On December 12, 2006, Deputy Attorney General Paul McNulty announced revisions to the controversial “Thompson Memorandum” and issued a superseding memorandum (the “McNulty Memorandum” or “McNulty Memo”) containing new guidelines for federal prosecutors to use in determining whether a corporation has “cooperated” in a government investigation, and in deciding whether to bring criminal charges. See “Principles of Federal Prosecution of Business Organizations” (December 12, 2006) available at http://www.usdoj.gov/dag/speech/2006/mcnulty_memo.pdf. The new guidelines limit prosecutors’ discretion to request waivers of the attorney-client privilege and work product protections, and require written approval from high-level Department of Justice officials for most waiver requests. The McNulty Memo also prohibits prosecutors from taking into account a corporation’s advancement of attorneys’ fees to employees under investigation or indictment in determining whether the corporation should receive credit for cooperation.
The McNulty Memorandum came on the heels of legislation introduced on December 7, 2006, by Senator Arlen Specter (R-Pa.), which was also intended to prevent erosion of the attorney-client privilege and other statutory and constitutional rights attributed to prosecutorial policy under the Thompson Memorandum. Senator Specter introduced the bill, admittedly too late to be acted on in 2006, because anticipated changes to DOJ policy had not been forthcoming. See 152 Cong. Rec. S11439 (daily ed. Dec. 7, 2006) (remarks of Sen. Specter). On January 4, 2007, Senator Specter reintroduced his proposed bill, stating that the modifications to DOJ policy on waivers of attorney-client privilege were “inadequate.” 153 Cong. Rec. S181 (daily ed. Jan. 4, 2007) (remarks of Sen. Specter). The proposed ACPPA is significantly broader than the policy changes embodied in the McNulty Memorandum.
Although the McNulty Memorandum does not address some of the most important criticisms of the Thompson Memorandum, it modifies the framework in which corporations must analyze and respond to requests for privilege waivers from federal prosecutors, and is a positive step toward curbing widely perceived abuses of prosecutorial power under the Thompson Memorandum. The McNulty Memorandum establishes a framework that defense counsel can use to discuss with prosecutors ways of cooperating with criminal investigations that do not necessarily involve waivers of privilege.
The “Culture of Waiver” Under the Thompson Memorandum
The “Thompson Memorandum,” issued in 2003 by then-Deputy Attorney General Larry Thompson, significantly increased federal prosecutors’ emphasis on the extent and authenticity of a company’s cooperation in a federal criminal investigation in deciding whether to bring criminal charges against the company. In particular, it expressly required prosecutors to consider a set of factors – including waiver of the attorney-client privilege and work product protections – in determining whether the company should receive credit for full cooperation. See Memorandum, Deputy Attorney General Larry D. Thompson, re: “Principles of Federal Prosecution of Business Organizations,” Section VI (January 20, 2003) available at http://www.usdoj.gov/dag/cftf/corporate_guidelines.htm. The Thompson Memorandum revised a previous memorandum, issued in 1999 by former Deputy Attorney General Eric Holder, that authorized prosecutors to consider the same factors, but did not require them to do so.
The SEC took an approach similar to the Holder Memorandum in its 2001 Seaboard Report, which stated that when deciding whether to bring enforcement actions, the Commission would grant credit to companies that engaged in self-policing, self-reporting, remediation and cooperation. The Report suggested that companies that desired to cooperate may decide not to assert the attorney-client privilege, work product protection, or other privileges and protections with respect to the Commission.
These policies, and in particular those embodied in the Thompson Memorandum, are widely credited with creating a “culture of waiver” in which privilege waivers are routinely demanded by government attorneys, and companies have no choice but to comply in order to obtain credit for cooperation and to avoid criminal or serious civil charges. Under the prevailing law of attorney-client privilege, a privilege waiver as to a government agency also effects a waiver as to third parties, and grants these parties access to what would otherwise be confidential documents. The effect is to vastly increase the company’s exposure to private lawsuits.
The Thompson Memorandum also directed prosecutors to consider whether corporations are advancing attorneys’ fees to employees under investigation or indictment in determining whether those corporations have cooperated. This provision of the Thompson Memorandum has been harshly criticized as authorizing prosecutors to pressure corporations to cut off legal fees for employees, and to the extent that it does so, has been found by at least one federal court to violate the Fifth Amendment Due Process Clause and place an impermissible burden on employees’ Sixth Amendment right to counsel.
The McNulty Memorandum Increases the Burden on Prosecutors Seeking Privilege Waivers
Under the McNulty Memorandum, a corporation’s willingness to cooperate in the investigation of its agents is still one of the factors to be considered in determining whether to bring charges against the corporation, and prosecutors may still request privilege waivers of companies under investigation. However, the McNulty Memo states that waiver of the attorney-client and work product protections is not a prerequisite to a finding that a company has cooperated in an investigation. In addition, by imposing a written approval process and establishing a four-part standard to be met before approval to seek a privilege waiver is granted, the McNulty Memorandum makes it less simple for prosecutors to request waivers routinely.
Under the new guidelines, prosecutors must demonstrate in writing that there is a “legitimate need” for the privileged material sought and must seek “the least intrusive waiver necessary to conduct a complete and thorough investigation.” See McNulty Memorandum, Section VII. The factors to consider in determining whether there is a legitimate need are:
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 the corporation of a waiver.
Prosecutors must first request “purely factual information,” which “may or may not be privileged.” The McNulty Memorandum calls such information “Category I” information. Category I information includes, but is not limited to, “key documents,” “purely factual” interview memoranda, and “factual summaries or reports . . . containing investigative facts documented by counsel.” See McNulty Memorandum, Section VII.B.2. Because what is “purely factual” is open to interpretation, the meaning and scope of “Category I” information are likely to be controversial. Requests for “Category I” information require the written approval of the supervising United States Attorney, who must consult with the Assistant Attorney General of the Department of Justice Criminal Division in Washington before granting or denying approval. The McNulty Memorandum states explicitly that prosecutors may consider a corporation’s response to a waiver request for Category I information in determining whether the corporation has cooperated in the government’s investigation.
If and only if Category I information provides an “incomplete basis for conducting a thorough investigation” may prosecutors request additional “Category II” privileged materials such as attorney-client communications, opinion work product, and legal advice given to the corporation in connection with the conduct under investigation. Category II information “should only be sought in rare circumstances” and requests for waivers of this information require the approval of the Deputy Attorney General, currently Paul McNulty. See McNulty Memorandum, Section VII.B.2. The McNulty Memorandum explicitly states that if a corporation declines a request to waive the privilege as to Category II information, prosecutors may not consider this declination in making a charging decision. However, prosecutors may always favorably consider a corporation’s agreement to provide privileged materials in determining whether a corporation has cooperated with the investigation.
In addition, the McNulty Memorandum directs prosecutors not to take into account whether a corporation is advancing attorney’s fees to employees under investigation or indictment in deciding whether to charge the corporation. The one exception is for “extremely rare” cases where the totality of circumstances shows that the corporation is attempting to impede the investigation. In such cases, prosecutors must use the same authorization process established for requesting waivers of Category II materials before considering the advancement of attorneys’ fees in their charging decisions.
Where Do We Go From Here?
The McNulty Memorandum does not solve every problem arising from the Thompson Memorandum. In particular, it does not directly address the fact that privilege waivers as to federal prosecutors will, in most cases, also effect waivers as to third parties, including private litigants. The Memorandum’s sole, indirect reference to this problem is to make the “collateral consequences” of a waiver to the corporation a factor to consider in assessing whether there is a “legitimate need” for a waiver. See McNulty Memorandum, Section VII.B.2. Nor does the McNulty Memorandum address the criticism that DOJ policy erodes constitutional and statutory rights of corporate employees other than the right to counsel, by, for example, exerting pressure on companies to threaten their employees with termination unless the employees agree to speak with internal investigators or prosecutors. Such pressure can make it possible for the government to obtain statements from company employees that prosecutors otherwise could have obtained only by negotiating immunity or cooperation agreements directly with the employees.
Moreover, the McNulty Memorandum leaves enormous room for interpretation by the Department of Justice. Until the DOJ begins to apply the new guidelines, it will be unclear, for example, how often “purely factual information” that is obtained through requests for Category I materials will “provide an incomplete basis to conduct a thorough investigation,” thereby permitting a request for “Category II” materials. McNulty Memorandum, Section VII.B.2. It is also unclear how the DOJ will draw the line between “Category I” and “Category II” information. Consequently, the impact of the McNulty Memorandum will depend to a great extent on how it is implemented by the DOJ.
Nevertheless, the McNulty Memorandum does provide a new framework for defense counsel to respond to requests for waivers of the attorney-client privilege and work product protection in internal investigations and otherwise. The ensuing dialogue between prosecutors and defense counsel will undoubtedly help shape the development of DOJ policy respecting waiver. It is therefore more important than ever that counsel understand the new framework, and be able to use it to open and conduct such a dialogue.
In addition, the McNulty Memorandum’s written approval requirements should increase the transparency and consistency of DOJ policy with regard to privilege waivers and the assignment of credit for cooperation. At the very least, counsel will better be able to document abuses of the power to grant cooperation credit for privilege waivers; these abuses until now have been denied by the DOJ. The reintroduction of the proposed Attorney-Client Privilege Protection Act of 2007 is likely to foster continued discussion in this developing area of law.