Memo to Prosecutors: Time to Back Off
Posted Nov 02, 2008 02:45 am CST
Aug. 28 could prove to be a memorable date in the history of corporate prosecutions. The Justice Department announced a long-sought prohibition against policies that pressured companies under investigation to turn over otherwise privileged information.
That same day, a federal appeals court upheld the dismissal of tax fraud charges against 13 former employees of the accounting firm KPMG because prosecutors had pressured the firm to stop paying the employees’ legal fees once they were indicted.
But that won’t stop critics of the DOJ’s old policies—including the ABA—from pursuing legislation that would not only incorporate the changes into law but also make them applicable to all federal agencies.
“Only legislation will provide a final and comprehensive solution to this problem and these practices, governmentwide,” says Susan Hackett, senior vice president and general counsel of the Association of Corporate Counsel in Washington, D.C.
Detailed in a memorandum by DOJ Deputy Attorney General Mark Filip, the new policies now expressly bar prosecutors from asking companies under investigation to disclose information normally covered by attorney-client privilege and work product protections.
The DOJ also prohibits prosecutors from considering in their charging decisions whether a company has entered into a joint defense agreement with, or is paying the legal expenses of, employees under investigation or indictment.
That represents an almost complete reversal of the DOJ’s previous—and much maligned—practice of giving prosecutors the authority to reward companies that agreed to waive their rights and turn over privileged documents. The old policies also allowed prosecutors to punish companies that did not fire or stop paying the legal fees of employees suspected of wrongdoing.
Those policies were instituted through a series of memorandums by successive deputy attorneys general, who attached their names to the memos, beginning with then-Deputy Attorney General Eric Holder in 1999.
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In the wake of the Enron collapse and other corporate scandals, then-Deputy Attorney General Larry D. Thompson tightened the guidelines in 2003, urging prosecutors to take those factors into account when deciding whether to grant a company leniency.
Virtually the entire legal and business communities, including the ABA, blasted the policies, claiming prosecutors routinely threatened criminal charges against companies that did not give them every internal document they asked for or that didn’t cut ties to suspect employees.
In 2006, then-Deputy Attorney General Paul McNulty tried to quell the criticism by restricting the use of privilege-waiver requests. But critics said McNulty’s measures were insufficient to curb prosecutorial abuse.
Filip is credited for being the first deputy attorney general to incorporate the changes into the U.S. Attorneys’ Manual, which not only made them immediately binding on all federal prosecutors but also should help ensure that they will be strictly enforced.
The ACC’s Hackett says the changes are “as close to a complete victory” as critics could have imagined. The ACC is part of a broad coalition of business and legal organizations, including the U.S. Chamber of Commerce and the American Civil Liberties Union that is working to preserve attorney-client privilege.
The ABA, though not part of the coalition, is one of its biggest supporters. ABA President H. Thomas Wells Jr. calls the new policies a “welcome improvement.”
The coalition also hailed the ruling by the New York City-based 2nd U.S. Circuit Court of Appeals in United States v. Stein. The court held that the government had deprived the former KPMG employees of their constitutional right to counsel, had done nothing to cure the violation and had left no other remedy—short of dismissing the charges—that would return the employees to their pre-indictment position. It was the first ruling on the controversial policies by an appellate court.
“KPMG’s adoption and enforcement of a policy under which it conditioned, capped and ultimately ceased advancing legal fees to defendants followed as a direct consequence of the government’s overwhelming influence, and KPMG’s conduct therefore amounted to state action,” Chief Judge Dennis Jacobs wrote for the unanimous three-judge panel.
But those same critics worry that the new DOJ policies can be changed at any time. Nor do the policies apply to other federal agencies—including the Securities and Exchange Commission, the Environmental Protection Agency, and the Department of Housing and Urban Development—that still have similar policies in place.
Wells, a partner at Maynard, Cooper & Gale in Birmingham, Ala., notes that the new policies mark the department’s fifth version in 10 years—and its second in 20 months. He says the constitutional rights of employees and the companies they work for are too important to be subject to the whims of whoever happens to be the deputy attorney general at the time.
That’s why the ABA, the ACC and its coalition partners—as well as nearly three dozen former U.S. attorneys, 19 state and local bar entities, and nine former high-ranking Justice Department officials—support a measure pending in Congress to enshrine those protections into law. The Attorney-Client Privilege Protection Act passed the House last fall, but has been stalled in the Senate Judiciary Committee.
The current Senate bill, introduced in late June by Sen. Arlen Specter, R-Pa., has 13 co-sponsors, including nine Democrats and four Republicans. But Sen. Patrick Leahy, D-Vt., who chairs the committee, has taken no position on the measure.
Specter called Filip’s new policies a “step in the right direction,” but he said the changes still leave problems that only legislation will solve. “Legislation, of course, would bind all federal agencies and could not be changed except by an act of Congress,” he said.
But Leahy, who has the power to bring the bill to a vote, remains noncommittal. In a statement following Filip’s announcement, he called the new policies a “significant and welcome change” from the DOJ’s previous position. Leahy said the changes ensure that prosecutors will evaluate corporate cooperation based on the information provided and not on whether the company waived the privilege. He also said the new policy limits the types of information that can be requested and makes it clear that prosecutors cannot consider whether a company sanctioned its employees or covered their legal fees.
Leahy acknowledged that the new policies apply only to Justice and not to other federal agencies. But he said that the DOJ has “set the tone and the standard for investigations of corporate wrongdoing,” and that he hoped other federal agencies would “wholeheartedly” embrace its new approach.
R. William Ide III of Atlanta, an ABA past president who chairs an association task force on attorney-client privilege, says the stalemate suggests he and other supporters still have some minds to change. And he concedes that Leahy has been a tough sell.
But Ide says he will continue to press the case for legislation until the bill becomes law. “We’ll get there someday,” he says. “It’s only a matter of time.”
Meanwhile, Congress was set to adjourn in September and reconvene in January under a new administration and a possible shift in the balance of power.
Ide says it doesn’t matter who wins the election because the issue is nonpartisan. “This is about our system of justice, about what we stand for as a country,” he says.
Hackett says the election results, if pre-election polls prove accurate, should improve the bill’s chances because the measure enjoys broad bipartisan support and the Democrats are expected to retain control of Congress, if not add to their majorities.
And she says the Justice Department, the bill’s primary opponent, will have a hard time arguing against the measure now that it has embraced the key provisions and a federal appeals court has repudiated part of its previous policies.
But other parties think the outcome of the presidential election could be determinative. Former Minnesota U.S. Attorney B. Todd Jones, now a white-collar defense lawyer who supports the measure and is closely following its progress, says if John McCain is elected and the Democrats retain control of the Senate, the bill will still be “alive and kicking” when Congress reconvenes early next year.
But if Barack Obama wins, Jones says, the legislation likely won’t make it out of the Senate Judiciary Committee because the Democrats who probably will still control it won’t want to tie the hands of a Democratic administration.