorney-client communications, work product can also fall under the crime-fraud exception.

If work product is created in order to further a crime or fraud, it loses its protected status. For example, notes an attorney takes to help a client commit perjury would not be privileged under the crime-fraud exception.

When can attorneys reveal privileged information under the crime-fraud exception?

Lawyers have ethical duties of confidentiality to clients, so they cannot simply disclose privileged information anytime they suspect a crime or fraud. Instead:

  • The attorney should counsel the client not to commit any unlawful acts
  • If the client refuses, the attorney may withdraw from representation
  • The attorney may reveal information if ordered by a court after a crime-fraud proceeding
  • The attorney may also report unlawful acts under strict legal exceptions

Attorneys cannot knowingly assist with crimes or frauds. But they also cannot breach client confidences except as legally required. This balance helps ensure public protection while maintaining client trust.

What are the policy reasons behind the crime-fraud exception?

The main policy goals of the crime-fraud exception are:

  • Deterring attorney-client collusion in crimes and frauds
  • Preventing abuse of the justice system
  • Increasing public trust by not shielding crimes behind the privilege
  • Promoting lawful and ethical legal advice

By encouraging attorney-client candor for lawful ends, but not for unlawful ends, the exception strikes a balance between competing public policy goals.

Conclusion

The attorney-client privilege remains central to our legal system. But where there is clear evidence of misuse of legal services for criminal or fraudulent purposes, the crime-fraud exception ensures the privilege has limits. Understanding the policies behind the exception helps us apply it properly so that truth and justice prevail.