As previously reported (link), the Swiss Federal Supreme Court in a 2016 decision (1B_85/2016) took a rather narrow approach to the scope of legal privilege in connection with anti-money laundering investigations, suggesting that no privilege could be claimed with respect to a bank’s internal monitoring, controlling and documentation duties arising as a matter of prudential regulation, namely in relation to politically exposed persons (“PEPs”). To the extent that external lawyers are instructed to carry out such investigations on behalf of a bank, they are, according to the 2016 decision, deemed to exercise an “atypical” activity which, like asset management activities or director roles, is not protected by legal privilege. In passing, the Federal Supreme Court also suggested that pure fact-finding activities should anyway not qualify as legal advice covered by legal privilege. The latter observations in particular caused a bit of a stir in the legal and compliance community in Switzerland, as it is generally considered that fact-finding activities required to identify and analyze potential breaches of law must be, and are according to established practice in fact, fully protected by legal privilege.
This traditional understanding has now been confirmed by the Appeals Chamber of the Swiss Federal Criminal Court, i.e. by the judicial body in charge of appeals against procedural decisions and coercive measures (cf. Decision of September 4, 2017, BE.2017.2). In this case, the Federal Department of Finance had opened an administrative investigation based on suspicions that a bank had failed to make an anti-money laundering notification in connection with a potential fraud case involving an external asset manager. In the context of this investigation, the Federal Department of Finance requested the disclosure of an internal investigation report, which the bank had commissioned from a law firm. The bank objected to the disclosure request, arguing that the investigation report and the supporting documentation were protected by legal privilege.
The Federal Criminal Court shared the bank’s argumentation, holding in essence that the report was the basis for, and included, legal advice rendered by external lawyers. Referring to the prior decision of the Federal Supreme Court, the Federal Criminal Court noted that the investigation in question was aimed at obtaining an ex-post legal analysis of whether the bank had met its statutory compliance obligations . Unlike in the previous case, there was no suggestion that the bank had outsourced the execution of compliance measures that it had been required to apply at the outset, and in the course, of the client relationship. The Court also clarified that fact-finding activities for purposes of obtaining legal advice are generally covered by privilege, as they constitute a necessary prerequisite for any legal analysis by external lawyers.
While being in line with established Swiss case law on the scope of legal privilege, this new decision provides a welcome clarification, confirming that legal privilege is as a matter of principle available to lawyers admitted to practice in Switzerland in investigations concerning suspected breaches of law. As results from the Federal Supreme Court’s 2016 decision, exceptions may apply with respect to the specific due diligence obligations which banks have to undertake when engaging in a client relationship with PEPs, but these exceptions are to be understood narrowly. In any case, as regulators or prosecutors today regularly try to rely on internal investigations to collect information for administrative or criminal proceedings, it is strongly recommended to carefully define the investigation mandate in accordance with the specific requirements of the jurisdictions in which such proceedings are likely to take place.