Bank Examination Privilege Gets Checked

Bank Examination Privilege Gets Checked

In response to a 2006 suicide bombing in Tel-Aviv, Israel, resulting in several deaths and injuries, the Wultz family of Florida filed a civil suit against the Bank of China (BOC), alleging acts of international terrorism under the Anti-Terrorism Act (ATA) by providing material support and resources to a terrorist organization, among other claims. What followed was a testing of the protections banks enjoy under the bank examination privilege and another notable ruling from Judge Scheindlin out of the Southern District of New York.

Following the Plaintiffs’ motion to compel the BOC and the non-party Office of the Comptroller of the Currency (OCC) to produce various investigative files and U.S. regulatory communications, the BOC refused, invoking several privileges, including the bank examination privilege. On April 9, 2013, Judge Scheindlin ruled that the Plaintiffs had shown good cause for production and the BOC must comply.

In her decision, Judge Scheindlin acknowledged the “chilling effect” that overriding the bank examination privilege could have but still concluded that the “relevance of the non-factual portions of the OCC’s Communications, the lack of adequate substitutes, and in particular the seriousness of the litigation and the role of the government in passing the ATA, outweigh the risk of the chilling effect.”  Just what kind of effect this will have on future courts’ decisions remains to be seen. In the meantime, however, banks and their regulators may already be giving this privilege and the quality of their communications a closer look.

The matter of privilege continued later in 2013 when the BOC responded to the Plaintiffs’ third motion to compel by claiming that the documents in question were protected by attorney-client privilege and/or the work/product doctrine. After a thorough analysis of both Chinese and United States law, Judge Scheindlin concluded on October 25, 2013 that such privilege did not apply to the documents within either legal system.

More specifically, Judge Scheindlin noted that because Chinese law does not recognize the attorney-client privilege or the work-product doctrine, the “BOC must produce those items listed on its privilege log which are governed by Chinese privilege law.”

Under United States law, Judge Scheindlin noted that attorney-client privilege only applied to communications associated with licensed attorneys. She stated that in China there are “cognizable distinctions” between a lawyer and an in-house counsel. For example, the latter is not required to be a member of a bar or have “some form of legal credentials.” The judge also rejected the notion of creating a functional equivalency test. Therefore, the BOC’s claim of attorney-client privilege did not apply to communications involving legal personnel who were not licensed attorneys. This ruling may give counsel in this country pause about privilege for communications with international legal departments and whether those very departments include licensed attorneys.

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