<h3>Background</h3>
<p>In the event of suspected violations of the law or other irregularities, companies conduct internal investigations to determine and analyze the relevant facts. These internal investigations are often led by outside counsel. In parallel, criminal and regulatory authorities may conduct their own investigations into the same matters. To further their investigations, they may request documents and information prepared and collected in the course of the internal investigation, including investigation reports and supporting documents. In particular, financial institutions supervised by the Swiss Financial Market Supervisory Authority FINMA are subject to extensive disclosure and cooperation obligations. Consequently, findings of internal investigations are often voluntarily disclosed to FINMA. In turn, the prosecutors may try to obtain the findings of the internal investigation directly from the supervised financial institutions or, through administrative assistance, from FINMA.</p>
<p>In this context, the questions arise as to whether the findings of an internal investigation conducted by outside counsel and the collected supporting documents are protected by attorney-client privilege and whether privileged documents and information submitted to FINMA may be obtained by the prosecutors. In two recent cases, the Swiss Federal Supreme Court ruled on those issues (see <a href="https://www.bger.ch/ext/eurospider/live/de/php/aza/http/index.php?highlight_docid=aza://06-08-2024-7B_874-2023&amp;lang=de&amp;zoom=&amp;type=show_document" target="_blank" rel="noopener">7B_874/2023</a> and <a href="https://www.bger.ch/ext/eurospider/live/de/php/aza/http/index.php?highlight_docid=aza://06-08-2024-7B_158-2023&amp;lang=de&amp;zoom=&amp;type=show_document" target="_blank" rel="noopener">7B_158/2023</a>).</p>
<p>In case <a href="https://www.bger.ch/ext/eurospider/live/de/php/aza/http/index.php?highlight_docid=aza://06-08-2024-7B_874-2023&amp;lang=de&amp;zoom=&amp;type=show_document" target="_blank" rel="noopener">7B_874/2023</a>, the prosecutor requested FINMA to provide through mutual legal assistance the enforcement order of the proceedings against a Swiss bank as well as the report of the investigation agent appointed by FINMA. The Federal Supreme Court concluded that the prosecutor could obtain these documents from FINMA, even though the bank argued that the enforcement order and the report of the investigation agent were based on a privileged investigation report of the bank&#8217;s Swiss outside counsel.</p>
<p>In case <a href="https://www.bger.ch/ext/eurospider/live/de/php/aza/http/index.php?highlight_docid=aza://06-08-2024-7B_158-2023&amp;lang=de&amp;zoom=&amp;type=show_document" target="_blank" rel="noopener">7B_158/2023</a>, the criminal justice authorities requested the bank in the same matter to provide the report of the internal investigation conducted by the bank&#8217;s Swiss outside counsel. The Federal Supreme Court concluded that the prosecutor could not obtain the report from the bank due to attorney-client privilege, although the bank had voluntarily submitted a copy of the report to FINMA.</p>
<p>The present Bulletin summarizes the key considerations of the Federal Supreme Court and their practical implications.</p>
<h3>Key Considerations of the Federal Supreme Court on Attorney-Client Privilege</h3>
<p><strong><em>Authorities may forward information voluntarily disclosed to them, even if the information initially was subject to attorney-client privilege</em></strong></p>
<p>In case <a href="https://www.bger.ch/ext/eurospider/live/de/php/aza/http/index.php?highlight_docid=aza://06-08-2024-7B_874-2023&amp;lang=de&amp;zoom=&amp;type=show_document" target="_blank" rel="noopener">7B_874/2023</a>, the bank took the position that the enforcement order and the report of the investigation agent appointed by FINMA were protected by attorney-client privilege because these documents were based on the privileged internal investigation report of the bank&#8217;s Swiss outside counsel.</p>
<p>The Federal Supreme Court rejected the bank&#8217;s arguments. According to the court, attorney-client communications are generally protected by attorney-client privilege. However, disclosures to third parties (e.g., an insurance company or government agency) are not considered attorney-client communications, even if the disclosure contains privileged information. Once privileged information is knowingly and voluntarily disclosed to third parties, the information leaves the attorney-client relationship. Therefore, the attorney-client privilege does not prevent third parties from fulfilling their obligation to testify or produce documents. According to the court, this also applies to voluntary disclosures to FINMA, even if the supervised financial institution expressly reserves its rights to claim attorney-client privilege protection.</p>
<p>The Federal Supreme Court concluded that privileged information in the possession of FINMA could be obtained by the prosecutor through mutual legal assistance. According to the court, this applies all the more to the FINMA enforcement order and the report of the investigation agent appointed by FINMA.</p>
<p>The question of whether the prosecutor could obtain the privileged report of the bank&#8217;s Swiss outside counsel from FINMA was not part of the proceedings and was therefore not explicitly decided by the Federal Supreme Court. However, the court&#8217;s considerations make it sufficiently clear that this would likely be the case if the report was submitted to FINMA voluntarily. Thereby, the court confirmed that supervised financial institutions are not legally required to disclose to FINMA information protected by attorney-client privilege.</p>
<p><strong><em>Investigation of the facts conducted by external counsel is protected by attorney-client privilege</em></strong></p>
<p>In case <a href="https://www.bger.ch/ext/eurospider/live/de/php/aza/http/index.php?highlight_docid=aza://06-08-2024-7B_158-2023&amp;lang=de&amp;zoom=&amp;type=show_document" target="_blank" rel="noopener">7B_158/2023</a>, the Federal Supreme Court confirmed that reports of internal investigations led by Swiss outside counsel are protected by attorney-client privilege, in particular when the internal investigation is conducted in connection with the advice and representation in existing and impending legal proceedings. In this context, the court concluded that the investigation and analysis of the relevant facts are part of the core area of outside counsels&#8217; work and are therefore privileged.</p>
<p>As a result, the Federal Supreme Court ruled that the report of the bank&#8217;s Swiss outside counsel was protected by attorney-client privilege. The exception established by the Federal Supreme Court in earlier decisions that reports by law firms are not subject to attorney-client privilege if they were prepared in connection with documentary obligations pursuant to the Anti-Money Laundering Act, did not apply in the present case.</p>
<p><strong><em>Selection and analysis of pre-existing documents is protected by attorney-client privilege</em></strong></p>
<p>In case <a href="https://www.bger.ch/ext/eurospider/live/de/php/aza/http/index.php?highlight_docid=aza://06-08-2024-7B_158-2023&amp;lang=de&amp;zoom=&amp;type=show_document" target="_blank" rel="noopener">7B_158/2023</a>, the Federal Supreme Court also confirmed that while internal bank documents as such are not protected by attorney-client privilege, the selection and evaluation of those documents by Swiss outside counsel constitute legal advice and are therefore protected work product. Consequently, the copies of pre-existing documents such as bank internal documents attached to an investigation report from Swiss outside counsel are privileged.</p>
<p>As a result, the Federal Supreme Court ruled that not only the report of the bank&#8217;s Swiss outside counsel but also all documents enclosed to the report were protected by attorney-client privilege.</p>
<p><strong><em>Voluntary disclosure to FINMA does not lead to general loss of attorney-client privilege</em></strong></p>
<p>In case <a href="https://www.bger.ch/ext/eurospider/live/de/php/aza/http/index.php?highlight_docid=aza://06-08-2024-7B_158-2023&amp;lang=de&amp;zoom=&amp;type=show_document" target="_blank" rel="noopener">7B_158/2023</a>, the Federal Supreme Court confirmed that the voluntary disclosure of privileged information to selected third parties does not constitute a general waiver of attorney-client privilege. Consequently, privileged documents and information voluntarily submitted to FINMA by a supervised financial institution do not lose their confidential character and therefore remain protected by attorney-client privilege. Hence, prosecutors may obtain privileged information from FINMA through mutual legal assistance – as this was decided in case <a href="https://www.bger.ch/ext/eurospider/live/de/php/aza/http/index.php?highlight_docid=aza://06-08-2024-7B_874-2023&amp;lang=de&amp;zoom=&amp;type=show_document" target="_blank" rel="noopener">7B_874/2023</a> – but may not seize the same privileged information directly from the supervised financial institution.</p>
<h3>Conclusion and Practical Implications</h3>
<p>The Federal Supreme Court has reinforced the protection of attorney-client privilege in the context of internal investigations. However, the court&#8217;s position that prosecutors may obtain privileged information from FINMA through mutual legal assistance leads to a disproportionate restriction of the application of attorney-client privilege in connection with mutual legal assistance proceedings between Swiss authorities. The decision is part of a series of Federal Supreme Court decisions that undermine the protection of attorney-client privilege in favor of an efficient and unimpeded cooperation between Swiss criminal and regulatory authorities.</p>
<p>This new case law applies not only to the disclosure of documents to FINMA, as in the case before the Federal Supreme Court, but also to disclosures of privileged information to any other authority (e.g., the Competition Commission or tax authorities) or third party. Financial institutions, as well as other companies, must therefore consider this case law whenever they intend to disclose documents and information voluntarily to authorities and other third parties. Anyone who knowingly and voluntarily discloses privileged documents and information to a third party now risks losing the protection of attorney-client privilege for disclosed documents and information in the possession of the third party.</p>
<p>To preserve the protection of the attorney-client privilege when cooperating with authorities, companies have the following options: (1) consider disclosure of privileged documents and information only if compelled; (2) when possible communicate privileged information orally rather than in writing; or (3) give regulators or other competent authorities access to privileged information on a review-only basis. None of these options is truly satisfactory, and they may be difficult to implement in practice. As a result, this new case law may have the effect of significantly limiting or at least complicating cooperation between companies and authorities as companies will now have to carefully decide on a case-by-case basis whether to disclose privileged information to regulators or other competent authorities.</p>


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Swiss Court Limits and Reinforces Attorney-Client Privilege

<h3>A. Introduction</h3>
<p>The Swiss Federal Supreme Court&#8217;s January 19, 2024 decision, which was published on February 12, 2024, concerns an internal investigation into sexual harassment allegations against an employee. In that context, the Court assessed whether the internal investigation, which confirmed a reasonable suspicion of sexual harassment and ultimately led to the employee&#8217;s dismissal, had been conducted properly.</p>
<p>The key rulings from the Court&#8217;s decision are:</p>
<ol>
<li>When private employers perform internal investigations, the standard criminal procedural guarantees do not apply;</li>
<li>Employers do not need to provide an employee subject to investigation with advance notice of an interview or an opportunity to prepare. Rather, it suffices if the employer informs the accused employee at the beginning of the interview of its purpose and content;</li>
<li>The absence of a «person of trust» at the interview does not constitute a serious deficiency in the investigation process that would render the employee&#8217;s termination abusive, even if an employer&#8217;s internal regulations entitle employees to be accompanied by a «person of trust» at such interviews;</li>
<li>Employers are not required to inform the accused employee in detail of the allegations against him or her. Generic and anonymized information about the allegations is sufficient;</li>
<li>A reasonable suspicion, confirmed by an internal investigation, is sufficient basis to ordinarily terminate an employee lawfully even if the suspicion is later proven to be unfounded. Before terminating an employee, the employer is not required to prove the truth of the allegations.</li>
</ol>
<p>The Court&#8217;s ruling rejects the views previously expressed by some legal scholars that employers must provide employees subject to investigation the procedural guarantees accorded to the accused person in criminal investigations.</p>
<h3>B. Summary of Facts and Procedural History</h3>
<p>As noted above, the case concerned an internal investigation regarding allegations of sexual harassment at a bank. Employee A contacted the bank&#8217;s ombudswoman for conduct and ethics and reported sexual harassment by Employee B. The bank conducted an internal investigation to clarify the sexual harassment allegations. As part of the investigation, several employees, including Employee B, were interviewed. The internal investigation concluded that there was sufficient basis for a reasonable suspicion that Employee B had sexually harassed Employee A. As a result, the bank terminated Employee B by observing the applicable notice period.</p>
<p>Employee B then brought a claim for unfair dismissal and damages. The Zurich Labor Court rejected the claim. It held that it was irrelevant whether the allegations of sexual harassment were true or not. Rather, the only relevant factor was whether the bank had sufficiently investigated the allegations. The Labor Court found that it had.</p>
<p>Employee B appealed to the High Court of the Canton of Zurich, which concluded that the bank had not afforded Employee B an adequate opportunity to defend himself against the allegations. In particular, it focused on the lack of detail provided by the bank regarding the allegations, which, according to the High Court, prevented Employee B from adequately defending himself and, in particular, from providing exculpatory facts and evidences. The High Court therefore held that the termination was abusive.<a href="#_ftn1" name="_ftnref1">[1]</a></p>
<p>Thereafter the bank appealed to the Swiss Federal Supreme Court, which overturned the High Court&#8217;s decision.</p>
<h3>C. Findings of the Swiss Federal Supreme Court</h3>
<h4>1. No equivalent procedural guarantees as in criminal investigations</h4>
<p>The Court&#8217;s decision clarifies uncertainty respecting the law applicable to internal investigations in private companies. In a case from May 2016,<a href="#_ftn2" name="_ftnref2">[2]</a> the Court quoted legal scholars who expressed the view that in internal investigations, employers had to provide accused employees with procedural guarantees equivalent to those of a criminal proceedings (i.e., a right to prepare for the defense, be represented by a lawyer, and request the taking of evidence).<a href="#_ftn3" name="_ftnref3">[3]</a> As a result, following the Court&#8217;s May 2016 decision, it was unclear what procedural guarantees, if any, were required in internal investigations. In its recent decision, the Court clarified that its 2016 ruling merely reproduced the views expressed by some legal scholars but did not endorse them.<a href="#_ftn4" name="_ftnref4">[4]</a></p>
<p>The Court further explained that, unlike in a criminal proceedings, in which an accused person is subject to the state&#8217;s criminal power and may face criminal liability (including imprisonment and fines), employees and employers voluntarily enter into an employment relationship and the worst threat an employee can face is termination.</p>
<p>According to the Court, the bank&#8217;s internal investigation provided adequate protections for Employee B because the bank interviewed several employees, reviewed Employee B&#8217;s electronic communications, and provided Employee B an opportunity to comment on the minutes of his interview.</p>
<h4>2. No obligation to announce the purpose and the content of the interview in advance</h4>
<p>The Court held that, unlike in criminal proceedings, employers are not required to inform employees in advance of the purpose and content of an internal investigation interview. Rather, it is sufficient if the employee is informed at the beginning of the interview of its purpose and content. There is no legal requirement to provide the employee with an opportunity to prepare for the interview.<a href="#_ftn5" name="_ftnref5">[5]</a></p>
<h4>3. No right to be accompanied by a «person of trust»</h4>
<p>The Court held that the absence of a «person of trust» at the interview does not constitute a serious deficiency in the investigation process that would render the employee&#8217;s termination abusive, even if an employer&#8217;s internal regulations entitle employees to be accompanied by a «person of trust» at such interviews.<a href="#_ftn6" name="_ftnref6">[6]</a></p>
<h4>4. Right to have the allegations clarified</h4>
<p>The Court confirmed that the internal investigation of a private employer is not comparable to a state criminal investigation and that therefore the employer is not required to inform the employee in detail of the allegations against him or her. Rather, generic and anonymized information about the allegations is sufficient. The Court also explained that accuser&#8217;s identity must be kept confidential and may not be disclosed to the accused employee.</p>
<h4>5. Ordinary termination due to reasonable suspicion is not abusive</h4>
<p>The Court&#8217;s ruling reminded that Swiss employment law is governed by the principle of freedom of termination. This means that there are no particular reasons required for an ordinary termination of the employment relationship.</p>
<p>Accordingly, unlike in criminal proceedings, in which there can be no conviction unless the alleged crime is proven beyond a reasonable doubt, an employee may be terminated based on mere suspicions, even if the suspicions later turn out to be unfounded.</p>
<p>Employers still have an obligation to establish that their suspicions are reasonable before terminating their employees. Termination may be abusive if based on mere allegations absent an adequate investigation to ascertain the trustworthiness of the allegations, or if the investigation fails to establish a reasonable suspicion that the allegations are indeed true.<a href="#_ftn7" name="_ftnref7">[7]</a></p>
<h6><a href="#_ftnref1" name="_ftn1">[1]</a>        OGer ZH LA210022 of May 23, 2023.</h6>
<h6><a href="#_ftnref2" name="_ftn2">[2]</a>        BGer 4A_694/2015 of May 4, 2016, E. 2.4.</h6>
<h6><a href="#_ftnref3" name="_ftn3">[3]</a>        BGer 4A_694/2015 of May 4, 2016, E. 2.4.</h6>
<h6><a href="#_ftnref4" name="_ftn4">[4]</a>        BGer 4A_368/2023 of January 19, 2024, E. 4.1.</h6>
<h6><a href="#_ftnref5" name="_ftn5">[5]</a>        BGer 4A_368/2023 of January 19, 2024, E. 4.4.1.</h6>
<h6><a href="#_ftnref6" name="_ftn6">[6]</a>        BGer 4A_368/2023 of January 19, 2024, E. 4.4.2.</h6>
<h6><a href="#_ftnref7" name="_ftn7">[7]</a>        BGer 4A_368/2023 of January 19, 2024, E. 4.2.</h6>


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