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 WEDNESDAY, MARCH 16, 2016 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Paul Bond, Partner, Reed Smith , Princeton, N.J. Travis Nelson, Counsel, Reed Smith , Princeton, N.J. 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 Examinations Paul J. Bond Travis P. Nelson Princeton, NJ New York, NY / Princeton, NJ (609) 520-6393 (212) 549-0236 / (609) 524-2038 pbond@reedsmith.com tnelson@reedsmith.com
Key Issues • Causes of internal investigations, audits, and examinations. • Attorney-client privilege and work product protection. • Conducting internal investigations. • Whether to provide a written report to the regulators. • Utilization of outside consultants in an internal investigation. • Preparing for an examination. • Dealing with regulatory examinations and investigations. • What to do and not to do when the examiners come calling! 6
What causes the need for an internal investigation, audit, or examination problem? • Consumer complaints. • Examiner inquiry. • Interagency referrals. • Private litigation. • Examples of examination issues giving rise to investigations: • Customer Ponzi scheme. • BSA/AML; safety and soundness; internal controls. • Debit/credit add-on products. • Third-party relationships management and monitoring. • Robo signing/horizontal foreclosure review. • Third-party relationships management and monitoring. 7
Discussion • Overview of the law regarding the attorney-client privilege and work product doctrine, particularly in a corporate context. • Practical considerations for in-house counsel. • Q & A • Keep in mind: • basic purpose of the privilege: to encourage full and candid communication between client and counsel. • basic purpose of the work product doctrine: attorney’s need for privacy in his or her work and the benefits that privacy brings to an adversary system. 8
The Attorney-Client Privilege • The Rule: Applies to communications made in confidence between a client and his or her attorney for the purpose of obtaining legal advice. • Assume nothing is privileged, then ask: • Is it a communication that fits the definition? • Does an exception apply? • ERISA/fiduciary exception • Crime/fraud • Have we done everything we can to prevent a waiver? 9
Work Product Protection Three-part test for fact and opinion work product (FRCP 26(b)(3)): • The materials or communications are of a nature Work that qualifies for protection; Product • They were prepared or obtained in anticipation of litigation; and • They were prepared by or for the party asserting the protection, or that party’s attorney or other qualifying representative. Rule 26 - protection includes work of agents. 10
Work Product Protection (continued) Key determination: anticipation of litigation, or “an identifiable specific claim or impending litigation at the time the materials were prepared” Work • Some courts require that a specific claim be Product asserted before the privilege applies. Leonen v. Johns-Manville Corp. , 135 F.R.D. 94 (D.N.J. 1990). • Others hold that litigation need not be imminent, provided there is “more than a remote prospect of future litigation.” United States v. El Paso Co., 682 F.2d 530 (5th Cir. 1982). 11
Work Product Protection (continued) Key determination: was the material produced because of the prospect of litigation or for another purpose in the ordinary course of business? • Majority Rule – “Because of” test developed in Second Circuit extends work product protection with respect to mixed purpose documents (business/legal) • Extends to “documents containing analysis of expected litigation” whose “primary, ultimate, or exclusive purpose is to assist in making the business decision.” United States v. Adlman , 134 F.3d 1194 (2d Cir. 1998). • As long as the document was not “prepared in the ordinary course of business” and would not “have been created in essentially similar form irrespective of the litigation,” the “fact that the document’s purpose is business related appears irrelevant to the question of whether it should be protected.” Id. • Minority Rule – “Primary motivation” test: If the primary motivation for creating the materials is any purpose other than to assist in preparation for litigation, the work product privilege is inapplicable. See United States v. El Paso Co. , 682 F.2d 530 (5th Cir. 1982). 12
Challenge: Legal Advice v. Business Advice (or anything else) • Commingled communications. • Wearing two hats: a dilemma for in-house attorneys. • Common 3-part analysis: • For what purpose was the lawyer contacted? • Could a non-lawyer perform this function? • Did the client or lawyer acknowledge the nature of the in- house counsel’s role? • Making the in camera review easy. 13
Recommendation • Segregate legal and business advice to the extent practicable. If not possible, signal that legal advice is being given: • “You asked for my legal advice about X. Here it is: . . .” • Avoid over-designating communications as privileged. • Avoid reflexively “copying” in -house counsel. • Does not automatically make a communication/document privileged. • Do so only purposefully. • Be cognizant that acting in a business capacity may compromise the privilege. 14
Challenge: Internal Investigations – Ordinary Course of Business or Legal Advice? • Companies in heavily regulated industries (finance, healthcare, government contractors) – need for compliance departments and/or “Code of Business Conduct”. • Compliance department often separate from legal department. • Use of non-lawyers for investigations. • Litigation imminent? 15
Recommendation • Establish processes to identify “privileged” investigations. • Involve a lawyer, preferably outside counsel. • Clearly document investigation is for obtaining legal advice/anticipating actual or potential litigation. • Be mindful of implications for document preservation. • Communicate privileged nature of investigation to employees when applicable: • Use Upjohn warnings. • Enhanced Upjohn warnings after the Yates Memorandum. • Confidentiality agreements disclose legal nature of investigation. • Use findings in first instance to obtain/provide legal advice, not directly drive business decisions. 16
Challenge: Waiver and Regulatory/Government Investigations • Disclosing privileged information as part of a regulatory/government investigation can result in a waiver. • Once waived, always waived: the decline of the doctrine of selective waiver. • Nota Bene: The bank regulator privilege under 12 U.S.C. § 1828(x)(1). • Side agreements regarding confidentiality are generally ineffective. • Government’s recent use of crime -fraud exception – Madoff investigation. 17
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