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— Rules of the Road —
On Aug. 28 the DOJ announced that companies will no longer be threatened with criminal charges when they refuse to surrender their right or their employees' right to keep discussions with their lawyers confidential. It is the Justice Department's latest attempt to address complaints raised by an alliance of lawyers, corporate executives and civil liberties advocates, who charge that prosecutors abuse their power to investigate corporate crimes. They say that since the Enron Corp. investigation, prosecutors have routinely, and wrongly, demanded that companies waive their right to privileged communications with their lawyers. DOJ's policies also have been heavily criticized by Senate Judiciary Committee Chairman Patrick Leahy, D-Vt.; Pennsylvania's Arlen Specter, the committee's ranking Republican; and other members of Congress.
The most noteworthy change is that credit for cooperation will not depend on a company's willingness to waive attorney-client privilege or turn over attorneys' notes and other work product to federal investigators. Instead, simple disclosure of facts relevant to the investigation will be weighed when judging cooperativeness. The new guidelines also make clear that companies cannot be denied credit for paying their employees' legal fees. Prosecutors also will be forbidden from considering whether a corporation has entered into a joint defense agreement with employees under investigation or whether a corporation disciplined or terminated employees who failed to waive their confidentiality rights. The DOJ's latest revisions are not likely to be the final word. The agency's critics say there is still too much room for abuse and Congress must impose more checks on prosecutors. The Coalition to Preserve the Attorney-Client Privilege, comprising business and liberal civil liberties groups, insists legislation is needed because prosecutors' objectionable practices could be reinstated at the whim of any future attorney general and because the DOJ's new guidance does not address breaches of privilege at other federal agencies. The group singled out the Securities and Exchange Commission, the Environmental Protection Agency and the Department of Housing and Urban Development as offices where waiver demands are now commonplace. The DOJ's critics say they will ask Congress to create a review process to look over prosecutors' waiver decisions and to clarify that "facts relevant to the investigation" demanded by prosecutors don't include information that would typically be privileged. Although legislation addressing the coalition's concerns passed the House in 2007, the Senate has not passed a companion bill. Senators must act quickly if legislation is to reach President Bush's desk before Sept. 26, when the current Congress is scheduled to adjourn. The dispute over prosecutors' tactics was born in 2003, when then-U.S. Deputy Attorney General Larry Thompson spelled out procedures for federal prosecutors investigating suspected financial crimes. In response to the Enron scandal, Thompson told prosecutors to put more weight on companies' cooperation with government investigators when deciding whether to bring charges against a firm. Winning credit for cooperating with an investigation can be a matter of life and death for a company. A lingering inquiry can cripple the ability to conduct business and retain employees. The DOJ's newest policies were unveiled at a press conference in New York only a few moments after a federal appeals court upheld Judge Lewis Kaplan's 2006 finding that federal prosecutors wrongly pressured accounting firm KPMG LLP into refusing to pay legal fees of former partners charged with creating an illegal tax shelter. Agency staffers insist the timing of the press conference was coincidental. David Weiner, a partner in the Cleveland office of Squire, Sanders & Dempsey LLP, predicted that even with legislation, it will be difficult to rein in the most aggressive prosecutors. Says Weiner: "Over the last 10 years, we've seen the culture of waiver permeate throughout the federal government." Bill McConnell is The Deal's Washington bureau chief. |
The Department of Justice has backed a few more steps away from controversial tactics federal prosecutors have used against companies they are investigating for financial crimes.
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