Deputy Attorney General Paul J. McNulty has issued a new “Thompson Memo” in an attempt to address concerns raised by Judges and Congress over the Department’s demands that companies waive the attorney-client privilege in order to be considered a good corporate citizen that cooperated with the government’s investigation. If followed by Assistant United States Attorneys in the field, the new rules will provide companies more options in how to deal with the results of internal investigations. The new policy will play a significant role in the government’s pursuit of criminal charges for back-dating of stock options since many of the matters under investigation were initiated by self-disclosures from companies that were trying to live up to the dictates of the Thompson Memo.
Since 2003, the Department of Justice prosecutors have used guidelines enunciated in the Thompson Memo to gauge a company’s level of cooperation. The Thompson Memo was crafted by then-Deputy Attorney General Larry Thompson and is available in pdf form at http://www.usdoj.gov/dag/cftf/business_organizations.pdf. The memo gives factors for the prosecutor to consider in reaching a decision as to the proper treatment of a corporate target. These factors contain controversial criteria that put pressure on companies to cut off legal support to employees accused of wrongdoing and waive their attorney-client privilege rights in return for lenient treatment.
In an opinion dated June 26, 2006, U.S. District Judge Lewis A. Kaplan rebuked the government for pressuring KPMG, a very large professional services firm, to cut off legal services to 16 employees, including a former chief officer, accused of setting up tax shelters as part of their work for the firm. U.S. v. Stein, 435 F. Supp. 2d 330 (S.D.N.Y. 2006). Kaplan said the government’s pressure on KPMG had violated the employees’ Fifth and Sixth Amendment rights. Kaplan stated that, “KPMG refused to pay (the attorneys’ fees) because the government held the proverbial gun to its head.” Stein, 435 F. Supp. 2d at 336. Kaplan explained that:
“The innocent need able representation in criminal matters perhaps even more than the guilty. In addition, defense costs in investigations arising out of complex business environments often are far greater than in less complex criminal matters. Counsel with the skills, business sophistication and resources that are important to able representation in such matters often are more expensive. . . . Thus, even the innocent need substantial resources to minimize the chance of an unjust indictment and conviction.” Stein, 435 F. Supp. 2d at 338 n.13.
This case along with other criticism of the Thompson factors has prompted legislative action and reform from within the Department of Justice. In September of this year, Senator Arlen Specter of Pennsylvania announced that he had plans to introduce legislation that would prevent federal prosecutors from encouraging companies to cut off attorneys’ fees to employees or waive their attorney-client privilege in corporate criminal cases. On December 7, 2006, Senator Specter introduced the legislation (S.30). The bill has been entitled the “Attorney-Client Privilege Protection Act.” Section 3 of the bill addresses the controversial criteria stating that prosecutors shall not “demand, request, or condition treatment” on a waiver of an organization’s attorney-client privilege or “condition a civil or criminal charging decision” on the “contribution to the legal defense fees or expenses of [] an employee” of the organization. 152 Cong. Rec. S11429-01.
Senator Specter’s bill prompted the Department of Justice to take action to avoid the legislative effort. U.S. Deputy Attorney General Paul J. McNulty has issued a new “Thompson Memo” in an attempt to address the concerns of Congress. A copy of the memo can be viewed in pdf form at http://www.usdoj.gov/dag/speech/2006/mcnulty_memo.pdf. The only substantive changes to the memo concern the guidance concerning the attorney-client privilege and the work product doctrine, and the consideration of the advancing of employees’ legal fees.
I. Attorney-Client Privilege and the Work Product Doctrine
The Thompson Memo contained a controversial attorney-client privilege waiver factor that prosecutors were to consider when determining the level of a corporation’s cooperation. The Thompson Memo states that a prosecutor can take into consideration “the corporation’s timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents, including, if necessary, the waiver of corporate attorney-client work product protection.” Thompson Memo at p. 3.
This factor was revised in the McNulty Memo to read that a prosecutor can consider “the corporation’s timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents[,]” with no mention of waiver of the attorney-client privilege. McNulty Memo at p. 4. Moreover, the McNulty Memo includes a long discussion of the application of this factor addressing the waiver of the attorney-client privilege and the work product doctrine, including the recognition of the attorney-client privilege as the “oldest and most sacrosanct privileges under U.S. law.” McNulty Memo at pp. 8–10. The McNulty Memo states that “[p]prosecutors may only request waiver of attorney-client or work product protections when there is a legitimate need for the privileged information to fulfill their law enforcement obligations.” McNulty Memo at p. 8. The memo then provides “policy considerations” that require a “careful balancing” before it can be determined that there is a legitimate need for waiver. McNulty Memo at p. 9. These policy considerations are listed in the McNulty Memo as follows:
(1) the likelihood and degree to which the privileged information will benefit the government’s investigation;
(2) whether the information sought can be obtained in a timely and complete fashion by using alternative means that do not require waiver;
(3) the completeness of the voluntary disclosure already provided; and
(4) the collateral consequences to a corporation of a waiver.
The memo goes on to explain that if a request is justified a “step-by-step approach” must be followed in actually requesting the privileged or protected information. McNulty Memo at pp. 9–10. For requesting purely factual information (i.e., organization charts, factual chronologies, factual summaries, or reports), this approach includes, among other things, obtaining written authorization from the United States Attorney to request the information, providing a copy of the request and consulting with the Assistant Attorney General for the Criminal Division concerning the request, and communicating a request to the corporation in writing. McNulty Memo at p. 9. For requesting attorney-client communications or non-factual attorney work product, the memo cautions that this type of information should only be sought in rare circumstances. McNulty Memo at p. 10. The step-by-step approach for this type of information includes, among other things, obtaining written authorization from the Deputy Attorney General and communicating the request in writing to the corporation. McNulty Memo at p. 10. The memo clearly states that if a corporation denies these types of requests, “prosecutors must not consider this declination against the corporation in making a charging decision.” McNulty Memo at p. 10.
II. Advancing Employees’ Legal Fees
The Thompson Memo states that a factor to be considered in determining the extent and value of a corporation’s cooperation is “whether the corporation appears to be protecting its culpable employees and agents . . . either through the advancing of attorneys’ fees [footnote omitted], through retaining the employees without sanction for their misconduct, or through providing information to the employees about the government’s investigation pursuant to a joint defense agreement. . . .” Thompson Memo at p. 8.
The McNulty Memo specifically removes the example of the advancing of attorneys’ fees and instead states, “[p]rosecutors generally should not take into account whether a corporation is advancing attorneys’ fees to employees or agents under investigation or indictment.” McNulty Memo at p. 11. However, this section of the memo states that the prohibition against considering this factor is not meant to “prevent a prosecutor from asking questions about an attorney’s representation of a corporation or its employees.” McNulty Memo at p. 11. The McNulty Memo also carves out an exception to the rule “[i]n extremely rare cases . . . when the totality of the circumstances show that it was intended to impede a criminal investigation.” McNulty Memo at p. 11 n.3. Even in these rare circumstances the prosecutor must follow a step-by-step process to obtain approval from the Deputy Attorney General before considering this factor in their charging decisions. McNulty Memo at p. 11 n.3.
The McNulty Memo explicitly “supersedes and replaces guidance contained” in the Thomson memo and serves as the new guideline for internal use of the Department of Justice. McNulty Memo at p. 2. This memo creates a new calculus not only for prosecutors in deciding whether to charge an organization with wrongdoing, but also for companies under investigation, who have added protections to their obligations to their employees and their communication with legal counsel. However, only time will tell if the McNulty changes are mere window-dressing to appease Senator Specter or substantive changes in how the Department of Justice treats companies that find themselves in the cross-hairs of a grand jury investigation.
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