Staying in or going out: The value of teamwork between a bank’s inside and outside counsel

Outlining some specific ways inside and outside counsel can work together constructively to mitigate key regulatory risks

In Part 1, we talked about some of the ethical challenges bank inside counsel face. In Part 2, we looked at an example of some of the legal challenges faced by inside in-house counsel in the course of regulatory investigations. In this part, we outline some specific ways inside and outside counsel can work together constructively to mitigate these risks.

Competency

As discussed in Part 1, the Rules of Professional Responsibility require an attorney to be competent. Generally, inside counsel must have a broad understanding of the issues the bank faces. However, it is unrealistic to expect them to be experts in every area, especially given the complex regulatory framework banks are required to operate in.

Outside counsel who concentrate their practices in specialized areas, especially on the regulatory front, can provide a great service to inside counsel and the bank. Meanwhile, inside counsel bring a wealth of detailed knowledge and invaluable insight about the bank and its relationships. Functioning as a team, inside and outside counsel can provide competent legal representation for the bank by maximizing their individual strengths. This is especially true for community and mid-sized banks which do not have the luxury of maintaining large legal departments.

Attorney-client privilege

Outside counsel can also provide much needed support on gray areas pertaining to the attorney-client privilege. Communications with inside counsel are generally privileged in the same way that communications to any attorney are privileged especially where the officers of the organization seek the advice on behalf of the organization.

A key issue inside counsel face concerns the various roles they are perform. As we discussed Part 1, inside counsel are often asked to wear two hats — a legal hat and a business hat. The question is, when is the inside counsel giving legal advice versus business advice? This is critical because, as a general rule, business advice given by an attorney is not covered by the attorney-client privilege.

The mere fact that a bank employee speaks with inside counsel about any subject does not mean that the communication is privileged, especially if the attorney has no legal reason for the communication. Similarly, just because the inside counsel attends an executive meeting does not by definition mean that everything discussed in that meeting is cloaked by the attorney-client privilege.

This role inside counsel play at any given time is also critical. For example, in United States v. Vehicular Parking, Ltd., an attorney named Joynt also served as a business manager of his client who was facing an action by the government. The court found that the privilege did not apply to several communications where Joynt gave more business advice than legal advice. Joynt’s dual role also created problems for his client when he turned over to the government some exhibits which were in “controversy.” Given Joynt’s business involvement with his client and the facts of the case, the court held that he was acting as a business manager and did not “wear his lawyer suit” when he turned over the documents. As such, the court held that he waived privilege by voluntarily turning over documents.

By utilizing outside counsel, especially where the line between inside counsel’s business and legal roles is blurred, the bank can increase the likelihood that the communication is privileged. This is also useful in the event investigators seek to destroy the privilege by employing the crime-fraud exception to the privilege. This is how the government gained access to so many documents in the case of United States vs. Lauren Stevens discussed in Part 2.

Ethical and legal cover

Third, outside counsel can provide cover for inside counsel. As bank employees, there can be a perception (fair or not) that inside counsel may compromise independence for loyalty to the bank. This is especially true when the bank is subject to, for example, a regulatory investigation and possible sanctions. Outside counsel’s opinion can legitimize a course of action that could otherwise be heavily scrutinized. As discussed in Part 2, part of what saved Lauren Stevens was the fact that she consulted outside counsel in addition to other inside counsel.

Outside counsel are seen as somewhat more independent from the bank. Generally, the actions of the client are not imputed to the attorney. Just because an attorney defends a client does not by definition mean that he or she personally supports the client’s actions.

However, inside counsel still have a role to play, as demonstrated by the recent BNP case. BNP Paribas, a French bank, was recently fined $9 billion for sanctions and other regulatory violations. Requests for advice from outside counsel have been prominently highlighted in this case. Lessons learned from the BNP case include, first, banks should not simply follow outside advice blindly, especially when outside counsel’s advice appears problematic. Ultimately a bank is responsible for its own actions and the inside counsel’s office should at least be generally educated on a subject and push back if the advice appears problematic. Second, if the advice appears sound, banks should follow that counsel immediately and not delay.

Conclusion

As banks continue to face increasing regulatory scrutiny, inside counsel will continue to navigate legal and ethical minefields. By working together with outside counsel as discussed above, a bank’s inside counsel can provide an even greater service to the bank.

Contributing Author

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Colleen M. Murphy

Colleen M. Murphy is a partner in the law firm of Goldberg Segalla. She has nearly 20 years of experience counseling and defending clients that include...

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Contributing Author

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Aaron J. Aisen

Aaron J. Aisen is an associate at Goldberg Segalla where he focuses on financial regulatory issues and litigation.  Prior to joining Goldberg Segalla, he was...

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