The Department of Justice has revised its corporate fraud charging guidelines, which, among other things, address how corporations can potentially avoid indictment and prosecution by cooperating with government investigations. The revisions arose from criticism that the former guidelines were being applied coercively.
A notable example of such criticism is United States v. Stein, 435 F. Supp.2d 330 (S.D.N.Y. 2006), which concerned charges filed against individual defendants following a DOJ investigation of KPMG and its employees for corporate fraud. During the investigation, KPMG sought to avoid prosecution by cooperating with the DOJ by, among other things, capping the amount of attorneys’ fees that it would advance to its employees and refusing to pay the attorneys’ fees of any employee who did not cooperate with the DOJ investigation. The government ultimately elected to only pursue charges against the individual defendants, all of which were dismissed after the District Court ruled that the government had put undue pressure on KPMG and violated the individual defendants’ Sixth Amendment rights. The Second Circuit recently affirmed that ruling, holding that the government “unjustifiably interfered with defendants’ relationship with counsel and their ability to mount a defense, in violation of the Sixth Amendment.” (United States v. Stein, 2008 WL 3982104 (2nd Cir. Aug. 28, 2008))
The revised guidelines address various factors through which a corporation’s level of cooperation may be evaluated. For example, the new guidelines forbid the DOJ from considering a corporation’s advancement of attorneys’ fees to employees when evaluating the corporation’s cooperation. In addition, under the revised guidelines, corporations that provide relevant facts can now receive cooperation credit regardless of whether they also choose to waive their attorney-client privilege. Previously, the DOJ took into account a corporation’s willingness to waive its attorney-client privilege when disclosing facts relevant to an investigation. Further, the DOJ can no longer request a corporation provide non-factual, attorney-client privileged communications and work product generated independently from the government investigation that were made for the purpose of seeking or dispensing legal advice.
Among the other changes to the guidelines, two more warrant mention here. First, the revised guidelines now prohibit prosecutors from taking into account whether a corporation has sanctioned the employees under investigation when evaluating a corporation’s cooperation. Second, the corporation’s participation in a joint defense agreement, even one that impacts its ability to provide information, will not render a corporation ineligible to receive cooperation credit. The revised guidelines took effect August 28.