`No. 22-842
`
`IN THE
`Supreme Court of the United States
`_____________
`NATIONAL RIFLE ASSOCIATION OF AMERICA,
`Petitioner,
`
`Respondent.
`
`v.
`MARIA VULLO,
`_____________
`On Writ of Certiorari to the United States
`Court of Appeals for the Second Circuit
`_____________
`BRIEF OF AMICUS CURIAE BRADY CENTER
`TO PREVENT GUN VIOLENCE IN SUPPORT
`OF RESPONDENT
`_____________
`Douglas N. Letter
`Timothy C. Hester
`Shira Lauren Feldman
` Counsel of Record
`Joshua Scharff
`COVINGTON & BURLING LLP
`BRADY CENTER TO
`One CityCenter
`PREVENT GUN VIOLENCE
`850 Tenth Street, NW
`840 First Street NE
`Washington, DC 20001
`Suite 400
`thester@cov.com
`Washington, DC 20002
`(202) 662-5324
`
`
`
`Priya S. Leeds
`COVINGTON & BURLING LLP
`415 Mission Street
`Suite 5400
`San Francisco, CA 94105
`Counsel for Amicus Curiae
`
`
`
`
`
`i
`TABLE OF CONTENTS
`
`Page
`TABLE OF AUTHORITIES ...................................... iii
`INTEREST OF AMICUS CURIAE ............................ 1
`INTRODUCTION AND SUMMARY OF
`ARGUMENT ....................................................... 1
`ARGUMENT ............................................................... 3
`I. The Superintendent’s Guidance Stated an
`Established General Principle and Was
`Therefore Not “Coercive.” ................................... 3
`A. Banks and Insurers Are Required by
`Their Regulators to Manage Reputational
`Risk. ................................................................ 4
`B. Banks Are Often Expected to Manage
`Reputational Risk by Considering the
`Reputation of Individual Clients. .................. 7
`C. Across the Economy, Businesses Take
`Account of Reputational Risk in
`Structuring Their Operations. .................... 11
`1. Reputational Risk Is an Important
`Business Consideration. ......................... 11
`2. Businesses Often Make Decisions
`Based on Concerns Over
`Reputational Risk. .................................. 13
`
`
`
`ii
`II. Circumstances Unrelated to Any
`Regulatory Guidance Could Explain
`Decisions by Banks and Insurers to Sever
`Ties with the NRA. ............................................ 17
`CONCLUSION .......................................................... 24
`
`
`
`iii
`TABLE OF AUTHORITIES
`
` Page(s)
`
`Cases
`Ashcroft v. Iqbal,
`556 U.S. 662 (2009) ........................... 2, 17, 22, 23
`Bantam Books, Inc. v. Sullivan,
`372 U.S. 58 (1963) ............................................... 3
`Okwedy v. Molinari,
`333 F.3d 339 (2d Cir. 2003) ................................ 3
`Statutes
`12 U.S.C. § 1831p-1 .................................................. 5
`Regulations
`12 C.F.R.
`§ 1.5(a) ................................................................. 6
`§ 21.21(c)(2) ......................................................... 8
`§ 41.90.................................................................. 9
`§ 222.90 ................................................................ 9
`§ 334.90 ................................................................ 9
`§ 702.304(a)(1) ..................................................... 6
`§ 702.304(b)(2) ..................................................... 6
`§ 717.90 ................................................................ 9
`12 C.F.R. pt. 30, App. D
`§ II.A .................................................................... 5
`§ II.B .................................................................... 5
`
`
`
`iv
`Administrative Decisions & Guidance
`Bd. of Governors of Fed. Rsrv. Sys.,
`Commercial Bank Examination Manual
`§ 4012.1 (Oct. 2023) ............................................ 4
`Fed. Deposit Ins. Corp., Annual Report
`(2020) ................................................................... 5
`In re City Nat’l Bank,
`Enf’t Action No. 2005-16, 2005 WL
`3967711 (O.C.C. Feb. 23, 2005) .................... 8, 10
`In re Merchants Bank of Cal., N.A.,
`Enf’t Action No. 2014-84, 2014 WL
`12834080 (O.C.C. June 26, 2014) ..................... 10
`In re Wachovia Bank, N.A.,
`Enf’t Action No. 2008-27, 2008 WL
`7087237 (O.C.C. Apr. 24, 2008) .......................... 8
`Letter from Nat’l Credit Union Admin. to Fed.
`Credit Union Officials re Risk-Focused
`Examination Program (May 2002) ..................... 5
`Nat’l Ass’n of Ins. Comm’rs, Financial
`Condition Examiners Handbook (2023) ............. 7
`News Release, U.S. Dep’t of Treas., Office of
`the Comptroller of the Currency,
`Categories of Risk (Jan. 4, 1996) ........................ 5
`Off. of Comptroller of the Currency,
`Comptroller’s Handbook: Examination
`Process, Bank Supervision Process,
`Version 1.1 (last updated Sept. 2019) ................ 6
`
`
`
`v
`Off. of the Comptroller of the Currency,
`Comptroller’s Handbook: Examination
`Process, Large Bank Supervision,
`Version 1.2 (last updated Mar. 2022) ............. 6, 7
`Off. of the Comptroller of the Currency,
`Comptroller’s Handbook: Examination
`Process, Community Bank Supervision,
`Version 1.1 (last updated Sept. 2019) ............ 6, 7
`Off. of the Comptroller of the Currency,
`Comptroller’s Handbook: Safety and
`Soundness, Corporate and Risk
`Governance, Version 2.0 (last updated
`July 2019) ............................................................ 4
`Remarks of Eugene A. Ludwig, Comptroller
`of the Currency, on Supervision by Risk,
`14 OCC Q.J. 49, 1995 WL 786812 (Sept.
`26, 1995) .............................................................. 4
`Other Authorities
`Charlotte Alter, The School Shooting
`Generation Has Had Enough, Time
`(Mar. 22, 2018) .................................................. 19
`Suzanne Barlyn, Insurer Chubb Says Will
`Stop Underwriting NRA Insurance for
`Gun Owners, Reuters (Feb. 23, 2018) .............. 18
`Jeremy Barr, ‘Tucker Carlson Tonight’
`Loses at Least 26 Advertisers After
`Immigration Comment, Hollywood
`Reporter (Dec. 17, 2018) ............................. 15, 16
`
`
`
`vi
`David Bauder, Don Lemon Fired from CNN
`After Divisive Morning Show Run,
`Associated Press (Apr. 24, 2023) ...................... 17
`John Breech, Broncos’ Marshall Dumped by
`Sponsor After Protesting During National
`Anthem, CBS Sports (Sept. 9, 2016) ................ 16
`Oliver Darcy, CNN Severs Ties with Liberal
`Pundit Marc Lamont Hill After His
`Controversial Remarks on Israel, CNN
`(Nov. 30, 2018) .................................................. 17
`Paul Davidson, NRA-Branded Visa Card
`Dropped by First National Bank of
`Omaha, USA Today (Feb. 22, 2018) ................. 22
`Robert G. Eccles et al., Reputation and Its
`Risks, Harv. Bus. Rev. (Feb. 2007) ....... 11, 12, 13
`Marc Fisher, Why the NRA Doesn’t Much
`Care If Businesses Spurn Them, Wash.
`Post (Mar. 2, 2018) ............................................ 21
`Jacey Fortin, A List of Companies Cutting Ties
`with the NRA, N.Y. Times (Feb. 24, 2018) ....... 22
`Nadine Gatzert et al., Assessing the Risks of
`Insuring Reputation Risk, 83 J. Risk &
`Ins. 641 (2016) ................................................... 13
`Gun Laws, Feb 2018, Marist Nat’l Poll (Feb.
`23, 2018). ........................................................... 20
`
`
`
`vii
`Tiffany Hsu, Big and Small, N.R.A. Boycott
`Efforts Come Together in Gun Debate,
`N.Y. Times (Feb. 27, 2018) ............................... 20
`Aric Jenkins, Delta Just Doubled Down on
`Its Decision to Cut Ties with the NRA,
`Time (Mar. 2, 2018) ........................................... 21
`Nir Kossovsky, How Risk Managers Can
`Take Charge of Reputation Risk, Risk
`Mgmt. Mag. (Sept. 30, 2019) ............................ 12
`Cristiano Lima, Companies Pull Ads from
`Fox’s Ingraham After Her Jab at Parkland
`Student, Politico (Mar. 29, 2018) ...................... 15
`Ryan Mac et al., Advertisers Flee X as
`Outcry Over Musk’s Endorsement of
`Antisemitic Post Grows, N.Y. Times
`(Nov. 17, 2023) .................................................. 14
`Emily Mason, FTX.US Accounting Firm
`Armanino Ends Crypto Audit Practice,
`Forbes (Dec. 15, 2022) ....................................... 14
`Mass Killings in America, 2006-Present,
`Associated Press ................................................ 18
`Dan Milmo & Alex Hern, Binance Auditor
`Withdraws from Working with Crypto
`Company, The Guardian (Dec. 16, 2022)
`https://perma.cc/8TZX-XK7W ........................... 13
`Our Brands, Vista Outdoors (archived Feb.
`27, 2024) ............................................................ 21
`
`
`
`viii
`Samantha Raphelson & Emma Bowman,
`Hundreds of Thousands March for Gun
`Control Across the U.S., NPR (Mar. 24,
`2018) .................................................................. 19
`Emily Shapiro et al., Parkland School Shooting
`6 Years Later: Remembering The 17 Victims,
`ABC News (Feb 14, 2024) ................................. 18
`Steven Shepard, Gun Control Support
`Surges in Polls, Politico (Feb. 28, 2018) ........... 20
`Emily Shugerman, All of the Advertisers
`That Have Dropped Laura Ingraham’s
`Fox News Show Since She Mocked
`Parkland School Shooting Survivor,
`The Independent (Mar. 30, 2018) ..................... 15
`Patrice Taddonio, How a Group of High-
`School Students Put the NRA in the Hot
`Seat, PBS (Mar. 24, 2020) ................................. 20
`Trisha Thadani et al., Disney, Comcast,
`Lionsgate Pull Ads from X Over Antisemitic
`Posts, Wash. Post (Nov. 17, 2023) .................... 14
`
`Third-Party Risk Is Becoming a First
`Priority Challenge, Deloitte (archived
`Feb. 27, 2024) .................................................... 13
`Jordan Valinsky, Adidas Says Dropping
`Kanye West Could Cost It More Than $1
`Billion in Sales, CNN (Feb 10, 2023) ............... 16
`
`
`
`ix
`Jonathan Vanian, Apple, Disney, Other
`Media Companies Pause Advertising on
`X After Elon Musk Boosted Antisemitic
`Tweet, CNBC (Nov. 17, 2023) ........................... 14
`Andrew Wong, The NRA Faces a New Kind
`of Opponent: Kids Who Understand
`Social Media, CNBC (Mar. 5, 2018) ................. 21
`Vivian Yee & Alan Blinder, National School
`Walkout: Thousands Protest Against
`Gun Violence Across the U.S., N.Y.
`Times (Mar. 14, 2018) ....................................... 19
`Xiaoqian Zhu et al., What Drives
`Reputational Risk? Evidence from
`Textual Risk Disclosures in Financial
`Statements, 9(1) Human. & Soc. Sci.
`Commc’ns (2022) ............................................... 12
`
`
`
`
`
`1
`INTEREST OF AMICUS CURIAE
`The Brady Center to Prevent Gun Violence
`(“Brady”) is the nation’s oldest nonpartisan, nonprofit
`organization dedicated to reducing gun violence
`through education, research, and legal advocacy.
`Brady works
`across Congress,
`courts
`and
`communities, uniting gun owners and non-gun-
`owners alike to take action to prevent gun violence.
`Brady has a substantial interest in ensuring that the
`Constitution is construed to protect Americans’
`fundamental right to live. Brady has filed amicus
`briefs in many cases involving the regulation of
`firearms, including in this Court.
`Brady has a particular interest in this case
`because it raises important questions about the ability
`of businesses to take account of reputational risks in
`their dealings with the National Rifle Association
`(“NRA”) and similar organizations.1
`INTRODUCTION AND
`SUMMARY OF ARGUMENT
`A central premise of the NRA’s argument in this
`case is that it was “coercive” for the Superintendent of
`the New York Department of Financial Services
`(“DFS”) to issue guidance that licensed banks and
`insurers should consider the “reputational risk” of
`doing business with the NRA or similar gun
`promotion organizations. This amicus brief addresses
`
`1 Amicus affirms that no counsel for a party authored this brief
`in whole or in part, and that no person other than amicus, its
`members or its counsel made a monetary contribution intended
`to fund the brief’s preparation or submission.
`
`
`
`2
`why that guidance, far from being coercive, stated a
`truism. Banks and insurers in the State of New York
`(and throughout the country) are obligated to consider
`“reputational risk” as part of their conventional,
`ongoing operations. More broadly, throughout the
`economy, companies properly place important weight
`on
`“reputational
`risk”
`in
`structuring
`their
`businesses—irrespective of any guidance
`from
`regulators.
`Further, around the time that various New York
`banks and insurers severed ties with the NRA, a wave
`of mass shootings across the country led to a
`nationwide,
`grass-roots
`campaign
`calling
`on
`businesses to cease doing business with the NRA.
`This campaign resulted in legitimate decisions by
`dozens of businesses across the country to discontinue
`those commercial relations. This reinforces the
`“reputational risk” companies faced in continuing to
`support the NRA’s operations, and demonstrates why
`New York banks and insurers could reasonably have
`decided to sever ties with the NRA because of an
`“obvious alternative explanation” separate from any
`DFS-issued guidance.2
`
`
`2 See Ashcroft v. Iqbal, 556 U.S. 662, 678, 682 (2009) (explaining
`that a complaint is not plausible if it requires a court to ignore
`“obvious alternative explanation[s]” (citation omitted)); see also
`Resp. Br. 37.
`
`
`
`3
`ARGUMENT
`
`I. The Superintendent’s Guidance Stated an
`Established General Principle and Was
`Therefore Not “Coercive.”
`In deciding this case, it is critical for the Court to
`appreciate the extensive regulatory and practical
`backdrop to the events at issue here, which provides
`additional context for why regulated entities would
`not have reasonably perceived the guidance from the
`Superintendent of DFS to be “coercive” or a threat to
`penalize them if they did business with the NRA or
`similar organizations.3
`The Superintendent’s guidance was that banks
`and
`insurers should “continue evaluating and
`managing their risks, including reputational risks,
`that may arise from their dealings with the NRA or
`similar gun promotion organizations.” Pet. App. 248,
`251. This guidance to “continue evaluating and
`managing . . . reputational risks” cannot reasonably
`be viewed as “coercive” (Pet. Br. 17) because it states
`a truism and a settled principle: banks and insurers
`are obligated by their regulators to consider and
`manage “reputational risks” in their operations, and
`more broadly businesses across the economy regularly
`take account of “reputational risks” as an inherent
`element of their overall operations.
`
`
`3 Under the test articulated by this Court in Bantam Books, Inc.
`v. Sullivan, 372 U.S. 58, 72 (1963), this brief focuses on the
`“distinction between attempts to convince and attempts to
`coerce.” Okwedy v. Molinari, 333 F.3d 339, 344 (2d Cir. 2003).
`
`
`
`4
`A. Banks and Insurers Are Required by
`Their Regulators to Manage Reputational
`Risk.
`Federal financial regulators have long required
`financial institutions to manage reputational risk
`effectively.
` In 1995,
`for
`instance, the then-
`Comptroller of the Currency stated:
`Our common risk vocabulary is based on nine
`categories of risk: credit risk, interest rate risk,
`liquidity risk, price risk, foreign exchange risk,
`transaction risk, compliance risk, strategic
`risk, and reputation risk. We believe that these
`categories, along with subcategories we have
`also defined, comprise the full range of risks
`faced by virtually any financial services firm,
`including banks.4
`focus on reputational risk
`This supervisory
`continues to this day. To that end, the Office of the
`Comptroller of the Currency (“OCC”) currently
`defines reputational risk as “the risk to current or
`projected financial condition and resilience arising
`from negative public opinion.”5 Other financial
`regulators define reputational risk similarly.6 Both
`
`4 Remarks of Eugene A. Ludwig, Comptroller of the Currency, on
`Supervision by Risk, 14 OCC Q.J. 49, 51, 1995 WL 786812, at *4
`(Sept. 26, 1995) (emphasis added).
`5 OCC, Comptroller’s Handbook: Safety and Soundness,
`Corporate and Risk Governance, Version 2.0, at 4 (last updated
`July 2019), https://perma.cc/PA8W-VJVU.
`6 Bd. of Governors of Fed. Rsrv. Sys., Commercial Bank
`§ 4012.1, at 1
`(Oct. 2023),
`Examination Manual
`(...continued)
`
`
`
`5
`federal regulations and regulatory guidance instruct
`financial institutions to consider reputational risk,
`and caution that failure to do so may undermine the
`integrity of the organization.7
`For most large banks, the requirement to manage
`reputational risk effectively is codified in federal
`regulations and related guidance. The OCC issued a
`regulation in 2014 that requires banks with $50
`billion or more in average total consolidated assets to
`“establish and adhere to a formal, written risk
`governance framework” that should address, among
`other things, “reputation risk.”8 This regulation
`implements provisions of the Federal Deposit
`Insurance Act that require federal banking agencies
`to prescribe standards for “safe and sound” banking.9
`In a separate rule governing national banks’
`investments in securities, the OCC similarly directs
`
`
`https://perma.cc/3CJD-PRUH; Fed. Deposit Ins. Corp., Annual
`Report at 160 (2020), https://perma.cc/ZQ6E-FF8T (Office of
`Inspector General’s Assessment); Letter from Nat’l Credit Union
`Admin. to Fed. Credit Union Officials re Risk-Focused
`Examination Program at 5 (May 2002), https://perma.cc/QE9X-
`VKCV.
`7 See, e.g., 12 C.F.R. pt. 30, App. D. §§ II.A, B (OCC rule for large
`banks); News Release, U.S. Dep’t of Treas., OCC, Categories of
`Risk at 4 (Jan. 4, 1996), https://perma.cc/92R2-EWCF (“Banks
`which actively associate their name with products and services,
`such as with fiduciary services, are more likely to have higher
`reputation risk exposure. As the bank’s vulnerability to public
`reaction increases, its ability to offer competitive products and
`services may be affected.”).
`8 12 C.F.R. pt. 30, App. D. §§ II.A, B.
`9 12 U.S.C. § 1831p-1.
`
`
`
`6
`banks to “consider, as appropriate . . . reputation risks
`presented by a proposed activity.”10
`Financial institutions of all sizes also are subject
`to federal regulatory guidance setting forth similar
`supervisory expectations for effective management of
` For
`instance, the capital
`reputational risk.11
`adequacy rules of the National Credit Union
`Administration (“NCUA”) require credit unions to
`consider reputational risk when “develop[ing] and
`maintain[ing] a capital plan.”12 The plan, in relevant
`part, must include “[a] discussion of how the credit
`union will, under expected and unfavorable
`conditions, maintain stress test capital commensurate
`with all of its risks, including reputational . . . risks.”13
`The OCC, for its part, has also published guidance
`directing both large bank14 and community bank15
`
`
`10 12 C.F.R. § 1.5(a).
`11 See sources cited supra notes 5–7.
`12 12 C.F.R. §§ 702.304(a)(1), (b)(2).
`13 Id. § 702.304(b)(2) (emphasis added).
`14 OCC, Comptroller’s Handbook: Examination Process, Large
`Bank Supervision, Version 1.2, at 35–37 (last updated Mar.
`2022), https://perma.cc/ZLD6-RMG7 (current guidance directing
`large bank examiners to evaluate the “quality of reputation risk
`management”); see also OCC, Comptroller’s Handbook:
`Examination Process, Bank Supervision Process, Version 1.1, at
`28 (last updated Sept. 2019), https://perma.cc/ZLD6-RMG7
`(current guidance directing bank examiners to evaluate
`reputation risk).
`15 OCC, Comptroller’s Handbook: Examination Process,
`Community Bank Supervision, Version 1.1, at 211–12 (last
`updated Sept. 2019), https://perma.cc/P6EE-QNEG (current
`guidance directing community bank examiners to evaluate
`reputation risk).
`
`
`
`7
`examiners to evaluate “the quality of reputation risk
`management.”16 This guidance, in relevant part,
`instructs examiners to consider factors such as the
`“[e]ffectiveness of social media monitoring and
`management of negative news,” and the “[b]ank
`management’s willingness and ability to adjust
`strategies based on regulatory or technological
`changes, market disruptions, market or public
`perception, and legal losses.”17
`Likewise, the National Association of Insurance
`Commissioners (“NAIC”), which provides expertise,
`data and analysis for insurance commissioners to
`effectively regulate the insurance industry, also
`identifies reputation as one of the nine risk
`classifications that
`insurance examiners should
`consider when evaluating insurance companies’ risk
`management processes.18
`B. Banks Are Often Expected to Manage
`Reputational Risk by Considering the
`Reputation of Individual Clients.
`The mandate that banks effectively manage
`reputational risk often requires them to evaluate the
`reputational risk posed by third parties, including
`
`
`16 OCC, Comptroller’s Handbook: Examination Process, Large
`Bank Supervision, supra note 14, at 35–37.
`17 Id. at 37.
`18 NAIC, Financial Condition Examiners Handbook at 196–97
`(2023). The NAIC defines reputation risk as “[n]egative
`publicity, whether true or not, [that] causes a decline in the
`customer base, costly litigation, and/or revenue reductions.” Id.
`at 197.
`
`
`
`8
`individual customers.19 This is because a customer’s
`reputation could affect its creditworthiness (i.e., its
`ability to repay the bank) as well as the bank’s
`business opportunities and standing with other
`counterparties that care about the bank’s reputation
`and customer profile.
`For instance, federal financial regulators often
`expect financial institutions to conduct reputational-
`risk screens of individual customers when performing
`due diligence to fulfill their “know your customer”
`obligations under the Bank Secrecy Act (“BSA”).20
`Similarly, the OCC, NCUA, Federal Reserve and
`FDIC have all promulgated rules requiring that
`financial institutions maintain programs to detect
`and prevent identity theft, all of which require
`financial institutions to identify specific accounts that
`
`
`19 See, e.g., In re Wachovia Bank, N.A., Enf’t Action No. 2008-27,
`2008 WL 7087237, at *1 (O.C.C. Apr. 24, 2008) (describing an
`OCC-initiated enforcement action against a bank for, among
`other things, “failure to conduct suitable due diligence on
`[particular] accounts even though the Bank had reason to know
`that the payment processors and direct telemarketers were high-
`risk customers that posed significant legal, reputational and
`monetary risks to the Bank and monetary risk to consumers”).
`20 See 12 C.F.R. § 21.21(c)(2); see also In re City Nat’l Bank, Enf’t
`Action No. 2005-16, 2005 WL 3967711, at *3–4 (O.C.C. Feb. 23,
`2005) (remedial provisions of a BSA-related consent order
`requiring a bank to, among other things, establish “well-defined
`policies and procedures for investigating and resolving the
`Bank’s response to transactions that have been identified as
`posing greater than normal risks for compliance with the BSA
`and the Bank’s BSA compliance program, including resolving
`customer relationships that could be detrimental to the Bank’s
`reputation”).
`
`
`
`9
`pose reputation risk.21 The Federal Reserve’s rules,
`for example, provide that banks should screen for
`accounts “for which there is a reasonably foreseeable
`risk to customers or to the safety and soundness of the
`financial institution or creditor from identity theft,
`including
`financial,
`operational,
`compliance,
`reputation, or litigation risks.”22
`That said, contrary to the NRA’s assertion that a
`regulated entity’s disregard of a DFS guidance letter
`could result in a “range of punitive measures,
`including
`direct
`enforcement
`actions,
`the
`appointment of third-party monitors, millions of
`dollars in fines, and criminal referrals,”23 operating
`with reputational risk is not illegal under New York
`law and “cannot serve as the basis for a standalone
`enforcement action.”24 Instead, it is the failure to
`manage reputational risk that leaves a financial
`institution susceptible
`to supervisory action—
`typically because poor reputational risk management
`has contributed other harms to the institution
`through credit, liquidity or legal problems. Moreover,
`the supervisory expectation
`that a
`financial
`institution
`consider a higher-risk
`customer’s
`reputation does not mean that the institution is
`forbidden from working with a customer that poses
`reputational risk. Financial institutions can manage
`reputational risk in many ways, including through
`
`
`21 See 12 C.F.R. § 41.90 (OCC); id. § 222.90 (Fed. Rsrv.); id. §
`334.90 (FDIC); id. § 717.90 (NCUA).
`22 12 C.F.R. § 222.90 (emphasis added).
`23 Pet. Br. 30.
`24 Resp. Br. 48.
`
`
`
`10
`active monitoring of and engagement with higher-risk
`customers.
`A review of federal and state bank enforcement
`actions demonstrates that federal regulators and the
`DFS have not brought such actions solely to address
`deficiencies in reputational-risk management, let
`alone for working with particular customers that pose
`reputational
`risk.
` Publicly available bank
`enforcement actions that mention reputational risk
`have all been focused on broader systematic issues
`such as “unsafe and unsound” banking practices,25
`Office of Foreign Assets Control (“OFAC”) violations,26
`and failures to maintain “sufficient transparency to
`reasonably ensure the legitimacy of the sources and
`uses of customer funds.”27
` In these cases, a
`reputational-risk management deficiency was just
`one of the many issues that the regulator cited as
`justification for the action.
`financial
`regulated
`In
`sum,
`federally
`institutions—including the vast majority supervised
`by DFS—are already required as a matter of federal
`law to manage reputational risk effectively, which can
`include taking into account and controlling for the
`reputational risk posed by individual customers.
`Similar expectations apply to insurance companies.
`Given
`these
`longstanding
`requirements,
`the
`Superintendent’s guidance is properly viewed as a
`truism that reminded regulated entities to continue
`
`25 In re City Nat’l Bank, 2005 WL 3967711, at *1.
`26 Id. at *6.
`27 In re Merchants Bank of Cal., N.A., Enf’t Action No. 2014-84,
`2014 WL 12834080, at *3 (O.C.C. June 26, 2014).
`
`
`
`11
`managing reputational risk—as they were already
`obligated to do. For this reason, that guidance could
`not reasonably have been perceived as a coercive
`threat against financial institutions that do business
`with the NRA or similar organizations.
`C. Across the Economy, Businesses Take
`Account
`of Reputational Risk
`in
`Structuring Their Operations.
`Even aside from federal regulatory requirements,
`businesses regularly, legitimately and voluntarily
`take account of reputational risk in structuring their
`operations—not only in the financial services sector,
`but across the economy more broadly. This trend
`further undermines the NRA’s argument that the
`regulated parties would have
`interpreted
`the
`Superintendent’s statements about reputational risk
`as a threat.
`1. Reputational Risk Is an Important
`Business Consideration.
`Directors and officers of public companies are
`keenly aware of the importance of reputational risk.
`At one level, this is because companies with positive
`reputations are better able to attract employees and
`customers, and to engender loyalty among their
`customer base.28 For example, as the Second Circuit
`noted in the proceedings below, “according to a study
`published in 2017—less than one year before the
`Parkland shooting—seven out of ten Americans
`believed companies had an obligation to take action to
`
`28 Robert G. Eccles et al., Reputation and Its Risks, Harv. Bus.
`Rev. (Feb. 2007), https://perma.cc/CP3U-378C.
`
`
`
`12
`address key social and environmental issues, even if
`those issues were not relevant to everyday business
`operations.”29
`At another level, companies also understand that
`reputational harms can significantly damage their
`operations. A recent report noted that “[r]eputational
`crises and the losses they cause occur with such
`regularity that nine out of [ten] S&P 500 companies
`now disclose that reputational risks, in addition to all
`their underlying operational risks, are material
`perils.”30 “[I]n an economy where 70% to 80% of
`market value comes from hard-to-assess intangible
`assets such as brand equity, intellectual capital, and
`goodwill, organizations are especially vulnerable to
`anything that damages their reputations.”31
`Accordingly, companies have implemented a wide
`array of reputational risk-management protocols.
`Certain
`companies
`focus more on
`“reactive”
`reputational-risk management, which is akin to crisis
`management for threats that have already surfaced.
`
`29 Pet. App. 30 n.14 (citing Americans Willing to Buy or Boycott
`Companies Based on Corporate Values, According to New
`Research by Cone Communications, Cone (May 17, 2017)).
`30 Nir Kossovsky, How Risk Managers Can Take Charge of
`Reputation Risk, Risk Mgmt. Mag.
`(Sept. 30, 2019),
`https://perma.cc/2BZ4-5ESZ; see also Xiaoqian Zhu et al., What
`Drives Reputational Risk? Evidence
`from Textual Risk
`Disclosures in Financial Statements, 9(1) Human. & Soc. Sci.
`Commc’ns at 1 (2022), https://perma.cc/XB9C-GDHS (“Based on
`352,326 risk headings extracted from 11,921 annual reports
`released by 1,570 U.S. financial institutions from 2006 to 2019,
`a total of 13 reputational risk drivers are identified to extend
`upon existing studies.”).
`31 Eccles et al., supra note 28.
`
`
`
`13
`Others, by contrast, have started instituting proactive
`reputational-risk protocols to mitigate current and
`potential threats to reputation.32 In fact, at least one
`consulting firm has noted the “tremendous benefits”
`in embracing a
`third-party
`risk-management
`framework that considers reputational risk, noting
`that “today’s competitive business environment
`demands it.”33 To that end, certain insurance
`companies have even started offering “reputation risk
`insurance” to provide a safety net to mitigate the
`market effects of a negative reputational event.34
`2. Businesses Often Make Decisions
`Based on Concerns Over Reputational
`Risk.
`Recent years have seen notable examples of
`business decisions made
`to avoid or reduce
`reputational risk. For instance, the auditing firm
`Mazars ceased
`its proof-of-reserves services to
`cryptocurrency clients, explaining that its decision
`reflected concerns about how the public would view
`the provision of such services and would be
`“understood by the public.”35 The accounting firm
`Armanino also discontinued its auditing practice for
`
`32 Id.; see also Third-Party Risk Is Becoming a First Priority
`Challenge, Deloitte, https://perma.cc/BPS5-U9B4 (archived Feb.
`27, 2024).
`33 Deloitte, supra note 32.
`34 Nadine Gatzert et al., Assessing the Risks of Insuring
`Reputation Risk, 83 J. Risk & Ins. 641, 650–56 (2016)
`(cataloguing policies).
`35 Dan Milmo & Alex Hern, Binance Auditor Withdraws from
`Working with Crypto Company, The Guardian (Dec. 16, 2022)
`https://perma.cc/8TZX-XK7W.
`
`
`
`14
`cryptocurrency clients due to pressure from other
`clients “concerned that reputational risk to the firm”
`would call their own audits into question.36
`As another example, a number of public
`companies—including Disney, Apple, Warner
`Brothers Discovery, Paramount Global, Lions Gate
`Entertainment, Comcast and IBM—discontinued
`advertising on X (formerly known as Twitter) after its
`former CEO and principal shareholder, Elon Musk,
`agreed with a social media post accusing “Jewish
`communities” of stirring “hatred against whites.”37
`Reflecting the importance of reputation for these
`public companies, they made clear that their decisions
`were based on a desire not to be associated with the
`remarks by Mr. Musk.38 IBM stated that its decision
`was because the company “has zero tolerance for hate
`speech and discrimination.”39 Lions Gate also stated
`that its decision was spurred by “Elon’s tweet.”40
`
`
`36 Emily Mason, FTX.US Accounting Firm Armanino Ends
`Practice,
`Forbes
`(Dec.
`15,
`2022),
`Crypto
`Audit
`https://perma.cc/QUZ5-84UA.
`37 Jonathan Vanian, Apple, Disney, Other Media Companies
`Pause Advertising on X After Elon Musk Boosted Antisemitic
`Tweet, CNBC (Nov. 17, 2023), https://perma.cc/XBU2-R9A8.
`38 Ryan Mac et al., Advertisers Flee X as Outcry Over Musk’s
`Endorsement of Antisemitic Post Grows, N.Y. Times (Nov. 17,
`2023), https://perma.cc/5RRM-6VQZ.
`39 Id.
`40 Trisha Thadani et al., Disney, Comcast, Lionsgate Pull Ads
`from X Over Antisemitic Posts, Wash. Post (Nov. 17, 2023),
`https://perma.cc/A5D4-3449.
`
`
`
`15
`A further example involves decisions by a number
`of public
`companies—including Netflix, Hulu,
`TripAdvi
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