Risk & Compliance

Protecting a Privilege

Proposed legislation would protect companies' attorney-client privilege and likely preserve their ability to do thorough internal investigations.
Sarah JohnsonDecember 22, 2009

Bank of America’s agreement to turn over privileged documents to the Securities and Exchange Commission earlier this year was not popular with corporate lawyers wanting to maintain employees’ and companies’ legal rights. For the past decade, they have warned that protections of the confidential information shared between attorneys and clients are eroding, to the benefit of companies wanting to be treated more leniently by federal prosecutors and regulators.

The high-profile case could stir up support for bills in Congress that would limit federal agencies’ ability to tap into information protected by attorney-client privilege during their investigations of corporate wrongdoing. Rep. Robert Scott (D-Va.), for example, tried to revitalize the issue last week by introducing the Attorney-Client Privilege Protection Act, which is nearly identical to a bill presented by Sen. Arlen Specter (D-Pa.) in February that hasn’t gone past the committee stage.

“The federal government needs to have a uniform policy respecting the attorney-client privilege and work product doctrine, which are fundamental to our system of justice and must not be eroded,” said Scott in a statement.

Scott’s bill would prevent federal agencies, including the SEC, from demanding or requesting “any communication protected by attorney-client privilege or any attorney work product.”

Government should never seek such a waiver, in the view of Bill Ide, a partner at McKenna Long & Aldridge and chairman of the American Bar Association’s Task Force on Attorney-Client Privilege. He believes the government needs one set of principles to follow for keeping privileged information protected. Fears about regulators tampering with attorney-client privilege can hinder companies’ ability to conduct their own internal investigations, he explains. “Lawyers’ activities need to be held in confidence or executives won’t talk to the lawyers,” says Ide.

To be sure, companies want employees to be open about internal problems so that they can fix them before regulators get involved. But employees need to be able to talk freely and feel confident that the information they’re sharing won’t go past the corporate walls, says Ide. “You should be able to tell your lawyer your greatest weaknesses and your greatest fears without fear of that being made public and being used against you,” he says.

In 2008 the Department of Justice revised its guidelines for federal prosecutors on measuring a company’s full cooperation in an investigation. Unlike before, the revised policy now prohibits prosecutors from forcing companies to waive attorney-client privilege so that they can claim they’re “cooperating” with the government. However, the DoJ’s guidance does not apply to other agencies, including the SEC.

The commission’s policy on the issue of corporation cooperation, called the Seaboard Report, recommends that companies share the results of their internal investigations, including reports that are protected by attorney-client privilege. The commission cannot compel anyone to waive the privilege, according to Robert Khuzami, director of the SEC’s Division of Enforcement, who testified before the House oversight committee earlier this month about the Bank of America case.

The SEC’s case centers on whether the bank misled investors before its merger with Merrill Lynch by not being fully up front about the brokerage firm’s losses. Khuzami says the SEC initially did not have “sufficient legal basis” to get access to documents that BofA claimed were protected under attorney-client privilege. BofA agreed to turn over the data “to put the matter behind us,” a bank spokesman told CFO in October. “Attorney-client privilege is a very important business principle, but in this instance, with pressure in multiple inquiries for additional insight, we decided to waive it in this matter.”

At the time, the SEC acknowledged that the agreement with BofA “would result in a broad waiver of attorney-client privilege” and would “authorize any information disclosed to the SEC to be shared with other governmental authorities.”