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New Memo Won't Ease Attorney-Client Privilege Concerns
Ann Graham
Texas Lawyer
02-05-2007
Has the U.S. Department of Justice reversed its position of aggressively pursuing corporate attorneyclient privilege wa ivers? A new DOJ policy pronouncement may not go far enough to satisfy critics .
The aggressive waiver policy goes back to the Thompson Memorandum, issued on Jan. 20, 2003 , by
Deputy Attorney General Larry D. Thompson. This guidance to prosecutors made waiver of attorneyclient privilege and work-product protection a significant factor in prosecutors' indictment decisions and
sentencing recommendations . The Thompson Memo seemed to tell general counsel that if they wanted
to convince prosecutors that their corporations had cooperated with DOJ investigations, they were all but
required to waive their corporations' attorney-client privilege.
After widespread criticism , Deputy Attorney General Paul J. McNulty issued a memorandum for
distribution to U.S. attorneys on Dec. 12, 2006. The key question for GCs is whether the McNulty Memo
represents a real policy change or simply a cosmetic restatement designed to placate the American Bar
Association and Congress.
To understand how the business world got to this point, go back to the avalanche of corporate scandals
at the turn of th is century: Enron Corp. , WorldCom Inc., Tyco International Ltd. , Adelphia
Communications Corp., and on and on . To identify and punish wrongdoers in the corporate world,
protect the investing public and restore confidence in U.S. financial markets, the DOJ stepped up with a
much-needed program for investigating corporate fraud. This initiative has yielded excellent results , but
at a significant collateral cost: erosion of the corporate attorney-client privilege.
When a responsible board of directors suspects corporate fraud and illegal behavior, it should
commission an internal investigation ~ with legal advice and direction . But such an investigation can pit
the interests of individuals against those of the corporation and can even endanger the corporation itself.
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The threat to individuals stems from the nature of corporate attorney-client privilege, which belongs to
the corporation and not to individuals. While high-level corporate employees likely are the best source of
needed information, their statements can come back to haunt them on a personal level. Employees who
know that the corporation can choose to waive privilege may not provide candid and honest answers to
lawyers conducting an internal investigation.
The Thompson Memo, however, added another concern : Prosecutors may pressure the corporation to
waive attorney-client privilege and to disclose the results of internal investigations. To save time and
resources , prosecutors may go after the target corporation's internal investigation as the quickest route
to procuring evidence they need to identify and convict individual wrongdoers . To convince corporations
that privilege waiver and turnover of internal investigation reports is in their best interests, prosecutors
may suggest indicting the corporations themselves. To avoid indictments, corporations may jump to
cooperate by waiving attorney client privilege.
But, they can't waive the privilege without running into another pitfall: Corporations cannot selectively
waive their attorney-client or work-product privileges. Once a corporation waives the privilege, civil
litigants will have full access to the material, should they sue the corporation . A proposed change to the
Federal Rules of Evidence could allow selective privilege-waiver agreements between corporations and
government investigators; however, the Association of Corporate Counsel contends that this would only
increase pressure to waive the privilege.
While DOJ denies that prosecutors coerced corporate privilege waivers, corporations clearly were stuck
between the proverbial rock and a hard place: Resist DOJ and deal with an indictment or turn over
privileged material and see it used against the corporation in subsequent litigation.
Step-By-Step Approach
The American Bar AssoCiation took strong exception to this erosion of the sanctity of the privilege. At the
urging of the ABA, the Association of Corporate Counsel, the National Association of Criminal Defense
Lawyers, the American Civil Liberties Union, the U.S. Chamber of Commerce and others, on Dec. 7,
2006, U.S. Sen. Arlen Specter, R-Pa. , introduced the Attorney-Client Privilege Protection Act of 2006.
That legislation would have prohibited prosecutors in any federal investigation or criminal or civil
enforcement matter from determining that a target is not cooperating with the government based on a
valid privilege assertion. (On Jan . 4, Specter reintroduced the legislation as S. 186, the Attorney-Client
Privilege Protection Act of 2007.)
The DOJ's response to Specter's legislation was the McNulty Memo. In a Dec. 12, 2006 , statement, ABA
President Karen J. Mathis called the McNulty Memo "a modest improvement."
The Thompson Memo and the McNulty Memo list nine factors prosecutors should consider when
determining whether to bring criminal charges against a corporation. The corporation's "timely and
voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents" is
one of those points.
However, the McNulty Memo requires prosecutors to obtain written authorization from the Office of the
U.S. Attorney before seeking waiver of the corporate attorney-client privilege or work-product protection.
The U.S. attorney in turn must consult with the assistant attorney general for the criminal division .
The McNulty Memo suggests a step-by-step approach, in which prosecutors first seek only factual
material and ask for the least intrusive waiver necessary. It pays lip service to the importance of the
attorney-client privilege in the U.S. legal system, but it expressly emphasizes that a company's
disclosure of privileged information can expedite the government's investigation. According to the
McNulty Memo , "[T]he disclosure of privileged information may be critical in enabling the government to
evaluate the accuracy and completeness of the company's voluntary disclosure."
In sum , the McNulty Memo may say that making a finding of cooperation does not require waiver of the
privilege, but the memo restates all the beneficial reasons prosecutors can assert for getting waivers.
Absent a clear message from Congress, it appears that not much will change. Prosecutors have every
incentive to continue to aggressively seek waivers of the corporate attorney-client privilege and work
product protection .
Ann Graham is an associate professor at Texas Tech University School of Law. She previously has
served as Dallas regional counsel to the Federal Deposit Insurance Corp. and as general counsel to the
Texas Banking Department. She holds a J.D. from the University of Virginia School of Law, an M.B.A.
from the University of Texas and a Diploma in Law from the University of Cambridge. She writes a
banking law blog, which can be accessed at http://lawprofessors.typepad.comlbankingl %>