Presenting a live 90-minute webinar with interactive Q&A Attorney-Client Privilege for Financial Institutions in Internal Investigations, Audits and Bank Regulatory Exams Preserving Confidential Information and Work Product, Navigating the Bank Examination Privilege and Section 1828 Selective Waiver TUESDAY, JANUARY 10, 2017 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Nicole A. Baker, Partner, K&L Gates , Washington, D.C. Alex C. Lakatos, Partner, Mayer Brown , Washington, D.C. Stavroula E. Lambrakopoulos, Partner, K&L Gates , Washington, D.C. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Attorney-Client Privilege for Financial Institutions in Internal Investigations, Audits and Bank Regulatory Exams: Preserving Confidential Information and Work Product, and Navigating Bank Examination Privilege and Section 1828 Selective Waiver Strafford Publications CLE Webinar January 10, 2017
Agenda • Introduction • Protections Commonly Asserted by Financial Institutions • Bank Examination Privilege: Purpose, Scope, and Regulator Positions • Attorney-Client Privilege: Application and Waiver • Internal Investigations: Protecting Communications, Upjohn Warnings, and Reporting to the Government and the Board • Practice Tips 6
Privileges Commonly Asserted by Financial Institutions • Bank Examination Privilege Protects confidential supervisory information and related communications between o financial institutions and prudential regulators (OCC, CFPB, FRB, FDIC, state banking regulators) Intended to preserve “absolute candor” between banks and their regulators that is o “essential to the effective supervision of banks” Attorney-Client Privilege • Applies to confidential communications, oral or written, between an attorney and her o client that relate to the provision or receipt of legal advice and arise from the attorney-client relationship Intended to promote “full and frank communications” between an attorney and her o clients Work Product Doctrine • Applies to documents created by or at the direction of counsel in anticipation of o potential litigation Intended to protect from discovery attorneys’ mental impressions, opinions, or legal o theories concerning specific litigation 7
Privileges Commonly Asserted by Financial Institutions, cont’d • Suspicious Activity Report (“SAR”) Privilege Protects content of Suspicious Activity Report (“SAR”) filed with the FinCEN and the o Financial Institution’s regulator Created by statute and regulation, and enforced by judiciary. o Intended to achieve several objectives, including encouraging financial institutions to o communicate openly with law enforcement to facilitate law enforcement’s access to accurate and complete information, to keep confidential bank methods for identifying and preventing wrongdoing, to prevent tipping of wrongdoers, and to protect privacy of bank customers. 8
Contexts in Which a Financial Institution May Have to Consider Privilege Issues Examination by a Prudential Regulator • In a routine exam by the FRB, you are asked to produce any compliance reports received o by management. Last month, you hired a law firm to conduct a compliance review of the bank’s mortgage servicing function. What should you consider when evaluating whether to claim privilege over the law firm’s written report in connection with the examination request? Enforcement Action by Government Agencies • You have received a CID from the CFPB requesting documents that include o communications with the FRB in relation to a routine exam. What steps should you take to ensure full response to the CID without waiving the FRB’s bank examination privilege? Internal Investigation • In response to a whistleblower complaint, you have initiated an internal investigation of a o line of business. How do you approach employee witnesses for interviews and information? Private Litigation • The plaintiffs in an ongoing litigation matter request discovery of documents submitted to o the CFPB during its investigation of a potential enforcement action. Do you have solid grounds on which to object to this request? 9
Contexts in Which a Financial Institution May Have to Consider Privilege Issues Third Party Subpoena • You have a report from your lawyer, provided to you for legal advice, describing the o conclusions and recommendations arising from an internal investigation concerning potential insider involvement in a securities fraud. At the request of your regulator, the OCC, you have shared it with the OCC. You receive a third party subpoena from plaintiffs who are bringing a securities fraud action, seeking a copy of the internal investigation report. Are you required to produce it? Have you waived privilege? Civil discovery • You are being sued for negligently failing to detect and prevent wrongdoing by a customer o who maintained an account at your institution into which the customer received illegal bribes. In fact, your systems flagged this activity and your BSA/AML department filed a SAR. Can you disclose the SAR in your own defense, to show that your institution was not negligent? 10
Bank Examination Privilege: Purpose • Why is this privilege recognized? How do agencies benefit from it? How do financial institutions benefit from it? Bank safety and soundness supervision is an iterative process of comment by the regulators and response by the bank. The success of the supervision therefore depends vitally upon the quality of communications between the regulated banking firm and the bank regulatory agency . . . . Because bank supervision is relatively informal and more or less continuous, so too must be the flow of communication between the bank and the regulatory agency. Bank management must be open and forthcoming in response to the inquiries of bank examiners, and the examiners must in turn be frank in expressing their concerns about the bank. These conditions simply could not be met as well if communications between the bank and its regulators were not privileged. In re Subpoena Served Upon the Comptroller of the Currency , 967 F.2d 630, 633 (D.C. Cir. 1992) (emphasis added). [The privilege] arises out of the practical need for openness and honesty between bank examiners and the banks they regulate, and is intended to protect the integrity of the regulatory process by privileging such communications. Wultz v. Bank of China Ltd. , 61 F. Supp. 3d 272 (S.D.N.Y. 2013) (internal quotations omitted). 11
Bank Examination Privilege: Application/Operation • How is this privilege enforced? The privilege belongs to the regulator. And the documents subject to the privilege o belong to the regulator, even if they are in the physical possession of the bank. Thus, the regulator must be given the opportunity to assert and defend the privilege. Banks should contact the regulator that owns the privilege in the event that o protected documents are requested in private litigation. Courts have allowed regulators to intervene to assert the bank examination o privilege in response to a discovery request. See Local 295/Local 851 IBT Employer Grp. Pension Trust , 2012 WL 346658 o (S.D. Ohio Feb. 2, 2012) (“Because the burden of establishing the bank examination privilege falls on the Federal Reserve, it holds a substantial legal interest in determining — before potentially confidential documents are produced —whether it must advance the privilege.”). 12
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