Top EU Court Cracks Open Professional-Secrecy Exemptions

(CN) – A regulatory official whose career fell apart following Bernie Madoff’s massive Ponzi scheme notched a victory Thursday at the European Court of Justice.

Identified in the ruling only by his initials, DZ has been fighting since 2010 to annul a decision that forced his resignation from Luxembourg’s financial supervisory authority.

Known as the CSSF, the regulatory body determined that DZ could no longer direct any entity it regulates because of his role in setting up Luxalpha, a Madoff feeder fund said to have given the Ponzi scheme the appearance of legitimacy.

DZ meanwhile claims that the CSSF has documents that would shed light on the role UBS played Luxalpha’s creation. He says these documents are vital to understanding the roles of the various players, but the CSSF has refused to turn over the materials, contending that their production would violate its responsibility to maintain professional secrecy.

Luxembourg’s Higher Administrative Court in turn requested input on the circumstances in which the CSSF’s obligation of professional secrecy may be disregarded.

Though exceptions for criminal matters are established, it asked the European Court of Justice whether cases involving administrative sanctions are similarly situated.

The Court of Justice, which is also based in Luxembourg, determined Thursday that information covered by professional secrecy may also be used in civil or commercial proceedings.

“It follows … that the right to disclosure of the documents relevant to the defense is not unlimited and unfettered,” the ruling from the court’s Fifth Chamber states. “On the contrary, … the protection of the confidentiality of the information covered by the obligation of professional secrecy on the competent authorities … must be guaranteed and implemented in such a way as to reconcile it with the rights of the defense.”

“Accordingly, in the event of a conflict of, on the one hand, the interest of the person who is the subject of a measure adversely affecting him in having access to the information necessary for him to be in a position to exercise fully his rights of defense and, on the other hand, the interests in connection with maintaining the confidentiality of the information covered by the obligation of professional secrecy, it is for the competent authorities or courts to seek to strike a balance between these opposing interests in the light of the circumstances of each case.”

As it pertains to DV specifically, the ruling continues, “it is for the competent national court to ascertain whether that information is objectively connected to the complaints upheld against him and, if this should be the case, to weigh up the interests set out in the previous paragraph of this judgment, before taking a decision whether to communicate each of the requested pieces of information.”

The Court of Justice touched on similar themes Thursday in an unrelated ruling involving Italy. In this case, Enzo Buccioni asked Banca d’Italia to disclose documents about its supervision of Banca Network Investimenti SpA.

Buccioni, who had an account with the latter institution for eight years,

received only a partial reimbursement from the Interbank Deposit Protection Fund when the bank was forced into liquidation in 2012.

The regulator Banca d’Italia refused to turnover the documents that Buccioni requested, however, on the grounds that it would frustrate its professional-secrecy obligations.

Thursday’s ruling by the Court of Justice says that EU directives do not preclude national authorities “from disclosing confidential information to a person who so requests in order to be able to institute civil or commercial proceedings with a view to protecting proprietary interests which were prejudiced as a result of the compulsory liquidation of a credit institution.”

“However, the request for disclosure must relate to information in respect of which the applicant puts forward precise and consistent evidence plausibly suggesting that it is relevant for the purposes of civil or commercial proceedings, the subject matter of which must be specifically identified by the applicant and without which the information in question cannot be used,” the ruling continues. “It is for the competent authorities and courts to weigh up the interest of the applicant in having the information in question and the interests connected with maintaining the confidentiality of the information covered by the obligation of professional secrecy, before disclosing each piece of confidential information requested.”

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