Thursday, August 18, 2011

The Twists and Turns of DOJ's Corporate Charging Policies

One of the more tortured policy areas is DOJ policies relating to corporate charging policies and the attorney-client privilege.

The history reflects competing interests, political grandstanding and line prosecutors' aggressive attempts to enforce white collar laws against corporate law breakers. The Department’s motto reminds me of Month Python’s famous chant in “The Holy Grail” -- “Run Away! Run Away!”

Over the last 12 years, the Justice Department has issued five separate memoranda to describe its policies regarding corporate charging decisions. The first three (the Holder, Thompson, and McCallum Memoranda) sought to promote federal prosecutors’ ability to address corporate criminal wrongdoing by seeking waivers of attorney-client and work-product protections to receive cooperation credit. In response to firestorms of criticism, the last two memoranda (McNulty and Filip Memoranda) pushed the Justice Department’s policy against this trend and sought to restrain prosecutors from requesting waivers of attorney-client or work product privileges.

At the heart of the controversy is federal prosecutors’ conditioning cooperation credit or decisions not to charge corporations on whether a company waives its attorney-client privilege and work product protections, refrains from paying employee legal fees to defend themselves in a criminal case, or fires certain employees involved in corporate misconduct.

In response to criticisms of disparate treatment of similarly situated corporate actors, the Justice Department issued its first corporate charging policy statement in 1999, the so-called Holder Memorandum (issued by then Deputy Attorney General Eric Holder). DAG Holder had no idea what he was starting. The controversy focused on one factor in the analysis – the company’s timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation, including, waiving the corporate attorney-client and work-product protections. By gaining “cooperation credit” a company could potentially avoid an indictment, the death knell for any company.

The Holder Memorandum set forth eight factors to be considered in corporate charging decisions, including “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 the corporate attorney-client and work-product privileges.” Significantly, the Holder factors were not binding on prosecutors.

In response to new corporate scandals in the early 2000s, DAG Larry Thompson revisited the Holder Memorandum and made the charging factors outlined in the Holder Memorandum binding on federal prosecutors rather than advisory.
The Thompson Memorandum was the height of DOJ's powers. After that, the white collar bar, criminal defense organizations, and political figures organized to push back against DOJ’s policies. In the face of such criticism, in October 2005, Deputy Attorney General Robert McCallum issued a one-page amendment to the Thompson Memorandum which required that each U.S. Attorney’s office adopt procedures mandating higher-level review of prosecutor requests for waivers of the attorney-client and work-product protections in criminal investigations.

The political opponents continued to fight. DOJ did not react. Congress started to conduct hearings on the issue and criticisms started to mount. Senator Patrick Leahy stated that the Thompson Memorandum had created a “dangerous culture of waiver,” adding that the policies underlying the memorandum were “coercive” and “may even rise to the level of a bludgeon."

On December 12, 2006, then Deputy Attorney General, Paul J. McNulty, issued a memorandum that further revised the Thompson Memorandum and retreated on the issue of waivers of the attorney-client and work product protections, pointing out that “[w]aiver of attorney-client and work-product protections is not a prerequisite to a finding that a company has cooperated in the government’s investigation.” Although the McNulty Memorandum provided significant changes to prior guidelines, the criticism continued and legislative action become a reality. On November 12, 2007, the “Attorney-Client Protection Act of 2007” was passed in the United States House of Representatives. And, on June 26, 2008, Senator Specter and twelve co-sponsors introduced the “Attorney-Client Protection Act of 2008” in the Senate.

In order to avoid legislative action, on August 28, 2008, then DAG Mark Filip issued a new Memorandum, which made significant changes in the DOJ’s guidelines for granting a company cooperation credit. DOJ stated that while a corporation remains free to voluntarily waive attorney-client or work-product protections, “prosecutors should not ask for such waivers and are directed not to do so.” The decisive factor is “whether the corporation has provided the facts about the events.” The analysis does not turn on whether the corporation actually discloses attorney-client or work-product materials. The Filip Memorandum included two exceptions – requests for waiver of attorney-client and work product protections can be sought when the company relies on an advice of counsel defense or when the communications are in furtherance of a crime or fraud.

Under the Filip Memorandum, prosecutors may not (i) consider “whether a corporation is advancing or reimbursing attorneys’ fees or providing counsel to employees, officers, or directors under investigation or indictment” or (ii) request that a corporation refrain from advancing attorneys fees.

While the Filip Memorandum appears to be a victory for the white collar defense bar and criminal defense organizations, the Memorandum still allows the government to hold a company accountable for failing to waive the privilege when the “relevant facts” regarding the conduct under investigation otherwise cannot be readily revealed.. Similarly, failure to disclose relevant facts because of the existence of a joint defense agreement may weigh against a company receiving cooperation credit. And, prosecutors may continue to consider “whether the corporation appropriately disciplined wrongdoers, once those employees are identified by the corporation as culpable for the misconduct” as part of remediation efforts. Thus, corporations must continue to be cognizant of developing practices to determine whether the de facto policy is inconsistent with the Department’s current policy pronouncements.


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