In a decision dated September 22, 2016 (1B_85/2016), the Swiss Federal Supreme Court considered to what extent work products generated by external counsel in the course of anti-money laundering investigations are protected by legal privilege.
The case arose from a criminal investigation by the Office of the Attorney General of Switzerland (“OAG”) against the former client adviser of a Swiss bank. The client adviser was suspected of having engaged in money laundering and document forgery in connection with the alleged channeling of bribes to foreign officials through accounts held with the bank. During the criminal investigation against the individual employee, the bank commissioned an investigation by external counsel from Switzerland and the United Kingdom. Specifically, the law firms were asked to review the measures that the bank had taken to verify the beneficial owner of the assets in question, as well as the measures implemented to assess and continuously monitor the transaction risks. Based on this mandate, the external lawyers reviewed documents, carried out interviews with the client adviser and other employees of the bank, and also retained a private investigator for additional clarifications. The investigation’s results were reported in writing to the management of the bank.
As the criminal investigation against the former client adviser progressed, the OAG ordered the bank to produce the minutes of internal management and board meetings, as well as the investigation report and interview minutes. Both the bank and the two law firms objected to the seizure of these documents, invoking legal privilege. This argument was dismissed by the Swiss Federal Supreme Court, which held that the documents related to the bank’s own statutory monitoring, controlling and documentation duties under the Federal Act on Combating Money Laundering and Terrorist Financing (cf. Articles 3-7 of the Anti-Money Laundering Act and Articles 10-20 Anti-Money Laundering Ordinance). According to the Court’s analysis, the bank had effectively outsourced part of these statutory duties to external counsel, and consequently no legal privilege could be claimed with respect to the relevant work products.
The decision shows that limitations to legal privilege can apply when internal investigations involving Swiss companies are conducted against the background of statutory compliance and disclosure duties arising under anti-money laundering rules or prudential regulation. Concretely, a financial institution cannot benefit from legal privilege by outsourcing its mandatory compliance duties with respect to the origin of funds to external counsel. To the extent that external lawyers carry out such delegated duties, they are deemed to exercise an “atypical” activity which, like asset management activities or acting as a director in a company, is not protected by legal privilege.
Although this reasoning is in line with established practice, this is less clear for certain statements made by the Court in passing. For example, the Court noted that pure fact-finding activities do not qualify as legal advice covered by legal privilege, and observed that, as the bank itself was not accused of criminal conduct, the external lawyers did not have a defense mandate for the bank for which legal privilege could have been claimed. While it is acknowledged that legal privilege may not be invoked abusively, for example to cover matters subject to a bank’s mandatory disclosure duties, these statements are surprising in light of the broad definition of legal privilege in Swiss statutory law, particularly in the Swiss Criminal Procedure Code. Based on these rules, there is a broad consensus that fact-finding activities carried out by external counsel to identify potential breaches of law and advice on appropriate reactions thereto are, and must be, fully protected by legal privilege.
This having been said, it is important to remember that legal privilege in continental jurisdictions is generally defined more narrowly than the attorney–client privilege of US law. This in particular must be taken into account when defining the scope and subject matter of investigation mandates. Thus, care should be taken to ensure that lawyers intervening in the investigation are actually entitled to legal privilege in the jurisdictions concerned. Next, the purpose and subject matter of the investigation mandate should be tied to the assessment of specific legal issues and liability risks for, or claims of, the company, rather than dealing only with general fact-finding activities. Additionally, as highlighted by the recent decision, the company’s own documentation and disclosure duties arising as a matter of mandatory compliance rules should be distinguished from the ex post analysis, and from the assessment of legal consequences of potential compliance failures.