DOJ revises corporate charging guidelines

By Cydney Posner

As you may have heard, the DOJ has announced changes to its corporate charging guidelines  for the investigation and prosecution of corporate crimes. Previously, the DOJ's policy was reflected in the highly controversial Thompson and McNulty Memoranda. The new policy was announced in a press release and remarks by Deputy Attorney General Mark R. Filip .  

In essence, the Thompson Memorandum advised prosecutors to consider, in determining whether to seek corporate indictments, whether companies had cooperated by waiving attorney-client privilege or work-product protections or by refusing to pay legal fees of its employees who may be implicated in the matter. These tactics have come under considerable fire from various quarters and, in one instance, ruled unconstitutional. (That decision was just upheld by the Second Circuit Court of Appeals, which affirmed the dismissal of an indictment against 13 former partners and employees of KPMG, holding that, by causing KPMG to place conditions on the advancement of legal fees to the defendants, the government deprived the defendants of their Sixth Amendment rights to counsel.)  Under the revisions effected by the McNulty Memorandum, federal prosecutors were no longer authorized to ask for a privilege waiver without written approval for waivers from the deputy attorney general, which were to be granted only in rare instances. In addition, prosecutors were prohibited from considering, when deciding whether to seek an indictment, whether the company was paying the legal fees of an employee involved in the inquiry. However, opposition continued, as many did not believe McNulty went far enough in reversing Thompson. To counter this assault on attorney-client privilege, Senator Arlen Spector introduced the Attorney-Client Privilege Protection Act of 2007. (See my emails from September 21, 2007, and April 18, June 27, September 13, and December 13, 2006, pasted below).

The new guidance revises the DOJ's Principles of Federal Prosecution of Business Organizations and will be committed for the first time to the United States Attorneys Manual, which is binding on all federal prosecutors within the DOJ. The new guidelines state that credit for cooperation will not depend on the corporation's waiver of attorney-client privilege or work product protection, but rather on the disclosure of relevant facts. That is, corporations will receive the same credit for disclosing facts that are contained in unprotected materials as they would for disclosing the identical facts contained in protected materials. (Whether this change makes much practical difference remains to be seen.) The new guidance prohibits federal prosecutors from requesting the disclosure of non-factual attorney-client privileged communications and work product, with two exceptions. Moreover, when evaluating whether to assign cooperation credit to the corporation, federal prosecutors may not consider whether a corporation has:

• advanced attorneys' fees to employees (unless it rises to the level of obstruction of justice);
• sanctioned or retained culpable employees (although the government may consider whether a corporation has disciplined employees that the corporation identifies as culpable); or
• participated in a joint defense agreement (although the government may ask that a corporation refrain from disclosing to third parties information provided by the government).

Corporate Counselpoints out that Spector will likely continue to proceed with the Attorney-Client Privilege Protection Act, which has passed the House and is pending in the Senate. In response to the revised guidelines, Spector stated that: "The revised guidelines are a step in the right direction but they leave many problems unresolved so that legislation will still be necessary. For example, there is no change in the benefit to corporations to waive the privilege by giving facts obtained by the corporate attorneys from the individuals in order to escape prosecution or to have a deferred prosecution agreement. The new guidelines expressly encourage corporations to comply with the waiver and disclosure programs of other agencies including the SEC and EPA. Legislation, of course, would bind all federal agencies and could not be changed except by an Act of Congress." As cited by Corporate Counsel, ABA President Thomas Wells noted that the SEC was among the agencies that pressure companies to waive their legal privileges in enforcement actions. Corporate Counsel even mused about whether the Tandy language (requiring the company to waive a potential defense) that companies are required to include in responses to SEC comments might ultimately be implicated by this recent turn of events.