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DOJ revises how it deals with corporate probes

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DOJ revises how it deals with corporate probes

The Bar’s Attorney-Client Privilege Task Force had recommended a change to the DOJ’s former guidelines

Senior Editor

With federal legislation pending and the ABA, The Florida Bar, and legal organizations agitating for change, the U.S. Department of Justice has modified its policies for dealing with businesses it is investigating.

The August 28 announcement from DOJ said it will no longer consider companies as not cooperating with a criminal probe if they pay attorneys costs for employees or fail to share attorney-client work product and confidences with prosecutors.

Neal Sonnett The change won approval from the ABA, but the organization still called for federal legislation, saying the principles involved were too important to rely only on an executive policy, which could be changed at any time.

“While there may be some small improvements, it [the new DOJ position] doesn’t really solve the major problems that have plagued us,” said Miami attorney Neal Sonnett, who served on the Bar’s Attorney-Client Privilege Task Force and was liaison to and a member of the ABA group working on the issue. “It doesn’t lessen the need at all for the legislation to be passed.”

ABA President H. Thomas Wells, Jr., issued a statement saying, “While the new guidelines are a welcome improvement over the McNulty Memorandum [the previous DOJ guidelines], the rights of American employees and the businesses they work for are too important to be subject to constantly shifting administrative policies. The department’s new guidelines are its fifth such policy in 10 years and can be changed again at any time. Unlike legislation, guidelines can provide no certainty that critical attorney-client privilege, work product, and employee constitutional rights will be protected in the future.”

Both Wells and Sonnett noted that while the new guidelines govern DOJ investigations, they do not apply to those conducted by other federal agencies, such as the Securities and Exchange Commission and the Environmental Protection Agency. Only a law, they said, can address practices in the entire federal government.

However, University of Florida law Prof. Michael Seigel, a member of the Attorney-Client Privilege Task Force who dissented from its recommendations on the DOJ guidelines, praised the new policies and said they would avoid problems that could arise from legislation on the matter.

“I think the new guidelines are actually quite good. I think that the department has listened to its critics. . . , ” he said. “It’s irrelevant whether a company waives its attorney-client privilege, that’s not the issue. The important thing is a corporation wants to claim cooperation, the key is telling the prosecutor everything you know. Whether it’s privileged or not is essentially irrelevant.”

The U.S. House of Representatives last year approved HR 3013, which is supported by the ABA, and the U.S. Senate is considering a similar measure, S. 3217, sponsored by Sen. Arlen Specter, R-Pa.

In announcing the new DOJ policies, Deputy Attorney General Mark R. Filip noted that a critical component when the department launches a criminal investigation into a corporation’s activities is the cooperation of the corporation itself.

“[I]t has long been the department’s policy to give credit to a corporation in exchange for its cooperation,” Filip said. “But the question of what exactly a corporation must do to earn such credit has been the subject of much attention and criticism in recent years.”

According to a DOJ press release, here are the relevant policy changes:

• Credit for cooperation will depend on the disclosure of relevant facts, not on a corporation’s waiver of attorney-client privilege or work product. “While prior guidance had allowed federal prosecutors to request, under special conditions, the disclosure of non-factual attorney-client privileged communications and work product. . . the new guidance forbids it, with two exceptions well established in existing law,” the press release said. That includes disclosing advice that an attorney may have given to a corporate client.

• A corporation’s advancement of attorneys’ fees is not a factor in determining cooperation.

• A corporation’s participation in a joint defense agreement with employees does not preclude credit for cooperation.

• Whether a corporation has sanctioned or retained culpable employees is not a factor in determining credit for cooperation.

The new policies, Filip said, “reflect the department’s firm commitment to two goals that I believe we all share: safeguarding the attorney-client privilege, which is so central to our criminal justice system, and preserving the department’s ability to investigate corporate wrongdoing effectively.. . . ”

Sonnett said the DOJ’s former policies on withholding cooperation credit unless a corporation reneged on agreements to pay employees legal defense costs already had come under fire in court. A New York federal U.S. district court judge tossed out the indictments against several KPMG employees brought by the federal government because the government had tried to negate the company’s agreement to pay their legal costs. The judge ruled that interfered with the employees’ constitutional right to representation.

On the day the department released its new guidelines, Sonnett noted that ruling was upheld by the Second U.S. Circuit Court of Appeals.

Prof. Seigel said the new guidelines on providing legal expenses for employees and corporate officers reflected what had happened in the KPMG case, and the Second Circuit ruling makes it the effective law, even without legislative action.

He also said it was obvious the department took great care in drafting the new guidelines.

“They went out of their way to explain not only this is what we’re going to do, but this is why,” Seigel said. “They took a lot of time to try to get it right and calm their critics.”

He argued legislation isn’t needed because most DOJ policies are rarely changed and legislation, if not “cleared and nuanced” to address all the issues, can make matters worse – a problem he sees with the current bills.

He also said even with the new guidelines there can be pressure on corporations to share otherwise privileged information if that’s necessary to show prosecutors that all relevant information has been shared.

“If the corporation wants credit for cooperation, there is still implicit pressure. . . to waive attorney-client privilege,” Seigel said. “If you take that [implicit pressure] away, which essentially the Specter legislation does, there no longer remains any incentive for a company to cooperate in many instances. It really does shift power back to the corporations significantly.”

The Bar’s Attorney-Client Privilege Task Force had recommended a change of the DOJ’s former guidelines to protect attorney-client privilege, work product, and employees’ right to counsel, and also called for supporting federal legislation on the issue. The Board of Governors endorsed those positions.

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