Under pressure from the organized defense bar, Congress and the courts, the U.S. Department of Justice (the “DOJ”) again has revised its Principles of Federal Prosecution of Business Organizations (“the Principles”), which govern how federal prosecutors investigate, charge and prosecute corporate fraud and other crimes. The modifications announced at the end of August affect how prosecutors evaluate the level of cooperation, if any, provided by a corporation and, in turn, how that cooperation impacts the government’s charging decisions.
The Principles have been promulgated in a series of memoranda issued by and named for successive Deputy Attorneys General (“DAGs”). First issued in 1999, they were revised and re-issued in 2003 in the wake of Enron in the form of the Thompson Memorandum. In the face of mounting criticism, especially of the Thompson Memorandum provisions allowing prosecutors to pressure corporations to disclose information or materials protected by the attorney-client privilege or work product doctrine, the Principles were revised a second time with the issuance of the McNulty Memorandum in December 2006. To many, however, the McNulty revisions did not go far enough and pressure mounted for a legislative remedy to the DOJ’s perceived over-reaching. In November 2007, the U.S. House of Representatives passed a bill (H.R. 3013) prohibiting the DOJ from pressuring companies to waive the attorney-client privilege or work product protection in return for “cooperation credit.” A nearly identical Senate bill (S. 186) remains pending before the Senate Judiciary Committee.
In a July 9, 2008 letter to the leadership of the Judiciary Committee, DAG Mark Filip sought to forestall action on the pending legislation by previewing the fourth set of revisions to the Principles ultimately issued on August 28, 2008. These revisions make five principal changes:
- Cooperation credit will no longer depend on whether a corporation has waived attorney-client privilege or work product protection by disclosing communications or producing protected documents to the government. Not only does this change result in less pressure on corporations to provide such waivers, it makes waivers inadvisable under most circumstances as going the “extra distance” by waiving the privilege or protection will garner the corporation no extra credit.
- Whereas the McNulty Memorandum limited the situations in which federal prosecutors could ask a business to waive the attorney-client privilege or attorney work-product protection, the revised Principles prohibit prosecutors from requesting any such waivers, except in two situations: when necessary to evaluate an advice-of-counsel defense asserted by a corporation or one of its employees; or when the communications in question were made in furtherance of a crime or fraud. Under settled law, these latter communications are not covered by the attorney-client privilege.
- The revised guidelines now bar federal prosecutors from considering whether a company has advanced or reimbursed legal fees to its employees, officers, or directors when evaluating the company’s cooperation, except where such conduct, combined with other circumstances, would constitute obstruction of justice.
- Coincidentally, on the same day that the revised DOJ guidelines were issued, the Second Circuit Court of Appeals affirmed a district court’s dismissal of the indictment against 13 former KPMG partners and employees on the grounds that their Sixth Amendment right to counsel had been violated when KPMG was pressured by the U.S. Attorney’s Office and the cooperation provisions in the Thompson Memorandum into terminating its payment of legal fees once these defendants were indicted. United States v. Stein, No. 07-3042, 2008 U.S. App. LEXIS 18524 (2d Cir. Aug. 28, 2008). (See next article below.)
- The revised guidelines now prohibit federal prosecutors from basing any cooperation credit on whether a corporation has entered into a joint defense agreement with other individuals or entities under investigation.
- Finally, prosecutors can no longer consider whether a company has disciplined or terminated employees when evaluating its overall cooperation. Only in assessing a company’s remediation efforts or compliance program may prosecutors consider whether the company has disciplined employees the company has identified as culpable.
While these developments appear to curtail the discretion of federal prosecutors, their practical impact on how prosecutors will assess a company’s efforts at cooperation remain to be seen. To view the text of the revised Principles of Federal Prosecution (which now have been included in the DOJ’s U.S. Attorney’s Manual) click here.