Critics of a Justice Department memorandum that some say is forcing companies to routinely waive attorney-client and work-product protections—and cut off financial support for employees under investigation in order to curry favor with federal prosecutors—took their calls for reform to Capitol Hill recently, while a top Department of Justice official defended the memo’s principles and the tactics used by prosecutors.
Even as he reiterated his support of the so-called Thompson Memo during recent testimony before a Senate committee, Deputy Attorney General Paul McNulty appeared to leave the door open for future changes, which could alter the way prosecutors pursue companies and white-collar defendants.
The controversial Thompson Memo—a 2003 document named for former Deputy Attorney General Larry Thompson that outlines the department’s internal guidelines for charging corporations—was the subject of a Sept. 12 hearing before the Senate Judiciary Committee.
McNulty
Noting that “The Department continues to listen and is always open to considering opposing views,” McNulty pledged to “keep the dialogue open about the Thompson Memo,” and said he welcomes “constructive criticism of this, and any other, policy.”
“The time may come when revisions are needed to this policy and I will gladly make them when I am convinced they are necessary and in the public interest,” he said in written testimony. “In the meantime, I support our prosecutors in their charging decisions and their use of these guidelines.”
‘Most Disappointing’
The Thompson Memo describes the factors prosecutors consider in determining whether to charge a corporation for criminal wrongdoing, including whether the company has cooperated in the investigation. In assessing cooperation, prosecutors may consider whether the company waived attorney-client and work-product protections and whether it paid legal fees for employees under investigation.
As Compliance Week has reported extensively over the past year (see box at right), the memo has come under increasing criticism in recent months for creating a “culture of waiver,” in which critics say federal prosecutors routinely demand the waiver of attorney-client and work-product protections.
Podgor
Ellen Podgor, a professor at Stetson University College of Law in Gulfport, Fla., says, “Corporations feel the need to immediately come forward and give the DoJ whatever they want and whoever they want in order to avoid the ramifications of the DoJ filing a case against them.”
“What happened to Arthur Andersen scared the hell out of corporations,” says Podgor, referring to the rapid demise of the top-ranked audit firm following its indictment on a charge of obstruction of justice in the Enron investigation. “It’s indictment was a death sentence, despite the fact that the Supreme Court reversed its conviction.”
To that end, business and legal groups—including the American Bar Association, the U.S. Chamber of Commerce, the National Association of Criminal Defense Lawyers, and the Association of Corporate Counsel—have called on the DoJ to make changes to the memo.
Mathis
The ABA, one of the groups leading the charge for reform, sent a letter in May to Attorney General Alberto Gonzalez asking the Justice Department—among other items—to remove privilege waivers from the list of factors for which companies are granted cooperation credit, and to eliminate a requirement that corporations turn over the complete results of any internal investigations.
ABA president Karen Mathis, who also testified at the September hearing, said the response from the Justice Department “was most disappointing.”
“They failed to address the specific concerns we raised and just reasserted the DoJ policy,” Mathis tells Compliance Week.
Appearing before the Senate committee, McNulty called the guidance “consistent with long-standing charging practices” and “fair to corporations under investigation and to the current and former officers and employees.”
TESTIMONY
The following is an excerpt from Deputy Attorney General Paul McNulty’s testimony before the Senate Judiciary Committee on Sept. 12, 2006.
Like waiver, a corporation may make a decision not to advance fees, if it has the discretion to do so, but it is the company’s choice alone. It is a business decision we do not control. Experienced and sophisticated counsels weigh what is in the best interests of the corporation and its shareholders. Sometimes, because of legal requirements, a longstanding corporate practice, or even the corporation’s concern in protecting its ability to attract the right kind of employee, a corporation will advance fees. Other times, it chooses not to. In short, the Department’s reference to attorneys’ fees as one small element that may, in limited cases, affect the cooperation analysis under the Thompson Memo does not, and could not, drive corporate policy or practice. With the level of skill of opposing counsel we have in these cases, it is wrong to suggest that we make their decisions for them.
The Thompson Memo is a set of principles, the basic structure of which is used every day in the criminal justice system. We ask cooperating drug dealers, bank robbers and gun-toting felons to waive their Fifth Amendment privilege against self-incrimination all the time – and the vast majority of them do not have access to the high-priced legal talent corporations do. If a corporation has committed a crime, it is no more deserving of special treatment than any of these defendants. The American public rightly demands that we judge all defendants by the severity of their crimes, not the size of their pocketbooks.
In closing, let me reiterate that the Department continues to listen and is always open to considering opposing views. I pledge to keep the dialogue open about the Thompson Memo and I welcome constructive criticism of this, and any other, policy. The time may come when revisions are needed to this policy and I will gladly make them when I am convinced they are necessary and in the public interest. In the meantime, I support our prosecutors in their charging decisions and their use of these guidelines. The guidance is consistent with long-standing charging practices and is fair to corporations under investigation and to the current and former officers and employees. I believe that the Thompson Memorandum strikes an effective balance between the interests of the business community and the investing public.
Source
Statement of DoJ Deputy Attorney General Paul McNulty Before The U.S. Senate Committee On The Judiciary Hearing Concerning The Thompson Memo (Sept. 12, 2006)
McNulty contended that companies would cooperate and waive privilege even without the Memo. “Whether it’s the Holder Memo, the Thompson Memo, a McNulty memo, or no memo, corporations will continue to cooperate in order to bring criminal investigations to an end, to bring them out from under that dark cloud of potential prosecution,” he said. “Thompson Memo or no memo, the waiving of attorney-client privilege will always be argued by a company in its defense.”
In absence of the Memo’s guidance, which McNulty said provides “a road map to prosecutors and corporate counsel to ensure reasoned, thoughtful decision-making in the charging process,” he said the federal criminal justice system would be “a much harsher, less predictable, and less transparent environment for corporations and their counsel.”
Also among those testifying in support of changes to the Thompson Memo were former Attorney General Edwin Meese, who said the Justice Department should eliminate the waiver of attorney-client privilege or work-product protections and the payment of employees’ legal fees from consideration of whether a company is cooperative.
Meanwhile, 10 former senior Justice Department officials also weighed in recently in support of the revisions suggested by the ABA and others. In a Sept. 5 letter to Attorney General Alberto Gonzalez, the former Justice officials said current policies and practices are “seriously eroding” the protections of attorney-client privilege and the work-product doctrine.
“In practice, companies who are all aware of the policies outlined in the Thompson Memorandum have no choice but to waive these protections,” the former Justice officials wrote. “The threat of being labeled ‘uncooperative’ simply poses too great a risk of indictment to do otherwise.”
Room For Compromise?
The latest calls for reform follow a scathing June opinion in United States v. Stein, in which U.S. District Judge Lewis Kaplan blasted the Memo and said the government violated the fifth and sixth amendment rights of former KPMG employees under investigation in a tax-shelter case by pressuring the company to cut off payment of their legal fees. Earlier this year, in response to concerns voiced by the ABA and others, the U.S. Sentencing Commission voted unanimously to remove language from the Federal Sentencing Guidelines that authorized and encouraged the government to seek waiver as a condition for cooperation (see related coverage above, right).
Lawmakers also have indicated that they plan to take action on the issue. At an event sponsored by the National Association of Criminal Defense Lawyers two days after the hearings, Sen. Arlen Specter, R-Pa., head of the Senate Judiciary Committee, reportedly said he plans to prepare legislation addressing the Memo for the lame-duck session in November, but noted that the timeline for passage is unpredictable.
Martz
“I think things are going to slowly get better as companies are emboldened by decisions like Stein to push back, but there’s limit to how much better they’ll get,” says Stephanie Martz, director of the NACDL’s White Collar Crime Project.
Martz believes that, in light of the recent focus and actions on the issue, “at some point, it’s going to be inescapable that the Justice Department will have to change the Thompson Memo.”
Khoury
Paul Khoury, a partner at the law firm Wiley Rein & Fielding, says his take on the testimony at the hearings “suggests that there’s room to try to come to some sort of compromise that will work for both industry and law enforcement.”
“Clearly, this is not an issue that’s close to immediate resolution, but it’s a step in the right direction,” says Khoury. “My view is that only good from come this kind of dialogue,” since it forces people to focus on whether attorney-client or work-product privilege waivers are really necessary, “and if so in what limited circumstance they’re necessary.”
“Our hope is that the Justice Department will amend the Thompson Memo and related provisions,” says the ABA’s Mathis. “We’re happy to keep the dialogue open and to work with them to appropriately go after the bad guys and still recognize the age old doctrines of attorney-client privilege and the work-product doctrine.”
Related coverage, documents, memos and letters can be found in the box above, right.
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