Leopold v. U.S. Department of Justice ( 2021 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
JASON LEOPOLD and BUZZFEED, INC., :
:
Plaintiffs, : Civil Action No.: 19-3192 (RC)
:
v. : Re Document Nos.: 15, 17
:
UNITED STATES DEPARTMENT OF :
JUSTICE, :
:
Defendant. :
MEMORANDUM OPINION
DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT; DENYING PLAINTIFFS’ MOTION
FOR SUMMARY JUDGMENT
I. INTRODUCTION
This case concerns Plaintiffs’ request pursuant to the Freedom of Information Act
(“FOIA”) for a report prepared by an independent monitor evaluating a bank’s anti-money
laundering and sanctions compliance policies. In December 2012, the U.S. Attorney’s Office for
the Eastern District of New York (“USAO-EDNY”) and the Money Laundering and Asset
Recovery Section (“MLARS”) of the Department of Justice’s (“DOJ”) Criminal Division filed a
criminal information charging HSBC 1 with violations of the Bank Secrecy Act. The information
charged HSBC with failing to maintain an effective anti-money laundering program, in violation
of 31 U.S.C. § 5318(h), and failing to conduct and maintain adequate due diligence on
correspondent bank accounts held on behalf of foreign entities, in violation of 31 U.S.C. §
5318(i). At the same time, the government filed a deferred prosecution agreement (“DPA”)
1
The Court uses “HSBC” to collectively refer to HSBC Holdings plc, the ultimate parent
company, HSBC North America Holdings, Inc., a subsidiary of HSBC Holdings plc, and HSBC
Bank USA, a subsidiary of HSBC North America Holdings, Inc.
between it and HSBC, which held the prosecution in abeyance for sixty months, along with a
corporate monitor agreement, which specified that an independent monitor would evaluate
HSBC’s efforts toward reform. The independent monitor performed similar work for the United
Kingdom’s Financial Conduct Authority (the “FCA”) and the U.S. Board of Governors of the
Federal Reserve System (the “Federal Reserve”). The independent monitor confidentially issued
a thousand-page First Annual Follow-up Review Report (the “Report”) in January 2015 to
HSBC, the government, the FCA, and the Federal Reserve. Plaintiffs seek the Report’s
disclosure.
The government withheld the Report in full pursuant to FOIA Exemptions 4, 6, 7(A),
7(C), 7(D), and 8. Before the Court are the parties’ motions for summary judgment addressing
the applicability of these exemptions. Plaintiffs argue that the government has failed to meet its
burden of demonstrating the exemptions apply and that the government relies on inadmissible
hearsay. The government maintains that the submitted evidence can be reviewed and that the
evidence justifies withholding the Report in full. Based on review of the record in light of
Plaintiffs’ objections, and for the reasons set forth below, the Court finds that Exemptions 4 and
8 apply to the Report. However, the Court finds that the government has not yet fulfilled its
segregability obligations. Therefore, the Court denies the government’s motion for summary
judgment and denies Plaintiffs’ motion for summary judgment.
II. BACKGROUND
A. HSBC Prosecution
On December 11, 2012, the government filed a criminal information charging HSBC
with failing to maintain an effective anti-money laundering program, in violation of 31 U.S.C. §
5318(h), and failing to conduct and maintain adequate due diligence on correspondent bank
2
accounts held on behalf of foreign entities, in violation of 31 U.S.C. § 5318(i). See United States
v. HSBC Bank USA, N.A., No. 12-CR-763, 2013 WL 3306161, at *1 (E.D.N.Y. July 1, 2013).
The information also charged HSBC with violations of the International Emergency Economic
Powers Act and the Trading with the Enemy Act. Id. Alongside the information, the
government filed a DPA and a corporate compliance monitor agreement. Id.; see also DPA,
United States v. HSBC Bank USA, N.A., No. 12-CR-763 (E.D.N.Y. Dec. 11, 2012), ECF No. 3-2;
Corporate Compliance Monitor (“Monitor Agreement”), United States v. HSBC Bank USA, N.A.,
No. 12-CR-763 (E.D.N.Y. Dec. 11, 2012), ECF No. 3-4. 2 Judge Gleeson accepted the
government’s submissions and “retain[ed] authority to ensure that the implementation of the
DPA remains within the bounds of lawfulness.” HSBC Bank, 2013 WL 3306161, at *11.
Pursuant to the DPA, HSBC admitted responsibility for the charges and agreed to
enhance its corporate anti-money laundering policies in exchange for the government’s
agreement to defer prosecution for five years, at which point the government would seek
dismissal as long as HSBC complied with the stated conditions. See DPA ¶¶ 3, 5, 14–15. HSBC
also agreed to have an independent monitor evaluate “the effectiveness of the internal controls,
policies and procedures of [HSBC] . . . as they relate to HSBC[’s] ongoing compliance with the
Bank Secrecy Act, International Emergency Economic Powers Act, Trading with the Enemy Act
and other applicable anti-money laundering laws.” Monitor Agreement ¶ 1. The Monitor
Agreement broadly provides for the independent monitor’s “access to all information,
documents, records, facilities and/or employees, as reasonably required by the Monitor,” id. ¶ 2,
2
The Court takes judicial notice of both the DPA and the Monitor Agreement as records
of a related proceeding in another court. See, e.g., Dupree v. Jefferson, 666 F.2d 606, 608 n.1
(D.C. Cir. 1981) (taking judicial notice of record in related action “pursuant to [its] authority to
judicially notice related proceedings in other courts” (citations omitted)).
3
limited only by the attorney-client privilege or work-product doctrine, id. ¶ 2(b). The agreement
further calls for preparation of annual reviews and reports detailing the findings of the
independent monitor and proposing recommendations to improve the effectiveness of HSBC’s
compliance programs. Id. ¶¶ 3–4. The agreement requires the independent monitor to provide
the reports “to the Board of Directors of HSBC Holdings and contemporaneously transmit copies
to [MLARS], the [Federal Reserve], and the [FCA].” Id. ¶ 4. The Monitor Agreement also
stated that the reports “will likely include proprietary, financial, confidential, and competitive
business information” and that “public disclosure of the reports could discourage cooperation,
impede pending or potential government investigations.” Id. ¶ 9. As such, the agreement
indicated that “the reports and the contents thereof are intended to remain and shall remain non-
public,” unless the parties agreed otherwise, or the government determined that the law required
disclosure. Id.
By the terms of the DPA and Monitor Agreement, Michael Cherkasky was selected to
serve as the independent monitor. Gov’t Statement of Undisputed Material Facts (“Gov’t
Statement of Facts”) ¶ 6, ECF No. 15-2; Pls.’ Resp. to Gov’t Statement of Facts ¶ 6, ECF No.
17-3; Kessler Decl. Ex. A at 15–17, Aff. of Michael G. Cherkasky (“Cherkasky Aff.”) ¶ 2, ECF
No. 15-8. 3 Mr. Cherkasky also served as an independent consultant pursuant to a related cease
and desist order issued by the Federal Reserve against HSBC that also charged the bank with
violating money laundering and sanctions laws. Cherkasky Aff. ¶ 2.
3
As explained below, the Court considers the substance of Mr. Cherkasky’s affidavit
despite Plaintiffs’ hearsay objections.
4
B. The Report
In January 2015, Mr. Cherkasky issued the Report at issue in this case. Id. ¶ 4. The
Report sets forth his “findings and assessment” of HSBC’s anti-money laundering and sanctions
compliance program and details HSBC’s “progress over the course of the preceding year in
improving its [anti-money laundering] and sanctions compliance program.” Id. Mr. Cherkasky
based the Report “on independent testing conducted by [himself] and by the [anti-money
laundering] and sanctions compliance professionals who supported [him] in [his] role as
Monitor.” Id. As part of his role in preparing the Report, and other reports under the Monitor
Agreement, Mr. Cherkasky worked with regulators around the world to gain access to
“confidential client information” under the “presumption of confidentiality.” Id. ¶ 9. Mr.
Cherkasky also relied “on full, open, and candid cooperation from employees at all levels of
[HSBC].” Id. ¶ 11. The Report “identifies significant, current deficiencies in [HSBC’s] [anti-
money laundering] and sanctions compliance program.” Id. ¶ 12.
The Report is further described in a letter penned by HSBC’s counsel, Benjamin Naftalis.
See Naftalis Decl. Ex. A, ECF No. 20-2. Mr. Naftalis states that the Report documents
“extensive findings in relation to HSBC’s anti-money laundering and sanctions compliance
around the world” and “contains the Monitor’s analysis of confidential client information.” Id. at
3. He states that “HSBC provided this sensitive banking information to the Monitor based on the
express assurance that this information would remain confidential.” Id. Mr. Naftalis says that
the Report “is no different from bank supervisory and examination reports prepared by financial
regulators to supervise compliance and assess potential weaknesses.” Id. Furthermore, the
“Report details HSBC’s practices with respect to investigating and filing suspicious activity
5
reports” and “also provides extensive detail about HSBC’s sensitive proprietary information used
in combatting financial crime.” Id.
C. Judge Gleeson’s Order and Second Circuit Opinion
In January 2016, Judge Gleeson considered a motion by a third party to unseal the
Report. See United States v. HSBC Bank USA, N.A., No. 12-CR-763, 2016 WL 347670(E.D.N.Y. Jan. 28, 2016), rev’d, 863 F.3d 125 (2d Cir. 2017). Because he retained jurisdiction
over the case and he believed he would eventually need to decide whether dismissal is
appropriate, Judge Gleeson determined that the Report “is [] directly relevant to [his] judicial
function, and as a result falls squarely within the definition of a judicial document.” Id. at 4. He
concluded that the Report was subject to a First Amendment right of access and thus should be
released with redactions. Id. at 4–7.
Judge Gleeson considered four interests advanced by the government and HSBC in
keeping the Report sealed. First, he considered whether public release would create a “potential
chilling effect” among HSBC employees that would undermine Mr. Cherkasky’s work. Id. at 5.
He concluded, however, that this concern could be addressed by redacting identifying
information about HSBC employees. Id. Second, he considered the argument that release of the
Report would give criminals a “road map” to exploit weaknesses in HSBC’s compliance
programs but found that “much of the information is generalized or would likely be otherwise
unhelpful to a would-be money launderer” and that any potential issues could also be addressed
with redactions. Id. at 6. Third, Judge Gleeson found that public release of the Report would not
negatively impact the government’s ability to use independent monitors in future cases. See id.Finally, Judge Gleeson determined that Mr. Cherkasky’s relationship with foreign regulators
could be adequately protected with redactions and by keeping a number of the Report’s
6
appendices under seal. Id. Judge Gleeson concluded that the Report contained information that
the public had a right to see and ordered the parties to submit proposed redactions. See id. at 6–
7. Judge Gleeson weighed the appropriateness of the proposed redactions and determined which
should apply, but he kept the entire Report under seal pending appellate review. See United
States v. HSBC Bank USA, N.A., No. 12-CR-763 (E.D.N.Y. Mar. 9, 2016), ECF No. 70. He
determined that all the redactions proposed by the government appropriately applied but found
“HSBC’s proposed redactions to be over-inclusive,” id. at 2, specifically the proposals relating
to commercially sensitive or proprietary bank information, see id. at 3.
The government appealed Judge Gleeson’s ruling and the Second Circuit reversed. See
United States v. HSBC Bank USA, N.A., 863 F.3d 125 (2d Cir. 2017). The Second Circuit
determined that the Report is not a judicial document subject to an order to unseal. Id. at 142.
The Second Circuit found that the district court “has no freestanding supervisory power to
monitor the implementation of a DPA,” id. at 137, and that the Report would not necessarily be
relevant in resolving a Rule 48(a) motion to dismiss the information at the end of the DPA’s
term, id. at 141. The court did not address Judge Gleeson’s analysis of the purported reasons to
keep the Report under seal. Finally, in a footnote, the court stated that “‘[t]he appropriate
device’ for obtaining executive records ‘is a Freedom of Information Act request addressed to
the relevant agency.’” Id. at 142 n.7 (quoting United States v. El-Sayegh, 131 F.3d 158, 163
(D.C. Cir. 1997)). The court “offer[ed] no view on whether any of FOIA's exemptions would
apply.” Id.D. The Present Case
In July 2019, Plaintiffs submitted a FOIA request with the Executive Office of the United
States Attorneys (“EOUSA”) seeking the Report. Gov’t Statement of Facts ¶ 14; Pls.’ Resp. to
7
Gov’t Statement of Facts ¶ 14; see also Compl. Ex. A, ECF No. 1-1. The USAO-EDNY
conducted a search for responsive records and located the Report. Gov’t Statement of Facts ¶
17; Pls.’ Resp. to Gov’t Statement of Facts ¶ 17. 4 The government informed Plaintiffs that the
Report was subject to withholding under FOIA Exemptions 4, 6, 7(A), 7(C), 7(D), and 8. Gov’t
Statement of Facts ¶ 18; Pls.’ Resp. to Gov’t Statement of Facts ¶ 18. Plaintiffs then filed suit to
challenge the government’s claim of exemptions. See Compl., ECF No. 1. The parties have
each moved for summary judgment. See Gov’t Mem. Supp. Mot. Summ. J. (“Gov’t Mem.”),
ECF No. 15-1; Pls.’ Mem. Supp. Mot. Summ. J. (“Pls.’ Mem.”), ECF No. 17-1.
In support of its motion, the government filed four declarations. See Jolly Decl., ECF
No. 15-3; Kessler Decl., ECF No. 15-7; Moeser Decl., ECF No. 10; Naftalis Decl., ECF No. 20-
2. Attached to the declaration of David Kessler are a number of letters that the government
submitted for consideration by Judge Gleeson. See Kessler Decl. Ex. A, ECF No. 15-8. The
declarations and letters speak to the applicability of the various FOIA exemptions claimed by the
government. The parties’ motions for summary judgment are fully briefed and ripe for decision.
III. LEGAL STANDARD
The purpose of FOIA “is to ensure an informed citizenry, vital to the functioning of a
democratic society, needed to check against corruption and to hold the governors accountable to
the governed.” NLRB. v. Robbins Tire & Rubber Co., 437 U.S. 214, 242 (1978). FOIA requests
thus provide individuals with the opportunity to obtain access to federal agency records, except
to the extent that such records are protected from public disclosure by one of nine exemptions.
See 5 U.S.C. § 552(a)(3), (a)(4)(B), (b), (c); see also NLRB v. Sears, Roebuck & Co., 421 U.S.
4Because the government successfully located the requested Report, there is no dispute
about the adequacy of the government’s search for records.
8
132, 136 (1975); Judicial Watch, Inc. v. U.S. Dep’t of Def., 847 F.3d 735, 738 (D.C. Cir. 2017).
Rule 56 of the Federal Rules of Civil Procedure provides that summary judgment shall be
granted “if the movant shows that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a); see, e.g., Alyeska
Pipeline Serv. Co. v. U.S. EPA, 856 F.2d 309, 314 (D.C. Cir. 1988) (concluding that
unsubstantiated claims of factual controversies cannot defeat a summary judgment decision in a
FOIA case). FOIA cases are typically resolved through summary judgment because in FOIA
cases there is rarely any factual dispute, instead, these cases center on how the law is applied to
the records at issue. See Pinson v. U.S. Dep’t of Justice, 236 F. Supp. 3d 338, 352 (D.D.C. 2017)
(quoting Defs. of Wildlife v. U.S. Border Patrol, 623 F. Supp. 2d 83, 87 (D.D.C. 2009)) (“FOIA
cases typically and appropriately are decided on motions for summary judgment.”); see also
Gray v. Southwest Airlines Inc., 33 Fed. Appx. 865, 868 n.1 (9th Cir. 2002) (citing Schiffer v.
FBI, 78 F.3d 1405, 1409 (9th Cir. 1996)). Accordingly, in a FOIA suit, summary judgment is
appropriate “if no material facts are genuinely in dispute and the agency demonstrates ‘that its
search for responsive records was adequate, that any exemptions claimed actually apply, and that
any reasonably segregable non-exempt parts of records have been disclosed after redaction of
exempt information.’” Prop. of the People, Inc. v. Off. of Mgmt. and Budget, 330 F. Supp. 3d
373, 380 (D.D.C. 2018) (quoting Competitive Enter. Inst. v. EPA, 232 F. Supp. 3d 172, 181
(D.D.C. 2017)).
In a FOIA suit, the court shall determine a motion for summary judgment de novo. See 5
U.S.C. § 552(a)(4)(B); Life Extension Found., Inc. v. Internal Revenue Serv., 915 F. Supp. 2d
174, 179 (D.D.C. 2013). Therefore, when assessing non-disclosure decisions in a FOIA action,
the court may solely rely on “affidavits or declarations if they describe ‘the justifications for
9
nondisclosure with reasonably specific detail, demonstrate that the information withheld
logically falls within the claimed exemption, and are not controverted by either contrary
evidence in the record nor by evidence of agency bad faith.’” Life Extension Found., 915 F.
Supp. 2d at 179 (quoting Mil. Audit Project v. Casey, 656 F.2d 724, 738 (D.C. Cir. 1981)); see
also Pronin v. Fed. Bureau of Prisons, No. 17-cv-1807, 2019 WL 1003598, at *3 (D.D.C. Mar.
1, 2019). “Ultimately, an agency’s justification for invoking a FOIA exemption is sufficient if it
appears ‘logical’ or ‘plausible.’” Scudder v. Cent. Intel. Agency, 254 F. Supp. 3d 135, 140
(D.D.C. 2017) (quoting Judicial Watch, Inc. v. U.S. Dep’t of Def., 715 F.3d 937, 941 (D.C. Cir.
2013) (internal citations omitted)). However, exemptions are to be “narrowly construed.”
Bloche v. Dep’t of Defense, 370 F. Supp. 3d 40, 50 (D.D.C. 2019) (quoting Morley v. Cent. Intel.
Agency, 508 F.3d 1108, 1115 (D.C. Cir. 2007)). Accordingly, an agency must do more than
provide “summary statements that merely reiterate legal standards or offer ‘far-ranging category
definitions for information.’” Citizens for Resp. & Ethics in Wash. v. U.S. Dep’t of Justice, 955
F. Supp. 2d 4, 13 (D.D.C 2013) (quoting King v. U.S. Dep’t of Justice, 830 F.2d 210, 221 (D.C.
Cir. 1987)).
IV. ANALYSIS
The government relies on a number of FOIA exemptions to withhold the Report in full.
Because Exemption 4 and Exemption 8 have the broadest sweep, the Court limits its discussion
to those two exemptions. Before turning to the claimed exemptions, the Court considers
Plaintiffs’ claim that the government primarily relies on inadmissible hearsay to establish the
applicability of the FOIA exemptions. After discussing Exemptions 4 and 8, the Court concludes
by discussing segregability.
10
A. Hearsay Objections
Hearsay, defined as a statement not made while testifying in court offered “to prove the
truth of the matter asserted in the statement,” Fed. R. Evid. 801(c), is generally not admissible at
trial, Fed. R. Evid. 802. The Federal Rules of Evidence outline a number of exceptions to the
hearsay rule. See Fed. R. Evid. 803. In addition to the enumerated exceptions, hearsay that “is
supported by sufficient guarantees of trustworthiness” and “is more probative on the point for
which it is offered than any other evidence that the proponent can obtain through reasonable
efforts” is admissible under the residual hearsay exception. Fed. R. Evid. 807. Despite the
general inadmissibility of hearsay, “courts may consider hearsay in FOIA cases when assessing
the adequacy of the agency’s search” and “FOIA declarants may rely on information obtained
through inter-agency consultation.” Humane Soc’y of United States v. Animal & Plant Health
Inspection Serv., 386 F. Supp. 3d 34, 44 (D.D.C. 2019). Furthermore, “it is well settled that
‘FOIA declarants may include statements in their declarations based on information they have
obtained in the course of their official duties.’” Hainey v. U.S. Dep’t of the Interior, 925 F.
Supp. 2d 34, 41 (D.D.C. 2013) (quoting Barnard v. Dep’t of Homeland Sec., 598 F. Supp. 2d 1,
19 (D.D.C. 2009)). However, “it is a different matter to rely on out-of-court statements from
private third-parties to justify an agency’s withholding.” Humane Soc’y, 386 F. Supp. 3d at 44.
Nevertheless, when considering a motion for summary judgment under Rule 56, parties may rely
on “affidavits or declarations” to establish that a fact cannot be genuinely disputed. Fed. R. Civ.
P. 56(c)(1)(A); see also Smith v. Holland LP, No. 16-cv-2242, 2019 WL 1228079, at *3 (D.D.C.
Mar. 15, 2019) (allowing consideration of deposition testimony taken pursuant to a different
case).
11
Plaintiffs argue that “the facts relied on by the government to establish its exemption
claims overwhelmingly rely on letters written by lawyers for HSBC.” Pls.’ Mem. at 3. 5
Plaintiffs contend that because these “unsworn letters” are “out of court statements offered for
the truth of the matter asserted,” and because the government does not identify an applicable
hearsay exception, the Court should not consider the evidence. Id. The government responds by
first arguing that the letters are not hearsay because they merely consist of the objections of the
various submitters and, thus, constitute “performative utterances.” Gov’t Reply at 2, ECF No.
20. The government then argues that if the letters are hearsay, the Court should apply the
residual hearsay exception. Id. at 3–5. The government contends that because Plaintiffs offer no
reason to call into question the reliability of the evidence and the circumstances suggest
trustworthiness, any hearsay statements contained in the letters should be admitted. Id. at 3
(citing Fed. R. Evid. 807(a)). The government also argues that the Court can take judicial notice
of the letters because they appear on the public docket in the case before Judge Gleeson. Id. at 4.
Finally, the government opted to submit an additional declaration, signed by counsel for HSBC,
that attests to the accuracy of the statements contained in one of the contested letters. See
Naftalis Decl.
The Court first reiterates that declarations submitted by agency personnel are
appropriately considered on a motion for summary judgment in a FOIA case, as long as they
satisfy the personal knowledge requirement of Rule 56. The declaration of Vinay J. Jolly, an
Attorney Advisor with the EOUSA, attests that the contents of the declaration “are based upon
[his] review of the official files and records of EOUSA, [his] own personal knowledge, and
5
The Court understands Plaintiffs to also object to letters written by the Federal Reserve,
the FCA, the Hong Kong Monetary Authority, and Bank Negara Malaysia. See Kessler Decl.
Ex. A.
12
information acquired by [him] through performance of [his] official duties.” Jolly Decl. ¶ 2.
The declaration of Margaret A. Moeser, the Deputy Chief of the Bank Integrity Unit (“BIU”) of
MLARS, states:
I make this declaration based on my experience in the BIU, including working with
and selecting monitors, investigating and prosecuting criminal cases, reviewing
documents obtained during the DOJ’s investigation of HSBC, conversations with
other attorneys at the Department, including attorneys who were involved with the
monitor imposed as part of HSBC’s deferred prosecution agreement with the
Department, and my review of court filings and information from the monitorship
related to the Department’s deferred prosecution agreement with HSBC.
Moeser Decl. ¶ 2. The declaration of Benjamin Naftalis, although not a declaration of agency
personnel, states, “under penalty of perjury,” that he represents HSBC, is a “member in good
standing of the bar of the State of New York,” and that “the contents of [the attached July 14,
2020 letter] are accurate and correct.” Naftalis Decl. ¶¶ 1–2. Based on these statements, the
Court is satisfied that the Jolly Declaration, the Moeser Declaration, and the Naftalis
Declaration 6 meet the requirement under Rule 56 that a declaration “must be made on personal
knowledge.” Fed. R. Civ. P. 56(c)(4). 7
The Court also will consider the affidavit of Mr. Cherkasky, which appears on the public
docket before Judge Gleeson and which the government submitted in support of their motion.
See Cherkasky Aff. Plaintiffs do not articulate why Mr. Cherkasky’s affidavit, made upon
6
The declaration submitted by David K. Kessler contains no such assurance that the
statements made are based on personal knowledge. In fact, after describing the search for the
Report, his declaration goes on to quote extensively from the attached letters submitted in the
underlying criminal case. See Kessler Decl. ¶¶ 4–7. For that reason, the Court is doubtful that
the Kessler Declaration satisfies Rule 56(c)(4). However, because the adequacy of the search is
not at issue and the factual assertions made in his declaration are established through the other
declarations, this deficiency does not affect the outcome of the case.
7
That the declarations satisfy the personal knowledge requirement does not necessarily
mean that they do not include inadmissible hearsay. The Court does not consider the portions of
the declarations that merely quote from the letters the Court has determined are inadmissible.
13
“being duly sworn,” id., cannot properly be considered in support of the government’s motion.
Mr. Cherkasky’s affidavit confirms that he has “served as the independent corporate compliance
monitor” under the DPA and that he authored the Report that “set forth [his] findings and
assessment of the then-current state of HSBC[’s]” compliance programs. Id. ¶¶ 1, 3. Plaintiffs’
blanket objection to the “unsworn letters” submitted by the government plainly does not apply to
Mr. Cherkasky’s sworn affidavit. See Pls.’ Mem. at 3. The Court finds that the affidavit is
“made on personal knowledge,” Fed. R. C. P. 56(c)(4), and will therefore consider it when
evaluating the government’s claimed exemptions.
The other materials, which include the letters submitted in the case before Judge Gleeson
by DOJ, the Federal Reserve, and FCA, will not be considered. See Kessler Decl. Ex. A. Each
letter is a statement made out of court and the government has not established the applicability of
any hearsay exception. See Gleklen v. Democratic Cong. Campaign Comm., Inc., 199 F.3d
1365, 1369 (D.C. Cir. 2000) (refusing to consider inadmissible hearsay on motion for summary
judgment). While the letters may contain certain guarantees of trustworthiness, given that they
were submitted by government agencies for a criminal case pending before a federal judge, the
government has not established that the letters are “more probative on the point for which [they
are] offered than any other evidence that the [government] can obtain through reasonable
efforts,” as required by the residual hearsay exception. Fed. R. Evid. 807(a)(2). The government
could have, and probably should have, obtained sworn declarations from these agencies to
support the claimed exemptions—such efforts would have been reasonable. The Court also fails
to understand the relevance of the letters if they are not offered for the truth of the matter
asserted. The government must prove the applicability of its claimed exemptions with facts—
performative utterances, which the government acknowledges have no truth value, see Gov’t
14
Mem. at 2, cannot help the government’s case. Moreover, the fact that the letters appear on a
public docket does not automatically convert them into admissible evidence or into facts subject
to judicial notice. Courts take judicial notice of facts capable of accurate and ready
determination that are “straightforward and easy to ascertain.” Weinstein v. Islamic Republic of
Iran, 175 F. Supp. 2d 13, 16 (D.D.C. 2001). The facts contained in the letters are not of such a
character. Accordingly, the Court will only consider the Jolly Declaration, the Moeser
Declaration, the Naftalis Declaration, and the Cherkasky Affidavit to evaluate the applicability of
the claimed exemptions.
B. Exemption 4
FOIA Exemption 4 exempts from disclosure “commercial or financial information
obtained from a person” that is “privileged or confidential.” 5 U.S.C. § 552(b)(4). To properly
apply this exemption, the agency must establish that the records are “(1) commercial or financial,
(2) obtained from a person, and (3) privileged or confidential.” Pub. Citizen Health Rsch. Grp.
v. FDA, 704 F.2d 1280, 1290 (D.C. Cir. 1983). The terms “‘commercial’ and ‘financial’ in the
exemption should be given their ordinary meanings.” Id. Information is confidential for the
purpose of Exemption 4 “when it is ‘both customarily and actually treated as private by its
owner,’ and perhaps as well, ‘provided to the government under an assurance of privacy.’” Ctr.
for Investigative Reporting v. U.S. Customs & Border Prot., 436 F. Supp. 3d 90, 109 (D.D.C.
2019) (quoting Food Mktg. Inst. v. Argus Leader Media, 139 S. Ct. 2356, 2366 (2019)). 8 Upon
8
The court in Investigative Reporting determined, and this Court agrees, that after Food
Marketing, the framework provided by the D.C. Circuit’s opinion in Critical Mass Energy
Project determines whether commercial and financial information is confidential regardless of
whether it is submitted voluntarily or involuntarily. Investigative Reporting, 436 F. Supp. 3d at
109 (citing Critical Mass Energy Project v. Nuclear Regul. Comm’n, 975 F.2d 871, 879–80
(D.C. Cir. 1992) (en banc)).
15
showing that the elements of Exemption 4 apply, the agency must also “explain how disclosing,
in whole or in part, the specific information withheld under Exemption 4 would harm an interest
protected by this exemption, such as causing ‘genuine harm to [the third party’s] economic or
business interests.’” Id. at 113 (quoting Food Marketing, 139 S. Ct. at 2369).
1. Application of Exemption 4
The government argues that the Report contains sensitive commercial and financial
information that was provided under express assurances of confidentiality. Gov’t Mem. at 10–
11. Citing both Investigative Reporting and Food Marketing, the government argues that the
applicability of Exemption 4 is clearly established in light of the government’s declarations and
the letter penned by Mr. Naftalis. See id. at 10–13. Plaintiffs point to Judge Gleeson’s decision
to suggest that the confidential information could be protected through redactions and also
argues that the government has failed to establish with specificity the foreseeable harm that
would result from disclosure. Pls.’ Mem. at 4–5. Plaintiffs, however, agree that if the submitted
materials are considered, they do “indicate that the [R]eport includes information that HSBC
customarily keeps private and that the government told HSBC that it would keep confidential.”
Id. at 4.
The Court finds that Exemption 4 applies to the Report. The Naftalis Declaration
establishes the elements of Exemption 4. The Report “contains extensive proprietary, financial,
and competitive business information about HSBC and its customers.” Naftalis Decl. Ex. A at 1.
The “proprietary, confidential, and competitive business information” included in the Report
“has traditionally been kept secret for the benefit of banks, customers and regulators alike.” Id.
at 2. The Report contains detailed “findings in relation to HSBC’s anti-money laundering and
sanctions compliance around the world.” Id. at 3. Importantly, “HSBC provided this sensitive
16
banking information to the Monitor based on the express assurance that this information would
remain confidential.” Id. Indeed, the Monitor Agreement stated that the reports prepared by the
monitor “will likely include proprietary, financial, confidential, and competitive business
information” and that “the reports and the contents thereof are intended to remain and shall
remain non-public.” Monitor Agreement ¶ 9. The Court finds that the government has
established that the Report contains financial and commercial information that is “customarily
and actually treated as private” and that the information was provided to the government under
the assurance of confidentiality. Investigative Reporting, 436 F. Supp. 3d at 112 (quoting Food
Marketing, 139 S. Ct. at 2369).
With respect to what harm would result from disclosure, the Naftalis Declaration states
that “[t]he Report also provides extensive detail about HSBC’s sensitive proprietary information
used in combatting financial crime” and “information about the Bank’s technology
infrastructure, which is used to identify and analyze financial crime as well as the Bank’s
bespoke policies and procedures.” Naftalis Decl. Ex. A at 3–4. “The release of this information
could disadvantage HSBC and provide an unfair advantage to its competitors.” Id. at 4.
Furthermore, the submitted materials explain how public release of the confidential information
would dissuade HSBC and others from cooperating with the government in the future. See id.;
Cherkasky Aff. ¶ 11 (“releasing this report publicly would have a chilling effect on [HSBC]
employees, and the level of cooperation and candor I would receive could decrease
substantially”); Moeser Decl. ¶ 11 (“the release of such information would likely deter other
[financial institutions] from entering into DPAs including monitors in the future, thus
jeopardizing an important tool that DOJ uses”). Plaintiffs argue that this language is not specific
enough and point to Investigative Reporting as requiring more with respect to foreseeable harm.
17
But the court in Investigative Reporting explicitly recognized that Exemption 4 protects against
the kind of harm described in the government’s submission. See 436 F. Supp. 3d at 113 (finding
that to establish foreseeable harm, the government “must explain how disclosing, in whole or in
part, the specific information withheld under Exemption 4 would harm an interest protected by
this exemption, such as by causing genuine harm to [the submitter’s] economic or business
interests, and thereby dissuading others from submitting similar information to the government”
(internal quotation and citation omitted)). Accordingly, the Court finds that the government has
established the elements of Exemption 4.9
C. Exemption 8
Exemption 8 applies to matters that are “contained in or related to examination,
operating, or condition reports prepared by, on behalf of, or for the use of an agency responsible
for the regulation of financial institutions.” 5 U.S.C. § 552(b)(8). Given the statutory language,
the D.C. Circuit “has explained time and again that Exemption 8’s scope is ‘particularly broad.’”
Pub. Invs. Arb. Bar Ass’n v. S.E.C., 771 F.3d 1, 4 (D.C. Cir. 2014) (quoting Consumers Union of
United States, Inc. v. Heimann, 589 F.2d 531, 533 (D.C. Cir. 1978)). In particular, “the ‘related
to’ language casts a wide net of non-disclosure over any documents that are logically connected
to an ‘examination, operating, or condition report[].” Pub. Invs. Arb. Bar Ass’n v. U.S. S.E.C.,
930 F. Supp. 2d 55, 62–63 (D.D.C. 2013), aff’d sub nom. Pub. Invs. Arb., 771 F.3d 1.
“Exemption 8 extends to any documents received by a financial regulatory agency in the course
of exercising its ‘regulatory responsibilities in relation to the financial institutions whose
information has been withheld.’” Id. (quoting McKinley v. FDIC, 744 F. Supp. 2d 128, 144
9
Plaintiffs’ final argument with respect to Exemption 4—that the government’s and
HSBC’s concerns can be adequately addressed through redactions—is addressed below in the
Court’s discussion of segregability.
18
(D.D.C. 2010)). Pursuant to Exemption 8, “examination reports need not pertain to an institution
that is regulated or supervised by the withholding agency.” Pub. Citizen v. Farm Credit Admin.,
938 F.2d 290, 294 (D.C. Cir. 1991). Because through the statutory language “Congress has
intentionally and unambiguously crafted a particularly broad, all-inclusive definition,” the D.C.
Circuit has determined that “it is not [the Court’s] function, even in the FOIA context, to subvert
that effort.” Heimann, 589 F.2d at 533; see also McKinley, 744 F. Supp. 2d at 143 (“Although
generally FOIA exemptions are to be ‘narrowly construed,’ it is well-established that Exemption
8’s scope is ‘particularly broad.’” (citations omitted)).
Beyond the broad statutory language, the D.C. Circuit has identified two legislative
purposes behind Exemption 8. First, “the primary reason for adoption of exemption 8 was to
ensure the security of financial institutions.” Heimann, 585 F.2d at 534. This reason speaks to a
“concern that disclosure of examination, operation, and condition reports containing frank
evaluations of the investigated banks might undermine public confidence and cause unwarranted
runs on banks.” Id. The second legislative purpose of Exemption 8 was to “safeguard the
relationship between the banks and their supervising agencies.” Id. “If the details of the bank
examinations were made freely available to the public and banking competitors, there was
concern that banks would cooperate less than fully with federal authorities.” Id.; see also
Bloomberg, L.P. v. S.E.C., 357 F. Supp. 2d 156, 170 (D.D.C. 2004) (“[T]he purpose of
[Exemption 8] is . . . to ensure that [financial] institutions continue to cooperate with regulatory
agencies without fear that their confidential information will be disclosed.”).
1. Application of Exemption 8
The government argues that the Report “falls squarely within the parameters of
Exemption 8.” Gov’t Mem. at 23. Because the Report details HSBC’s compliance with anti-
19
money laundering and sanctions laws, and the remedial measures suggested by Mr. Cherkasky,
the government claims that it should be covered by Exemption 8. See id. The government also
points out that Mr. Cherkasky “served a similar role for the FCA and Federal Reserve,” two
organizations responsible for regulatory oversight of HSCB. Id. In response, Plaintiffs craft a
textual argument suggesting that in order for Exemption 8 to apply, the government must prove
that the Report was “prepared by, on behalf of, or for the use of” the Federal Reserve. Pls.’
Mem. at 8. Plaintiffs claim that the government’s evidence is too vague and that “the
government is bootstrapping a limited involvement of the Federal Reserve to keep the entire
report secret under Exemption 8.” Id. at 9.
The broad scope of Exemption 8’s text covers the Report. Plaintiffs fail to appreciate the
implications of the “related to” portion of Exemption 8, choosing instead to focus on the second
half of the exemption. See Pls.’ Reply at 7, ECF No. 23. The Court finds that the government’s
submission makes clear that, at the very least, the Report contains information “related to
examination, operating, or condition reports” prepared by, on behalf of, or for the use of the
Federal Reserve. Mr. Cherkasky’s affidavit states that, pursuant to a Federal Reserve cease and
desist order related to the DPA, HSBC “appointed [him] as an Independent Consultant to
perform certain tasks” required by the Federal Reserve’s order. Cherkasky Aff. ¶ 2. The Federal
Reserve’s cease and desist order “concluded that [HSBC] had engaged in conduct that violated
the money laundering and sanctions laws of the U.S.” Id. Corroborating Mr. Cherkasky’s
affidavit, the Naftalis Declaration confirms that HSBC entered into a resolution with the Federal
Reserve at the same time as the DPA. Naftalis Decl. Ex. A at 1; see also Moeser Decl. ¶ 14 (“In
addition to serving as Monitor under the DPA, the Monitor performed a similar role for the
[FCA] and the [Federal Reserve], which were parties to regulatory actions undertaken against
20
HSBC for the same underlying conduct.”). The Naftalis Declaration also states that “the Report
is no different from bank supervisory and examination reports prepared by financial regulators to
supervise compliance and assess potential weaknesses.” Naftalis Decl. Ex. A at 3. Plaintiffs
complain that this evidence is too vague. Pls.’ Mem. at 8. The evidence shows, however, that
Mr. Cherkasky conducted review and oversight of HSBC’s anti-money laundering and sanctions
compliance programs under the DPA and that he performed a similar role for the Federal
Reserve. Even if the government’s evidence can be described as vague, given the broad scope of
Exemption 8, which protects information that is merely related to compliance reports prepared
by regulatory agencies, the Court finds that the government appropriately applied the exemption.
Moreover, the government’s submission shows that the underlying purposes of
Exemption 8 are served by its application here. According to Mr. Cherkasky, the Report
“identifies significant, current deficiencies in HSBC[’s] [anti-money laundering] and sanctions
compliance program.” Cherkasky Aff. ¶ 12. Public disclosure of such deficiencies could
“undermine public confidence” in the bank. Heimann, 585 F.2d at 534. More on point,
however, is the second legislative purpose—to “safeguard the relationship between the banks
and their supervising agencies.” Id. The Moeser Declaration explains that confidentiality is “the
crux of a successful monitorship” because without it, “domestic and foreign [financial
institution] regulators, [financial institution] employees, and others upon whom the monitors rely
may be unwilling to cooperate with the monitor.” Moeser Decl. ¶¶ 9–10. Mr. Cherkasky
maintains that to effectively monitor bank compliance programs, he should have access to
confidential client information. Cherkasky Aff. ¶ 8. Furthermore, bank participation depends on
“full, open, and candid cooperation from employees at all levels of [HSBC].” Id. ¶ 11. Such
cooperation is maintained through confidentiality of communication. The Naftalis Declaration
21
corroborates this evidence by comparing the Report to bank supervisory and examination reports
subject to the bank examination privilege, which “provides a critical safeguard by facilitating
open and candid communications between examiners and regulated organizations about potential
weaknesses and vulnerabilities.” Naftalis Decl. Ex. A at 3. This evidence showing that
regulatory effectiveness would be undermined by public release of the Report also speaks to the
foreseeable harm. See Investigative Reporting, 436 F. Supp. 3d at 113. Accordingly, the Court
finds that the withholding of the Report logically and plausibly falls within the broad textual
scope of Exemption 8 and the legislative purposes identified by the D.C. Circuit.
D. Segregability
FOIA requires an agency invoking an exemption to disclose any reasonably segregable,
non-exempt information. See Prop. of the People, Inc., 330 F. Supp. 3d at 380 (quoting
Competitive Enter. Inst., 232 F. Supp. 3d at 181); see also 5 U.S.C. § 552(b). “To meet its
burden on segregability, a government agency must usually submit a sufficiently detailed
Vaughn Index for each document and an affidavit or declaration stating that it has released all
segregable material.” Bloche, 370 F. Supp. 3d at 55 (internal citations omitted). “Agencies are
entitled to a presumption that they complied with the obligation to disclose reasonably
segregable material,” but the presumption can be overcome by presenting evidence to the
contrary. Sussman v. U.S. Marshals Serv., 494 F.3d 1106, 1116–17 (D.C. Cir. 2007).
The government’s submission 10 contains the following statement on segregability:
The document was evaluated to determine if any information could be segregated
and released. The Report falls within one or more of the exemptions set forth above
and are not segregable without revealing this protected information. The Report,
10
The Naftalis Declaration states that “any possible non-exempt portions [of the Report]
are inextricably intertwined with confidential information and other portions exempt from
disclosure.” Naftalis Decl. Ex. A at 4. This declaration, however, is not one made by a
government employee responsible for making segregability determinations.
22
withheld in its entirety, contained no meaningful portion that could be released
without destroying the integrity of the document or without disclosing third-party
privacy interests.
Jolly Decl. ¶ 26. Plaintiffs point to Judge Gleeson’s opinion as evidence that the privacy
interests implicated under Exemption 4 and the information protected by Exemption 8, in
addition to the information covered by other exemptions, can be adequately protected through
redactions. See Pls.’ Mem. at 4–5, 9. The Court notes, however, that Judge Gleeson did not
evaluate the applicability of any FOIA exemptions or make any finding with respect to
segregability pursuant to FOIA. Nevertheless, the Court appreciates Plaintiffs’ point. The
government’s segregability statement is particularly brief given the length of the Report, Judge
Gleeson’s findings that suggest that many concerns with disclosure could be addressed through
redactions, see HSBC Bank, 2016 WL 347670, at *4–7, and his finding that HSBC’s proposed
redactions regarding commercially sensitive information were over-inclusive, see United States
v. HSBC Bank USA, N.A., No. 12-CR-763 (E.D.N.Y. Mar. 9, 2016), ECF No. 70. As such, in
light of the Court’s findings with respect to Exemptions 4 and 8 and Judge Gleeson’s opinion,
the government shall conduct a line-by-line review of the report to determine whether any
information can be reasonably segregated and released. 11 The government must, at minimum,
provide greater detail on the basis for withholding the specific portions of the Report that Judge
11
Given the nature of the monitorship, which depended on access to confidential
financial and commercial information, and the broad scope of Exemption 8, the Court is unsure
whether any non-exempt information can be reasonably segregated. But the government must
fulfill its “obligation to show with reasonable specificity that a document cannot be further
segregated.” James Madison Project v. Dep’t of Treasury, No. 19-cv-2461, 2020 WL 4698435,
at *6 (D.D.C. Aug. 13, 2020) (citing Armstrong v. Exec. Off. of the President, 97 F.3d 575, 578–
79 (D.C. Cir. 1996)). So far, in light of Plaintiffs’ objections, the government has not fulfilled
that obligation.
23
Gleeson concluded were appropriate for release to the public. This Court may conduct its own in
camera review to assure itself of the basis for such withholding. 12
V. CONCLUSION
For the foregoing reasons, the Defendant’s motion for summary judgment (ECF No. 15)
is DENIED and Plaintiffs’ motion for summary judgment (ECF No. 17) is DENIED. An order
consistent with this Memorandum Opinion is separately and contemporaneously issued.
Dated: January 13, 2021 RUDOLPH CONTRERAS
United States District Judge
12
As noted above, the Court limited its discussion to Exemptions 4 and 8 because of their
broad sweep. That said, when the government conducts the line-by-line review of the Report for
segregable material, it may also rely on the other FOIA Exemptions it had previously asserted
but that the Court did not discuss. But if the government continues to rely on FOIA Exemption
7(A), it must provide the Court with additional information regarding any enforcement
proceedings and the basis for its withholding on those grounds. Such additional information may
be filed ex parte and under seal, as requested by the government, if necessary. See Gov’t Mem.
at 16.
24