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05 December 2016
On September 20 2016 the Federal Tribunal(1) held that professional privilege did not prevent prosecutors from accessing documents and information collected and analysed by attorneys retained by a Swiss bank to carry out an investigation of suspected contraventions of regulatory and penal laws by the bank's employees.
This decision should be seen in context with the decision of May 30 2016,(2) in which the tribunal clarified the scope of protection provided by the nemo tenetur privilege(3) in penal investigations against corporate entities (for further details please see "Federal Tribunal clarifies nemo tenetur privilege of legal entities").
Against the background of disclosure requests by cantonal and federal prosecuting authorities concerning suspected money laundering, the bank had retained two law firms to perform an internal investigation. The purpose of the investigation reportedly was to establish a reliable factual basis in order to be in a position to evaluate potential penal and regulatory risks and to provide strategic legal advice, including advice on a possible strategy for the defence of the bank. The task assigned to the law firms specifically included confidentially reviewing "the quality of their [the bank's employees'] diligence on this particular client", performing an "analysis of various transactions" and advising "on their eventual exposure". Between February and April 2014, the attorneys interviewed implicated bank employees in informal interviews and made file notes. The results of their analysis were summarised in a memorandum dated April 15 2014.
On October 24 2014 the federal prosecutor demanded disclosure by the bank of all documents and reports that pertained to the suspicious client relationship. The bank and the law firms which had carried out the investigation requested that the documents relating to the investigation (ie, file notes on interviews of the bank's employees, the memorandum of April 15 2014 and the bank's internal minutes of a meeting with its attorneys on the results of the investigation) be sealed. On request of the federal prosecutor's office, the first-instance court approved a partial search of these documents. In the appeal to the Federal Supreme Court, the bank and the law firms insisted that the memorandum, the meeting minutes and the file notes on interviews of bank employees were protected by professional privilege.
In its September 20 2016 decision, the tribunal noted that the law firms retained by the bank had not been acting as defence counsel, and that the possibly more comprehensive privilege applying in connection with criminal defence work would thus need no further examination. However, the tribunal indicated obiter dicta that it would consider pre-existing materials – hence documents which were not created in the course and for the purpose of the attorney's mandate – as subject to disclosure to the prosecuting authorities also in a defence context.
It went on to confirm that the attorney-client privilege would in principle cover legal advice, including advice in connection with money laundering prevention and regulatory compliance issues, thereby underscoring the need to differentiate between specific attorney work and (unprivileged) work performed by an attorney in an advisory mandate which could have been assigned to a party not being a legal professional (eg, a bank's compliance tasks or their monitoring).
In this context, the tribunal observed that internal investigations were usually performed by a bank's internal compliance unit. In complex cases and cross-border situations such tasks would also be delegated to external advisers (eg, consulting firms, forensic auditors or detective agencies). If a bank chose to outsource compliance and controlling tasks to a law firm instead, this would not alter its character as non-legal work.
The tribunal concluded that the investigations carried out, as well as the documentation of the results of such investigations, clearly exceeded the scope of legal advice. Rather, the tasks performed by the law firms were to be seen as part of an outsourced compliance controlling process. The tribunal thus found that professional privilege did not prevent the prosecuting authorities from accessing respective reports and notes, irrespective of the fact that they possibly qualified as attorney work products.
The judgment has been controversial, not least because the tribunal has for the second time in a relatively short period decided issues of privilege in relation to internal investigations in favour of the prosecuting authorities.
In its judgment on the nemo tenetur principle,(4) the tribunal held that where a legal entity is subject to regulatory laws providing for a duty to investigate and keep records about certain matters, such an entity cannot avoid establishing relevant reports on the argument and that the reports may eventually be used against it as evidence to impose penalties.(5) In the September 20 2016 judgment, the tribunal clarified that a bank cannot outsource investigations and the duty to record the investigation's results to law firms in order to preserve privilege.
While the tribunal's opinion may be appropriate in this case, the reasoning is problematic. The distinction of privileged and non-privileged information must not depend on whether the client could or even ought to have collated and recorded such information respectively with the help of parties that are not members of the legal profession. Likewise, neither the fact-finding process nor the individual techniques applied (eg, interviews of employees, document search, search of public sources, private investigations and e-discovery) should determine the application of professional privilege. The collation of facts as well as their interpretation and legal analysis are in many cases inseparable elements of one and the same comprehensive (advisory or defence) mandate. The innate purpose of the professional privilege is to allow and encourage clients to make full and frank disclosures to their attorneys, so that the latter can provide relevant advice and ensure effective representation. The sole determinant of privilege should therefore be whether an investigation was carried out by the attorney to establish the fact basis required to perform his or her mandate as a legal adviser or defence counsel. In order not to unduly blur the boundaries of legal professional privilege, information collated by an attorney and respective documentation should remain out of reach of penal authorities, unless it is manifest that there is no nexus between the attorney's investigation work and an advisory or defence mandate.
The decision illustrates the importance of placing an internal investigation into the wider context of specific attorney work if confidentiality is a concern. Clients and their attorneys should carefully consider the format in which information collected by a legal professional in an internal investigation should be brought to the client's knowledge, bearing in mind the risk that any written report may later be subject to disclosure to criminal investigation authorities.
For further information on this topic please contact Bernhard Loetscher or Aline Wey at CMS von Erlach Poncet Ltd by telephone (+41 44 285 11 11) or email (email@example.com or firstname.lastname@example.org). The CMS von Erlach Poncet website can be accessed at www.cms-vep.com.
(3) Nemo tenetur se ipsum accusare vel prodere – the privilege is considered an aspect of fair trial as protected by Article 6 of the European Convention on Human Rights. It is expressly stipulated in Article 14(3)(g) of the International Covenant on Civil and Political Rights, December 16 1966, as well as in Article 113(1) of the Code of Penal Procedure, that:
"the accused may not be compelled to incriminate him or herself. In particular, the accused is entitled to refuse to make a statement or to cooperate in the criminal proceedings. He or she must however submit to the compulsory measures provided for by the law" (informal translation provided by the government).
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