Risk Management

Senate Urged to Fix Thompson Memo

But U.S. Deputy Attorney General Paul J. McNulty defends the guidelines that push companies to cooperate with prosecutors. Without them, he says, c...
Sarah JohnsonSeptember 12, 2006

At a Senate Judiciary Committee hearing Tuesday, witnesses ranging from corporate attorneys to U.S. Chamber of Commerce president Tom Donohue urged lawmakers to take action against the provisions of the Department of Justice’s so-called Thompson Memorandum.

Written in 2003, the DoJ memo says that companies accused of wrongdoing will receive more lenient treatment if they cooperate with the government. The memo has stirred controversy because it puts pressure on companies to cut off legal support to employees accused of wrongdoing. The memo has also been criticized for pushing companies to reveal the results of internal investigations — potentially compromising the company’s right to client-attorney privilege.

The Senate committee hearing — “The Thompson Memorandum’s Effect on the Right to Counsel in Corporate Investigations” — comes less than two months after U.S. District Judge Lewis A. Kaplan rebuked the government for pressuring KPMG to cut off legal services to 16 employees, including a former CFO, accused of setting up tax shelters as part of their work for the firm. Kaplan said the government’s pressure on KPMG had violated the employees’ Fifth and Sixth amendment rights.

During an interview that appears in the current issue of CFO magazine, U.S. Deputy Attorney General Paul J. McNulty told CFO that he disagreed with Kaplan’s decision. “I’m not suggesting we anticipate a revision of the Thompson memo, but I’m not saying that we’re closed to that possibility,” he told CFO. “As we speak today, the Thompson memo is the policy of this department.” (McNulty’s comments regarding the Thompson memo appear only the extended online version of the interview.)

There are nine factors outlined in the Thompson memo that prosecutors use to make a decision about whether to indict a company. Among these provisions, they consider the nature and severity of the alleged conduct, the corporation’s history of similar conduct, and whether the corporation cooperated in the government’s investigation. In evaluating the company’s cooperation, prosecutors may consider how complete a company’s disclosure was, including whether the company made witnesses available, disclosed the results of an internal investigation, and waived attorney-client and work product protections, McNulty explained during his testimony Tuesday.

McNulty has strongly defended the DoJ against suggestions that companies are forced to cooperate against their will. “I believe that the vast majority of prosecutors handle these considerations responsibly and work in a productive way with companies that want to cooperate,” McNulty told CFO. “And I wonder sometimes if companies cooperate because they realize it is in the interest of the corporation to do so, and then complain later because it may be a more popular thing to do.”

On Tuesday, McNulty continued to support the memo, calling it “superior” to any alternative guidance. Questioning whether the memo’s critics would prefer not to have any guidance for prosecutors involved in corporate cases, he claimed that could create mayhem. “The irony of the attacks on the Thompson memo is that the federal criminal justice system would be a much harsher, less predictable, and less transparent environment for corporations and their counsel in the absence of this guidance,” he testified to the committee, according to his prepared testimony.

If companies can’t identify wrongdoers or reveal facts of a case to the DoJ during an investigation, prosecutors will ask them to waive the attorney-client privilege, McNulty testified, and they do so voluntarily. “Frankly, I have a hard time understanding the criticisms from corporations which claim they want to cooperate, and then complain when we ask them to disclose the facts and evidence they have uncovered,” he said. A company that does not waive that attorney-client confidentiality agreement will not necessarily be charged, he added.

But others testifying on Tuesday disagreed that following the memo’s provisions is voluntary. Companies “reasonably” consider each factor to be mandatory, testified Edwin Meese, former attorney general and chairman at the Heritage Foundation, according to his prepared testimony. The memo allowed the DoJ prosecutors to pressure KPMG partners and employees to forfeit their constitutional rights, according to Meese, and KPMG threatened not to pay the accused wrongdoers’ attorney fees unless they cooperated with the investigation.

Meese and U.S. Chamber president Donohue, recommended that references to the waiver of attorney-client privilege in the memo be invalidated. “The policies set forth in the Thompson Memorandum violate fundamental rights regarding attorney-client privilege, a cornerstone of our justice system that predates even the Constitution,” testified Donohue, who asked that similar policies of other federal agencies also be eliminated.

The Securities and Exchange Commission’s Seaboard report of 2001 similarly calls for the cooperation of a company involved in an investigation by recommending the company share the results of their internal investigations with the SEC, reports that also are protected by attorney-client privilege. In the same vein as the Thompson memo, companies that take that track can hurt their relationships with their executives, who may be facing the SEC’s scrutiny.

Andrew Weissmann, a partner for Jenner & Block of New York City, called on the Senate to rework the Thompson memo. “It should be revised so that it no longer encourages an environment where employees risk losing their jobs or legal defense merely for exercising their constitutional right not to speak to the government,” he testified.

Last week, 10 former senior Justice Department officials sent a letter to Attorney General Alberto Gonzales asking that the department revise its policy to protect attorney-client privilege and work-product protections. Companies under investigation have had to waive these privileges because “the threat of being labeled ‘uncooperative’ simply poses too great a risk of indictment to do otherwise,” wrote the letter-writers, including former attorney generals Griffin Bell and Dick Thornburgh, and former solicitor generals Kenneth Starr and Seth Waxman.