ASSEMBLY, No. 2735
STATE OF NEW JERSEY
INTRODUCED FEBRUARY 20, 1997
By Assemblymen BATEMAN and DORIA
An Act concerning voluntary compliance reviews by depository institutions and supplementing Title 17 of the Revised Statutes.
Be It Enacted by the Senate and General Assembly of the State of New Jersey:
1. The Legislature finds and declares that it is in the public interest for depository institutions in this State to conduct voluntary internal reviews and audits of their operations, practices and procedures for the purpose of discovering and correcting any operations, practices or procedures which do not comply with applicable law or regulation or which do not comply with recognized industry standards or with the institution's own standards and for the purpose of preventing continuing and more serious violations. 1[Since the primary goal of enforcement policies is to promote compliance, not to punish the violator, a] However, if studies and reports beyond those legally required are available to third parties and potentially can result in liabilities and penalties to the institution, the institution is discouraged from making these additional efforts. A1 legal structure that promotes self-policing programs can achieve improved compliance effectively at less cost to the State and to the depository institutions. Voluntary compliance review, when properly conducted and implemented, results not only in better compliance with law, but in the adoption of procedures and policies by the depository institutions that exceed minimum legal requirements, and that save money by benefiting customers, lowering costs and reducing potential liabilities.
The Legislature therefore determines that it is the public policy of the State to 1[fashion an overall statutory and regulatory scheme, by the use of incentives and the elimination of disincentives, to]1 encourage depository institutions to participate in voluntary compliance reviews and corrective action programs 1[and that it is appropriate that a safe harbor from civil actions be established for violations discovered as a result of a voluntary compliance review] by protecting the results of voluntary compliance reviews from third parties. This privilege is intended to apply only to efforts beyond the normal processing of customer transactions of the institution, to protect reports newly created for the purpose of testing and monitoring compliance, which otherwise might not be undertaken. Information required to be maintained pursuant to any federal or State law or regulation or in the normal processing of customer transactions will not become privileged just because it is utilized or incorporated in a voluntary compliance review report1.
2. As used in this act:
"Affiliate" shall have the meaning given it pursuant to section 2 of the federal "Bank Holding Company Act of 1956," 12 U.S.C. §1841.
"Department" means the Department of Banking and Insurance.
"Depository institution" means a state or federally chartered bank, savings bank, savings and loan association or credit union that is authorized to maintain deposit or share accounts.
"Enforcement action" means a criminal investigation or prosecution, or an administrative proceeding or order by a governmental unit or authority which is intended to ensure the safe and sound operation of a depository institution.
"Voluntary compliance review" means review, 1project, testing program,1 assessment, audit or evaluation instituted by the governing body of the depository institution or an affiliate of the depository institution 1to collect information or prepare analyses1 , not required by statute or regulation 1and which would not be collected, maintained or prepared in the normal processing of customer transactions1, of the transactions, activities, records or policies of the depository institution for the purposes of identifying and correcting procedural and operational problems of compliance with applicable laws and regulations, including without limitation, safe, sound and fair lending practices, financial reporting to federal and state regulatory agencies, compliance with all applicable state and federal laws and regulatory requirements, and compliance with industry standards of due care.
"Voluntary compliance review report" means any document or documents prepared or assembled by any person or group of persons, committee or entity conducting a voluntary compliance review, including without limitation, supporting information and documents such as notes, records of observations, findings, conclusions, drafts, memoranda, drawings, photographs, charts, graphs and surveys, provided, however, that the documents and supporting information are collected or developed for the purpose of and in the course of a voluntary compliance review.
3. A voluntary compliance review report shall be privileged and neither it nor its existence shall be discoverable or admissible as evidence in any legal action or administrative proceeding of any nature involving the depository institution or an affiliate of the depository institution, except as provided in section 5 or 6 of this act.
4. Persons involved in the preparation of a voluntary compliance review report shall not be required to give answers to any questions or provide testimony regarding the existence, contents or conclusions of any voluntary compliance review report, except as provided in section 5 or 6 of this act.
5. a. The provisions of section 3 and 4 of this act shall not apply if:
(1) an enforcement action is taken, that enforcement action is contested, and a court of competent jurisdiction, by order in accordance with the rules of discovery set forth in the Rules Governing the Courts of the State of New Jersey, requires disclosure of materials and documents pertaining to that enforcement action;
(2) there is a statutory requirement that the violation identified or discovered as a result of the voluntary compliance review be reported.
b. The disclosure authorized under paragraphs (1) and (2) of subsection a. of this section shall apply only to those sections and portions of the voluntary compliance review report that pertain to the specific violation which is the subject of the enforcement action. All other sections and portions of the voluntary compliance review report shall remain privileged.
c. If there is a dispute concerning the sections or portions of the voluntary compliance review report subject to disclosure, a court of competent jurisdiction, upon petition of either party, shall conduct an in camera review of those sections or portions subject to dispute.
6. 1[The] Materials described in this section shall not become privileged pursuant to the1 provisions of sections 3 and 4 of this act 1[shall not extend to] because they are utilized or incorporated in a voluntary compliance review report1:
a. Documents, communications, data, reports or other information required to be collected, developed, maintained, reported or made available to a regulatory agency pursuant to any federal or State law, regulation, permit or order 1or in the normal processing of customer transactions1.
b. Information obtained by observation, sampling or monitoring by any regulatory agency.
c. Information obtained from a source independent of the voluntary compliance review.
1d. Information exchanged by and among the department and other appropriate regulators pursuant to an agreement between or among the regulatory agencies; provided, however, that notwithstanding this permitted exchange of information by the regulatory agencies, sections 3 and 4 of this act shall continue to apply with respect to a person who is not a regulatory agency.1
7. No person shall use any information privileged pursuant to this act to discover any other information and any information so discovered shall be inadmissible in any action or proceeding. If a court or an administrative law judge determines that any information is not privileged, it shall by the entry of appropriate protective orders ensure that information is disclosed only to the extent required for the proper conduct of the subject action or proceeding.
8. Nothing in this act shall limit, waive or abrogate the scope or nature of any statutory or common law privilege, including, without limitation, the work product doctrine and the attorney-client privilege.
9. No regulatory agency shall adopt a rule for the purpose of circumventing the privilege established in this act by requiring disclosure of a voluntary compliance review report.
10. 1[Whenever a person responsible for a violation of a law or regulation, which violation is discovered as a result of a voluntary compliance review, voluntarily discloses the violation to the department or other appropriate regulatory agency, neither the department nor the other appropriate agency shall impose a criminal, civil or civil administrative penalty for the violation, provided that the person responsible for the violation discloses the violation within 60 days of completion of the voluntary compliance review report, and provided that the person responsible for the violation demonstrates, and the department determines, that the violation is not the result of knowing, purposeful, reckless or criminally negligent conduct.] If a depository institution voluntarily discloses information it obtained from a voluntary compliance review to the department or to another appropriate regulatory agency, that information and the voluntary compliance review which resulted in the information shall remain subject to sections 3 and 4 of this act except that the agency receiving the information may use it with respect to an enforcement action. The regulatory agency, in deciding on the appropriate penalty or sanction for a violation shall consider the disclosure as a mitigating factor if the violation is disclosed within 60 days of completion of the voluntary compliance review and the depository institution responsible for the violation demonstrates and the regulator determines that the violation is not the result of knowing, purposeful, reckless or criminally negligent conduct, and that the institution has made or is making a good-faith effort to prevent similar violations.1
1[11. a. Information contained within a voluntary compliance review report and disclosed to the department or other agency pursuant to section 10 of this act shall be exempt from public disclosure by the department or other agency.
b. No person who discloses information for the purposes of section 10 of this act shall be obligated to disclose whether that information is a portion or section of a voluntary compliance review report or whether a voluntary compliance review report has been performed by the person disclosing that information.]1
1[12.] 11.1 Nothing in this act shall be construed to permit any third party access to any voluntary compliance review report subject to the provisions of this act. For the purpose of this section, "third party" means a person other than a State or local enforcing agency.
1[13.] 12.1 This act shall take effect immediately and shall apply to all voluntary compliance reviews and reports completed on or after that date.
Concerns certain voluntary compliance reviews by depository institutions.