Further, the Court confirmed that a selective disclosure of privileged information did not result in a waiver of that privilege altogether. Aside from these confirmations of the viability of attorney-client privilege, one of the decisions gives a stark reminder to financial institutions (FI) to approach cooperation with the Swiss Financial Market Supervisory Authority ("FINMA") thoughtfully. Specifically, the Court held that information a financial institution shared with FINMA voluntarily lost protection and, accordingly, where such information was lifted into reports prepared by a FINMA-appointed commissioner ("Commissioner"), those reports could not be withheld from the Public Prosecutor ("Prosecutor") on the basis that they included privileged information.

Key takeaways

More recently, we saw a number of decisions by the Court that have raised concerns about the viability of attorney-client privilege, specifically in relation to Internal Investigation Reports in the context of criminal investigations (see, e.g., 1B_85/2016, 1B_433/2017). For instance, there was uncertainty whether and, if so, to what extent work product related to the extraction and aggregation of relevant facts in the form of investigation reports, as opposed to pure legal advice was within the scope of the attorney-client privilege. The lingering concern was that case law would evolve to a point where work product related to internal investigation would not fall within the core area of a lawyer's activity, as it could also be performed by forensic firms, consultants and others, and hence would not be covered by the attorney-client privilege. Further, it has been suggested that even an isolated and targeted disclosure of privileged information to a single third-party recipient would result in a waiver of any claim of attorney-client privilege with respect to that information; that is, that the concept of selective waiver did not apply under Swiss law. Overall, there was a sense that the attorney-client privilege was under attack. Following a first directionally privilege-friendly decision (1B_509/2022), in its decision 7B_158/2023, the Court put down a pronounced and welcome marker on the above two issues and held that:

• Internal Investigation Reports, covering both factual findings and their assessment, prepared by external counsel with regard to existing or impending legal disputes such as regulatory or criminal investigations, including copies of pre-existing data that was selected, analyzed and re-arranged as supporting evidence in the form of appendices, are covered by the attorney-client privilege; unless counsel assumed the execution of activities, which the law imposes on clients themselves, such as documentation requirements under AML legislation.
• The voluntary disclosure of confidential information to selected third parties does not have the consequence that this information is deemed to be generally known, which would result in the loss of privilege protection, nor that such disclosure should necessarily be construed as an expression of intent to waive privilege protection.

That said, the Court did not have to decide on, and left the door ajar with respect to, the further question of whether its holding on the scope of the attorney-client privilege in relation to Internal Investigation Reports extended to interview notes and to reports on factual findings only that are not paired with a legal assessment. We set out further down what we should expect from the Court in this regard. Further, in its decision 7B_874/2023, the Court confirmed that:

• The voluntary disclosure of privileged information, such as information included in an Internal Investigation Report, to a third party does not prevent the third party from being obliged to disclose such information or, in the case of a government authority, such as FINMA, to grant legal assistance to the Prosecutor with respect to that information, even where the disclosing party stated that the disclosure must not be construed as a waiver of the attorney-client privilege.

Accordingly, the conundrum that licensed FIs are often exposed to remains: On the one hand, FIs are obliged to cooperate and, for many good reasons, inclined to sustain an open dialogue with FINMA, and to invoke the right not to disclose privileged information only with restraint. On the other hand, if FIs comply with their obligation to cooperate and follow their inclinations as described above, they run the risk that otherwise privileged information will be shared with the criminal authorities as part of the legal assistance between FINMA and these authorities. Naturally, there is almost never a simple answer to this intricate issue. FIs must approach it thoughtfully, considering the regulatory relationship and enforcement risk, as well as to the criminal exposures for them and their employees. FIs should also not ignore their general duty of care toward their employees. If an FI does not want to forgo the option to invoke its attorney-client privilege vis-à-vis criminal authorities, it is well advised to make use in relation to Internal Investigation Reports (and other attorney-client communication) of the possibility to invoke the attorney-client privilege vis-à-vis FINMA, and to explore alternative ways to preserve a constructive relationship with FINMA in the context of enforcement and otherwise. Such alternative ways could include the disclosure of privileged information only after FINMA issued an order compelling the FI to do so, the verbal delivery of investigation findings, or the granting of access to reports on a review-only basis.

Facts

Both decisions were issued in the context of a criminal investigation conducted by the Zurich Prosecutor into alleged violations of the Federal Act against Unfair Competition arising out of the dissemination of misleading product information to clients of a licensed FI. The targets of the investigation included one named individual and other unknown parties. In relation to the same conduct, FINMA conducted enforcement proceedings using a Commissioner, i.e., a law firm mandated to conduct an investigation and report on their findings. In line with its mandate, the Commissioner prepared a report ("FINMA Report") that benefited from, and included, information lifted from an Internal Investigation Report prepared by the FI's own legal counsel and submitted to FINMA during the FI's cooperation.

The Prosecutor first approached the FI and requested that it produce its Internal Investigation Report based on statutory authority in the Federal Criminal Procedures Code (CrimProC; art. 246 et seqq.). However, after the FI invoked attorney-client privilege and requested that the Investigation Report be sealed, even before the lower instance court rejected the Prosecutor's request to unseal the report, the Prosecutor approached FINMA. Presumably, because the litigation over the Internal Investigation Report was pending, the Prosecutor did not ask for that report, but for the FINMA Report based on rules governing legal assistance between different government authorities in the CrimProC (art. 194) and the Federal Act on FINMA (art. 38 et seqq.). This time, the Prosecutor was successful at the lower court.

Accordingly, both the FI and the Prosecutor had reasons to appeal the lower court's unfavorable decision at the Court. The Prosecutor appealed the decision rejecting his request to unseal the Investigation Report (leading to 7B_874/2023), and the FI appealed the decision that protected the Prosecutor's accessing of the FINMA Report (leading to 7B_158/2023). At the core of both decisions was the question of whether the reports requested by the Prosecutor were protected by attorney-client privilege and whether the voluntary disclosure of the Internal Investigation Report to FINMA had any impact on this privilege.

Reasoning

In its decision on the production of the Internal Investigation Report by the FI's own counsel (7B_158/2023), the Court proceeded in two steps:

• First, the Court drew the boundary of the scope of attorney-client protection, providing guidance with respect to both sides of that boundary.

As far as the inner space of that scope was concerned, the Court held that:

• The diligent execution of a lawyer's mandate includes not only the application of the law but also the preceding investigation of the legally relevant facts, referring to this activity as part of the core area of a lawyer's work and noting that without knowledge of the legally relevant facts, professional legal advice would not be possible. The fact that the Court took this position was key as it has been settled for a long time that only activities that form part of the core area of a lawyer's work enjoyed the protection of attorney-client privilege. The Court rightly dismissed suggestions that internal investigations could well be conducted by forensic firms or other consultancies and, hence, work product arising from such activity should not fall within this area.
• Not only the reports themselves but also copies of pre-existing data that were selected, analyzed and re-arranged by external counsel as supporting evidence of the report, in the form of appendices, could enjoy that privilege.

As far as the outer space of the scope of attorney-client privilege is concerned, the Court made the following observations:

• First, the Court confirmed previous decisions in which it held that work product of external counsel was not protected by attorney-client privilege in situations where the preparation of that product equates to the execution of activities that the law imposes on clients themselves, such as documentation requirements under AML legislation (see 1B_85/2016, 1B_433/2017). As a matter of law, this guiding principle is, in our view, non-controversial, although we share the criticism with which these decisions were received as the application of the principle to the facts at issue in these cases was, in our view, flawed. We welcome the Court's resistance to suggestions that this principle should be applied more broadly to complex investigations of facts and law in other areas.
• Second, the Court made it clear that pre-existing data selected, analyzed and re-arranged as appendices to Internal Investigation Reports are only protected by attorney-client privilege as long as they are copies and not originals; for the obvious reason that it must not be possible to lock toxic documents away in one's counsel's office. Again, we welcome the Court's resistance to suggestions that copies of pre-existing documents should be denied privilege protection for reasons of efficient law enforcement.
• Third, the Court did not have to decide on, and left the door ajar with respect to, the further question of whether its holding on the scope of the attorney-client privilege with respect to Internal Investigation Reports extended to interview notes and reports on factual findings that are not paired with a legal assessment, or to search term reports and other work products typically produced in the context of internal investigations. Considering the guiding principles that the Court applied in this decision, we would expect that if the Court were called upon to rule on these items, it will include interview notes within the inner space of the scope of attorney-client privilege. That is because law enforcement itself would have access to witnesses and could take into evidence its own interview protocols—and search term reports—as law enforcement. The Court also suggested that it has the means to access pre-existing documents and search them for relevant evidence. By contrast, we would not expect the Court to afford the protection of attorney-client privilege to a purely factual report on the findings of an internal investigation, unless such report is embedded in a string of attorney-client communication that also includes legal advice related to these facts (see in this regard already the decision 1B509/2022, para. 4.3.2.).
• Second, the Court considered whether the Internal Investigation Report lost privilege protection because the FI disclosed it to FINMA while cooperating with the latter. In this regard, the Court confirmed that under Swiss law, attorney-client privilege could be waived selectively. Specifically, the Court noted the following:
• The attorney-client privilege was preserved as long as privileged information was not generally known, i.e., accessible to an indiscriminately large number of third parties, and as long as the owner of the privileged information has not lost their interest in the confidentiality of the information, adding that in view of the importance of attorney-client privilege the loss of privilege must be assumed with restraint.
• The question of whether the attorney-client privilege has been lost as a result of voluntary disclosure to a third party, such as FINMA, vis-à-vis other third parties as per the previous bullet point, must be distinguished from the question of whether this third party can be obliged to disclose the information which it obtained from the owner of the privilege, adding that subject to the third party's own grounds for refusal pursuant to art. 171 or art. 264 CrimProC, the answer was generally in the affirmative.

This brings us to the core issue addressed in the second decision, 7B_874/2023, where the Court had to rule on the FI's opposition against the unsealing of the FINMA Report on the basis that it included privileged information that the FI had shared with FINMA in its Internal Investigation Report (which the Court qualified as a selective waiver not leading to the loss of privilege protection vis-à-vis other third parties as just discussed). In this regard, the Court had the following to say:

• First, the Court recalled two basic principles: (i) that attorney-client privilege only applied in relation to attorney-client communication and that communications with third parties, such as FINMA, did not therefore qualify as protected attorney correspondence; and (ii) that the attorney-client privilege is also protected in FINMA-led enforcement proceedings and FIs are free to invoke that privilege.
• Second, the Court qualified the FI's production of the Internal Investigation Report to FINMA as a voluntary and conscious disclosure. FINMA did not issue an order compelling the FI to do so, and the FI would have been free not to produce the report on the basis that it was covered by the attorney-client privilege.
• Third, against this backdrop, although the FI made it clear in its communication with FINMA that the disclosure of the Internal Investigation Report was to be understood as a selective waiver of the attorney-client privilege vis-à-vis FINMA and should not be construed as a waiver as to other third parties, such as the Prosecutor, the Court found that what was once privileged information included in the Internal Investigation Report was no longer privileged after it was lifted into the FINMA Report.

The Court's reasoning in this second decision is dogmatically not stringent and does not gel well with the first decision. On the one hand, the Prosecutor—in our view, for all the right reasons—was denied access to the content of the Internal Investigation Report requested directly from the FI. On the other hand, the Prosecutor obtained access through legal assistance from FINMA to what on the face of the decision appears to be—at least partially—the same content but is now included in the FINMA Report. As mentioned above, therefore, the conundrum between the inclination to cooperate openly and transparently, on the one hand, and the risk of losing privilege protection vis-à-vis law enforcement, despite the recognition of the concept of selective waivers by the Court, on the other hand, remains. Given that FINMA has authority to refuse legal assistance to the Prosecutor (and other authorities) on very narrow grounds only and exercises that authority with restraint, if an FI does not want to forgo the option to invoke its attorney-client privilege in relation to criminal authorities, the FI is well advised to make use, in relation to Internal Investigation Reports (and other attorney-client communication), of the possibility to invoke the attorney-client privilege against FINMA, and to explore alternative ways to preserve a constructive relationship with FINMA in the context of enforcement and otherwise. Such alternative ways could include requesting FINMA to issue an order compelling the FI to disclose an Internal Investigation Report or otherwise privileged information, or the proposal to FINMA to provide a verbal download of such report or information, or to grant access to it on a review-only basis.