Judge Scheindlin Provides Thorough Discussion of Bank-Examination Privilege

Judge Shira Scheindlin, who authored the influential Zubalake decision on e-discovery, recently issued an opinion providing a thorough discussion of the federal bank-examination privilege.  Judge Sheindlin ultimately ruled that the bank-examination privilege covered only part of a bank’s communications to the Office of the Comptroller of the Currency (OCC), but neverthelessbankexamination ordered their production because the plaintiff showed a sufficient level of need to overcome the privilege.  Wultz v. Bank of China Ltd., 2013 WL 1453258 (S.D.N.Y. Apr. 9, 2013).  You may access the opinion here.

The case arises from an interesting factual setting.  The Palestinian Islamic Jihad (PIJ) orchestrated a suicide bombing in Tel Aviv, Israel in 2006 that killed Florida resident Daniel Wultz and severely injured Yekutiel Wultz.  You may read a news account of this attack here.

The Wultz family sued the Bank of China (BOC) under the Antiterrorism Act alleging acts of international terrorism and aiding and abetting international terrorism.  The family claimed that BOC facilitated, through PIJ leadership in Iran and Syria, wire transfers in the millions of dollars for PIJ’s benefit.

The Wultz family sought discovery of a variety of BOC documents, including BOC’s communications with the OCC discussing risk reports, self-analyses, and compliance procedures; the OCC’s bank examination reports, evaluations of BOC’s policies, and communications regarding deficiencies in BOC’s counter-terrorism financing compliance function.  BOC asserted the bank-examination privilege in an effort to avoid production of these documents.

Judge Scheindlin ruled that the bank-examination privilege belongs to federal banking regulatory agencies, not to banks.  The privilege is a qualified privilege that protects communications between banks and their examiners in order to preserve absolute candor essential to the effective supervision of banks.  Banks cannot assert the privilege on behalf of banking agencies; only the banking agency may assert the privilege and it has the burden of establishing that the privilege applies.  Where a claim of privilege is appropriate, courts must provide banking agencies the opportunity to assert and establish the privilege. Purely factual material falls outside the bank-examination privilege.

Because the privilege is qualified, a party seeking privileged information may overcome the privilege upon a showing of good cause.  To evaluate good cause, courts must balance the competing interests of the party seeking the documents and the banking regulatory agency.  Courts typically consider the following five factors:

  1. The relevance of the evidence sought to be protected;
  2. The availability of other evidence;
  3. The seriousness of the litigation and the issues involved;
  4. The role of the government in the litigation; and
  5. The possibility of future timidity by government employees who will be forced to recognize that their secrets are violable.

In Wultz, Judge Scheindlin first determined whether the OCC actually asserted the bank-examination privilege, finding that it adequately asserted the privilege only as to communications between it and BOC.  But as to these privileged communications, the judge ruled that the five factors weighed in favor of production.