• New DOJ Guidelines: Fig Leaf to Avoid Legislation?
  • September 25, 2008 | Author: Jeffrey B. Coopersmith
  • Law Firms: DLA Piper - Seattle Office ; DLA Piper - New York Office
  • For the fifth time in a decade, the United States Department of Justice has a new policy for the investigation and prosecution of business organizations.

    The latest revisions relate primarily to the attorney-client and work product privileges. Deputy Attorney General Mark Filip announced the revisions at press conference late last month conducted at the New York Stock Exchange--a site chosen to acknowledge the business community’s intense interest in the issue.

    The new policy, “Principles of Federal Prosecution of Business Organizations,” now incorporated as Sections 9-28.000 through 9-28.1300 of the United States Attorney’s Manual, reflects the DOJ’s further reaction to the sustained criticism from many respected members of the bar including former Attorneys General and other federal prosecutors.

    That criticism has focused primarily on the DOJ’s policies of measuring an entity’s “cooperation” with a criminal investigation in part by its willingness to waive the attorney-client and work-product privileges. The controversy reached its high point with the Stein case.1

    In Stein, United States District Judge Lewis Kaplan found, among other things, that the government’s use of the DOJ cooperation policy announced in the 2003 Thompson Memorandum2 resulted in a denial of defendants’ Sixth Amendment right to counsel. This finding justified dismissal of indictments against 13 former KPMG officials swept up in an abusive tax shelter investigation.

    Judge Kaplan’s decision in Stein was affirmed by the Second Circuit on the same day the DOJ announced its new policy (timing that was apparently coincidental).3

    Moreover, for several years Congress has been considering legislation that would protect the attorney-client and work product privileges that commentators and the business community believe were eroded by the Thompson Memorandum and not sufficiently restored by its 2006 successor, the McNulty Memorandum.4 Just prior to the announcement of the DOJ’s new policy, proposed legislation had passed the House and final action by the Senate appeared potentially imminent.

    With the new policy, the DOJ concedes that it hopes to stave off legislative action and argues that a statute would tie its hands as it works to fight corporate malfeasance and to protect the integrity of the markets.

    Key Changes of the New DOJ Policy

    The most important change concerns attorney-client privilege and attorney work product protection. The new policy seemingly prohibits the Department outright from considering a business organization’s decision to waive the attorney-client privilege and attorney work product protection as a factor in assessing the entity’s cooperation. The 2003 Thompson Memorandum allowed such consideration, and the perceived abuse of this authority by some federal prosecutors has been a driving force behind efforts to persuade the DOJ or Congress to change the policy.

    The 2006 McNulty Memorandum attempted to address and resolve the controversy by creating a fairly complicated system of approval by different levels of senior officials when line federal prosecutors requested that business organizations be allowed to waive the privileges. Waivers could be granted depending on whether the particular waiver request was directed at heavily protected “opinion” work product or more lightly protected “fact” work product.

    The McNulty Memorandum did not quell the controversy, leading to continuing debate within the Department, as well as in Congress and the bar.

    The new, 2008 DOJ policy expressly recognizes that “the attorney-client privilege and attorney work product protection are essential and long-recognized components of the American legal system” and states that “[e]ligibility for cooperation credit is not predicated upon the waiver of attorney-client privilege or work product protection.”

    The new policy flatly prohibits federal prosecutors from asking a business organization to disclose the mental impressions or legal theories of its lawyers, or communications between the organization’s personnel and its counsel “regarding or in a manner that concerns the legal implications of the putative misconduct at issue.”

    However, the new policy provides that, just as individuals typically demonstrate cooperation with government investigations by disclosing their knowledge of facts relating to the alleged wrongdoing, so too must business organizations disclose their “knowledge” of the underlying facts to gain entitlement to cooperation credit.

    The policy recognizes that entities frequently gather facts through investigations conducted by lawyers, “a process that may confer attorney-client privilege or attorney work product protection on at least some of the information collected,” but also points out that an entity may choose to gather facts through interviews of company personnel by non-lawyers. The new policy purports to leave the choice of the method of fact-gathering to the business organization. The operative question in assigning cooperation credit for the disclosure of information, the policy states, is: “Whichever process the corporation selects, the government’s key measure of cooperation must remain the same as it does for an individual: has the party timely disclosed the relevant facts about the putative misconduct?”

    A second key change made by the new DOJ policy relates to the issue of joint defense agreements. When determining how cooperative a company had been, prosecutors formerly could hold against it the mere fact that it had entered into a joint defense agreement. The new policy recognizes that there are legitimate reasons why a company might enter into a joint defense agreement in certain circumstances and forbids prosecutors from requesting that a company not do so.

    It advises companies, however, that they may want to avoid putting themselves in the position of being unable, as a result of a joint defense agreement, to provide relevant facts, thereby limiting their ability to seek cooperation credit. The Department suggests that companies may want to craft or participate in joint defense agreements that provide flexibility to cooperate when appropriate.

    Finally, a third key change concerns a business organization’s actions in disciplining or terminating wrongdoers.

    The prior policy allowed prosecutors, when assessing cooperation, to consider whether a company disciplined or terminated employees. Under the new policy, the government may only consider whether a company has disciplined employees the company has decided were culpable, and then only as part of evaluating the company’s remedial measures or its compliance program.

    The Impact

    Since these new guidelines are just a few days old, it is difficult to project their ultimate impact with any degree of certainty.

    However, we may note that to date reaction to the changes has been mixed. In July, Deputy Attorney General Filip telegraphed these coming changes in a letter to Senators Patrick Leahy (D-VT) and Arlen Specter (R-PA). Senator Leahy indicated that he was cautiously optimistic about the value of the new guidelines, while Senator Specter expressed a sense that the changes were too little, too late. The senior Pennsylvania senator’s response betrayed his frustration with the Department’s latest attempt to head off the legislation he has championed, and which appears to have broad bipartisan support.

    Reaction in the defense bar has been similarly mixed. Some, perhaps hopefully, thought Deputy AG Filip’s letter heralded long awaited, fundamental changes in the way prosecutors would approach these key issues and a newfound recognition that the criticisms were valid and important. Other prominent, longtime critics of the prior policies rejected the proposed changes as a diversion, intended to do just enough to stop Congress from intervening in a way that would secure, once and for all, attorney-client privilege, work product protection and employees’ Fifth and Sixth Amendment rights.

    Now that the changes have arrived as advertised and the legal and business communities are beginning to respond, there is a general sense that, while the new DOJ policy represents a welcome and important change, legislation may still be necessary. As John Wesley Hall, president of the National Association of Criminal Defense Lawyers put it, “[i]t does look good on paper, but there really ought to be a law.”

    Those supporting a legislative approach argue that the revised policy falls short in at least three key ways.

    First, it is by definition policy, not law, so it could be altered or even reversed at any time by the attorney general, and companies would find themselves back in the place they were on Aug. 27.

    Second, DOJ policy does not bind other regulatory enforcement agencies, such as the Securities and Exchange Commission and the Internal Revenue Service, which remain free to seek privilege waivers from business entities under investigation.

    Third, although the new policy states that a business organization’s disclosure to the government of the relevant facts is the test of its cooperation, not its waiver of privileges, in view of the fact that entities will likely have to continue gathering facts about putative misconduct through internal investigations conducted by lawyers, it is unclear how a company could in practice cooperate without waiving at least the protection for “fact” attorney work product. This is particularly so because entities are often unable to make available to the government potentially culpable individuals once those individuals retain their own counsel, leaving as the only immediate source of the facts sought by the government the company’s investigation conducted by counsel.

    Of course, much of the impact of the DOJ’s new policy will have to assessed based on the way individual federal prosecutors and United States Attorney’s Offices around the country put it to use, if legislation is not enacted first. At the least, however, the ability of the government to deploy cooperation credit as a bludgeon to force privilege waivers appears to be in the past. But as a practical matter companies may well see the disclosure of facts collected by lawyers as the only alternative to satisfy the Department’s policy that only the disclosure of facts will earn cooperation credit.

    It seems quite possible, perhaps even likely, that the new DOJ policy will not result in fundamental change, with one exception: business organizations will now be able to more fully shield their lawyers’ analyses of the facts—that is, mental impression and opinion work product--from the DOJ, if not from the civil regulatory agencies.


    1 United States v. Stein, 435 F. Supp. 2d 330 (S.D.N.Y. 2006). Stein focused on another controversial aspect of prior DOJ policy (incorporated in the Thompson Memorandum) involving the denial of cooperation credit to a business organization for voluntarily advancing fees to alleged wrongdoers, but the case became the leading edge of a wave of broader criticism of DOJ policy.

    2 The Thompson Memorandum is available at www.usdoj.gov/dag/cftf/corporate_guidelines.htm.

    3 United States v. Stein --- F.3d ----, 2008 WL 3982104 (2d Cir. Aug 28, 2008).

    4 The McNulty Memorandum is available at www.usdoj.gov/dag/speeches/2006/mcnulty_memo.pdf.