Out With Thompson - In With McNulty: Department of Justice Issues New Guidance to Prosecutors
U.S.Deputy Attorney General Paul J. McNulty issued a Memorandum yesterday on the Principles of Federal Prosecution of Business Organizations (the "McNulty Memo"). The McNulty Memo expressly states that it supersedes and replaces guidance contained in the January 20, 2003 Thompson Memorandum on the same subject, as well as the October 21, 2005 McCallum Memorandum regarding Waiver of the Corporate Attorney Client and Work Product Protections. The changes in guidance are a response to complaints from the corporate legal community and a recent decision from the United States District Court for the Southern District of New York in the KPMG case, where the court criticized the government for pressuring KPMG into discontinuing its advancement of legal fees for its former employees.
The McNulty Memo is a dramatic revision of key principles related to the government's decision to initiate criminal charges against a business organization. Both the McNulty and Thompson Memoranda direct prosecutors to consider nine factors in reaching a charging decision, but the McNulty Memo eliminates waiver of the corporate attorney-client and work product protection as a component of those factors. To that end, the Memo affirmatively states that "Waiver of attorney-client and work product protections is not a prerequisite to a finding that a company has cooperated in the government's investigation".
The McNulty Memo also provides that prosecutors may only request waiver when there is a legitimate need for the privileged information. That need cannot be satisfied by the government's desire for the privileged information or by convenience. The McNulty Memo explains that the existence of a "legitimate need" depends on: (i) the likelihood and degree to which the privileged information will benefit the government's investigation; (ii) whether it is available through alternate means; (iii) the completeness of the voluntary disclosure already provided, and (iv) the collateral consequences to the corporation of a waiver. The last consideration relates to the access that third parties will have to the privileged information once a waiver occurs.
The McNulty Memo sets forth a step by step approach that prosecutors who seek a corporate waiver must pursue. If the privileged information includes legal advice and counsel's mental impressions and conclusions, a prosecutor should only rarely seek a waiver and only if approved by the Deputy Attorney General himself. If the request is granted, the prosecutor may not take a corporation's declination to waive into account in making a charging decision. Even for purely factual information, the prosecutor must still obtain the approval of the Assistant Attorney General for the Criminal Division of the Justice Department before asking for a waiver. The corporation's response to such a request may be considered in evaluating the extent of its cooperation.
Finally, in another significant departure from the Thompson Memorandum, the McNulty Memo states that "Prosecutors generally should not take into account whether a corporation is advancing attorneys' fees to employees or agents under investigation and indictment". This provision was prompted by Judge Kaplan's recent SDNY decision in the KMPG case that the government had violated the 6th Amendment rights of KMPG's former employees by coercing KMPG into cutting off its payment of their attorneys fees, even though KMPG's bylaws called for such indemnification.
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