Risk & Compliance

Companies Get Protected from DoJ Pressure

New guidelines prohibit federal prosecutors from forcing companies to waive attorney-client privilege so they can claim they're "cooperating" with ...
Kate PlourdAugust 28, 2008

The U.S. Department of Justice revised elements of a controversial internal policy governing federal investigation and prosecution of corporate crimes. The revision — making it illegal for the government to demand certain privileged information from companies — comes in response to criticism of how prosecutors often pressure executives by promising permission to say their companies are “cooperating” with investigations.

The new restrictions “will be binding on all federal prosecutors within the Department of Justice, effective immediately,” Deputy Attorney General Mark Filip told a press conference at the New York Stock Exchange. “As an important element of that commitment, the revised principles will be set forth for the first time not as a memo, but in the United States Attorneys’ Manual.”

In the past, revisions to federal prosecutorial guidelines have taken the form of internal DoJ memos, the most recent of which was the controversial ‘McNulty memo,’ written by former Deputy Attorney General Paul McNulty in 2006. It required that the deputy attorney general sign off on any prosecutor’s request to share attorney-client-privileged information.

While the guidelines are binding on the DoJ, other federal entities, including the Securities and Exchange Commission, aren’t required to follow the new rule.

But according to the new revisions, a company now won’t need to disclose to the DoJ — and the department can’t demand that it disclose — “non-factual” attorney work product and communications covered by attorney-client privilege. Nor will prosecutors be able to consider whether the company has paid its employee’s attorney fees in advance, or entered into joint defense agreements when evaluating cooperation. Finally, prosecutors won’t be able to take into account whether, or how, a company disciplines culpable employees.

“Our new policy now makes very clear that no corporation is obligated to cooperate or to seek cooperation credit by disclosing information to the government,” Filip said. “Refusal by a corporation to cooperate, just like refusal by an individual to cooperate, is not evidence of guilt.”

Though the SEC and other federal agencies are not bound by the rules, they may still protect companies in cases in which the Justice Department is working with the securities regulator, and sharing information on prosecutions. The SEC’s own policy — set in a document called the Seaboard report, and continuing to grant wide latitude to prosecutors — was created by former Commissioner Harvey Pitt. One of the SEC policy’s most controversial provisions is a recommendation that companies share results of internal investigations with the SEC, regardless of whether the reports are protected by attorney-client privilege.

A bill introduced in the Senate in late June by Pennsylvania Republican Sen. Arlen Specter, and now pending, would change that. If passed, the Attorney-Client Privilege Protection Act of 2008 would protect the attorney-client privilege in prosecutions by all federal entities. It has support from both parties, including Delaware Democrat Joe Biden, his party’s new vice presidential nominee. A companion bill to Specter’s legislation passed the House last November.

In a letter sent this July, Deputy AG Filip asked Sen. Specter to hold off on pushing the bill through so that results of the latest DoJ revisions could be tested first. Although the DoJ believes the rules should apply across all federal agencies, as Specter’s bill would mandate, Filip said the matter should be taken up internally by each agency.

“We have had discussions with the SEC, Filip said in the press conference. SEC officials “can make up their own minds. We’re hopeful and encouraged that they’ll follow us in this direction.”

The guidelines leave some problems unresolved, Specter said in a statement in response to the new guidelines. “The new guidelines expressly encourage corporations to comply with the waiver and disclosure programs of other agencies including the SEC and EPA,” he said. “Legislation, of course, would bind all federal agencies and could not be changed except by an Act of Congress.”

Other supporters, such as the Coalition to Preserve Attorney Client Privilege, also continue their push. “The Justice Department’s track record of five different policies in ten years cries out for a permanent legislative solution that cannot be revised at the whim of each new Deputy Attorney General,” the group said in a statement. “The new DOJ policy does not address similar offending policies on privilege at other federal ageincies including the Securities and Exchange Commission.”

The American Bar Association applauded the policy, yet said that it can’t stand alone while other federal policies create “a culture that is seriously undermining both the confidential attorney-client relationship and basic employee rights in the corporate community.”

In related news, the 2nd U.S. Circuit Court of Appeals in Manhattan affirmed a low-court ruling last July that dismissed charges against 13 former KPMG executives, after a judge determined their former employer shouldn’t have refused to pay their legal fees. In a 2006 decision, District Judge Lewis Kaplan ruled that prosecutors violated the constitutional right to legal representation for many of the former employees by pressuring the accounting firm not to pay their legal bills.