WASHINGTON/NEW YORK: Standard Chartered, the British bank facing explosive money laundering allegations from New York State's top bank regulator, appears to have been burned by a decision to waive attorney-client privilege, a move that usually helps appease US authorities.
While firms on occasion hand over troves of privileged documents to investigators, that practice generally comes with an understanding that the information will not be made public.
But the 27-page complaint filed earlier this week by the New York State Department of Financial Services, a newly created regulator led by former prosecutor Benjamin Lawsky, is jam-packed with emails detailing damning legal advice used to illustrate a "rogue institution."
Lawyers who work on similar investigations say that Lawsky’s actions may make corporations think twice before turning over sensitive documents.
"The action of this regulator will have a deterring effect on the nature and extent of cooperation in similar kinds of cases without some specific assurances," said Robert Bennett, a prominent white-collar defense attorney at Hogan Lovells who represented Enron and HealthSouth in criminal investigation.
In a surprise move, the New York regulator broke away from federal authorities also probing the bank and threatened to strip Standard Chartered of its state banking license.
It alleged that Standard Chartered "schemed" with the Iranian government and hid $250 billion of transactions in violation of US sanctions on Iran.
Standard Chartered has denied the accusations and noted that it approached all the US agencies, including the Treasury Department and New York Federal Reserve Bank, in January 2010 to come forth with its own review of its transactions. It said it "waived its attorney-client and work product privileges to ensure that all the US agencies would receive all relevant information."
While direct regulators like the Department of Financial Services do have access to the legal files of the banks they regulate, even without a waiver, it is rare for regulators to exploit the documents in such a public fashion. In a coordinated investigation, the state regulator would typically act in concert with its federal counterparts.
Standard Chartered's cooperation could ultimately benefit the bank in the form of a more lenient settlement. Reuters reported on Friday the bank is in talks to resolve the probe and could enter a settlement next week.
Representatives of the New York regulator, the US Justice Department, and Standard Chartered all declined to comment.
BUILDING A CASE
New York's case against Standard Chartered seems to be heavily based on emails that could be considered privileged; nearly every page of the order includes emails or memos that seemingly constitute legal advice.
It quotes a 1995 email, for example, in which the bank’s general counsel suggests London operations could keep New York out of the loop and route suspect transfers to another clearing bank in the United States to keep the New York branch on the right side of the law.
In 2001, another email from a group legal adviser suggested payment instructions for Iranian clients shouldn't identify the client or the purpose of the payment.
That same year outside lawyers told the bank it should provide additional information to its New York branch about certain payments, an instruction reiterated by outside lawyers in 2003, according to emails quoted in the order.
The New York case also includes details of 2005 emails and notes from the bank's lawyers discussing sanctions concerns.
The waiver of attorney-client privilege became a central focus of regulators about a decade ago when a spate of corporate accounting scandals, such as those at Enron Corp and WorldCom Inc, came to light. To get to the bottom of cases, the government pressured companies to waive the privilege.
A Justice Department memo explicitly allowed prosecutors to consider whether a company waived privilege as a factor in deciding whether to charge a company.
But corporate lawyers began complaining that the policy weakened the ability of attorneys to speak candidly with their clients, and the Justice Department revised its guidelines in 2008 to prohibit prosecutors from asking companies to waive privilege.
Companies don't often provide waivers anymore, defense lawyers said, especially since such waivers could open to door to private plaintiffs obtaining those same documents.
"It's pretty infrequent," a former federal prosecutor said. "You don't want to waive it, because it opens the floodgates and exposes it to civil litigants."