[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
WHITE COLLAR ENFORCEMENT: ATTORNEY-CLIENT PRIVILEGE AND CORPORATE
WAIVERS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON CRIME, TERRORISM,
AND HOMELAND SECURITY
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
MARCH 7, 2006
__________
Serial No. 109-112
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://judiciary.house.gov
______
U.S. GOVERNMENT PRINTING OFFICE
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COMMITTEE ON THE JUDICIARY
F. JAMES SENSENBRENNER, Jr., Wisconsin, Chairman
HENRY J. HYDE, Illinois JOHN CONYERS, Jr., Michigan
HOWARD COBLE, North Carolina HOWARD L. BERMAN, California
LAMAR SMITH, Texas RICK BOUCHER, Virginia
ELTON GALLEGLY, California JERROLD NADLER, New York
BOB GOODLATTE, Virginia ROBERT C. SCOTT, Virginia
STEVE CHABOT, Ohio MELVIN L. WATT, North Carolina
DANIEL E. LUNGREN, California ZOE LOFGREN, California
WILLIAM L. JENKINS, Tennessee SHEILA JACKSON LEE, Texas
CHRIS CANNON, Utah MAXINE WATERS, California
SPENCER BACHUS, Alabama MARTIN T. MEEHAN, Massachusetts
BOB INGLIS, South Carolina WILLIAM D. DELAHUNT, Massachusetts
JOHN N. HOSTETTLER, Indiana ROBERT WEXLER, Florida
MARK GREEN, Wisconsin ANTHONY D. WEINER, New York
RIC KELLER, Florida ADAM B. SCHIFF, California
DARRELL ISSA, California LINDA T. SANCHEZ, California
JEFF FLAKE, Arizona CHRIS VAN HOLLEN, Maryland
MIKE PENCE, Indiana DEBBIE WASSERMAN SCHULTZ, Florida
J. RANDY FORBES, Virginia
STEVE KING, Iowa
TOM FEENEY, Florida
TRENT FRANKS, Arizona
LOUIE GOHMERT, Texas
Philip G. Kiko, General Counsel-Chief of Staff
Perry H. Apelbaum, Minority Chief Counsel
------
Subcommittee on Crime, Terrorism, and Homeland Security
HOWARD COBLE, North Carolina, Chairman
DANIEL E. LUNGREN, California ROBERT C. SCOTT, Virginia
MARK GREEN, Wisconsin SHEILA JACKSON LEE, Texas
TOM FEENEY, Florida MAXINE WATERS, California
STEVE CHABOT, Ohio MARTIN T. MEEHAN, Massachusetts
RIC KELLER, Florida WILLIAM D. DELAHUNT, Massachusetts
JEFF FLAKE, Arizona ANTHONY D. WEINER, New York
MIKE PENCE, Indiana
J. RANDY FORBES, Virginia
LOUIE GOHMERT, Texas
Michael Volkov, Chief Counsel
David Brink, Counsel
Caroline Lynch, Counsel
Jason Cervenak, Full Committee Counsel
Bobby Vassar, Minority Counsel
C O N T E N T S
----------
MARCH 7, 2006
OPENING STATEMENT
Page
The Honorable Howard Coble, a Representative in Congress from the
State of North Carolina, and Chairman, Subcommittee on Crime,
Terrorism, and Homeland Security............................... 1
The Honorable Robert C. Scott, a Representative in Congress from
the State of Virginia, and Ranking Member, Subcommittee on
Crime, Terrorism, and Homeland Security........................ 2
WITNESSES
Mr. Robert D. McCallum, Jr., Associate Attorney General, U.S.
Department of Justice
Oral Testimony................................................. 5
Prepared Statement............................................. 8
The Honorable Dick Thornburgh, Kirkpatrick & Lockhart Nicholson
Graham LLP
Oral Testimony................................................. 12
Prepared Statement............................................. 14
Mr. Thomas J. Donohue, President and CEO, U.S. Chamber of
Commerce
Oral Testimony................................................. 16
Prepared Statement............................................. 19
Mr. William M. Sullivan, Jr., Litigation Partner, Winston &
Strawn, LLP
Oral Testimony................................................. 26
Prepared Statement............................................. 28
APPENDIX
Material Submitted for the Hearing Record
The Honorable Robert C. Scott, a Representative in Congress from
the State of Virginia, and Ranking Member, Subcommittee on
Crime, Terrorism, and Homeland Security........................ 61
Submission to the Subcommittee on Crime, Terrorism, and Homeland
Security from the Coalition to Preserve the Attorney-Client
Privilege, comprised of the following organizations: 1.
American Chemistry Council; 2. American Civil Liberties Union;
3. Association of Corporate Counsel; 4. Business Civil
Liberties, Inc.; 5. Business Roundtable; 6. National
Association of Criminal Defense Lawyers; 7. National
Association of Manufacturers; and, 8. U.S. Chamber of Commerce. 62
Survey Results, ``The Decline of the Attorney-Client Privlege in
Corporate Context,'' presented by the following organizations:
1. American Chemistry Council; 2. Association of Corporate
Counsel; 3. Business Civil Liberties, inc; 4. Business
Roundtable; 5. The Financial Services Roundtable; 6. Frontiers
of Freedom; 7. National Association of Criminal Defense
Lawyers; 8. National Association of Manufacturers; 9. National
Defense Industrial Association; 10. Retail Industry Leaders
Association; 11. U.S. Chamber of Commerce; and, 12. Washington
Legal Foundation............................................... 69
Letter from former Justice Department officials to the Honorable
Ricardo H. Hinojosa, Chairman, U.S. Sentencing Commission...... 69
Letter from the American Bar Association to the Subcommittee on
Crime, Terrorism and Homeland Security......................... 91
Letter from the Honorable Daniel Lungren, a Representative in
Congress from the State of California to the Honorable Ricardo
H. Hinojosa, Chairman, U.S. Sentencing Commission.............. 95
WHITE COLLAR ENFORCEMENT: ATTORNEY-CLIENT PRIVILEGE AND CORPORATE
WAIVERS
----------
TUESDAY, MARCH 7, 2006
House of Representatives,
Subcommittee on Crime, Terrorism,
and Homeland Security
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to notice, at 12 p.m., in
Room 2141, Rayburn House Office Building, the Honorable Howard
Coble (Chairman of the Subcommittee) presiding.
Mr. Coble. Good afternoon, ladies and gentlemen. We welcome
you to this important oversight hearing on white-collar crime
and the issue of the attorney-client privilege and waivers by
corporations in criminal investigations.
At first blush, some may say that this topic is an arcane
legal issue with little relevance to the general public. In
fact, the attorney-client privilege is deeply rooted in our
values and the legal profession. It encourages openness and
honesty between clients and their attorneys so that clients
hopefully can receive effective advice and counsel.
But this privilege is not inviolate. When it comes to
corporate crime, there is and probably always will be an
institutional tension between preserving corporate attorney-
client and work product privileges and a prosecutor's quest to
unearth the truth about criminal acts.
I know that one of the most important engines in our
criminal justice system is cooperation. By encouraging and
rewarding cooperation, prosecutors are able to unearth
sophisticated fraud schemes which cause devastating harm to
investors and employees and undermine our faith in the markets.
But the possible benefits of cooperation cannot be used to
support a prosecutor's laundry list of demands for a
cooperating corporation. Prosecutors must be zealous and
vigorous in their efforts to bring corporate actors to justice.
However, zeal does not in my opinion equate with coercion in
fair enforcement of these laws.
To me, the important question is whether prosecutors
seeking to investigate corporate crimes can gain access to the
information without requiring a waiver of the attorney-client
privilege. There is no excuse for prosecutors to require
privilege waivers as a routine matter, it seems to me.
The Subcommittee will examine the important issue with a
keen eye to determine whether Federal prosecutors are routinely
requiring cooperating corporations to waive such privilege.
Then-Acting Deputy Attorney General McCallum issued a
memorandum on October 21, 2005 which mandated a change in
Justice Department policy to try to establish a more uniform
review procedure for any such requirement imposed by a
prosecutor.
This is a welcome development, and the Subcommittee is
interested in determining how that policy has been implemented.
I am also aware of the fact that the Sentencing Commission is
examining its current policy of encouraging such waivers when
determining the nature and extent of cooperation.
While the guidelines do not explicitly mandate a waiver of
privileges for the full benefit of cooperation, in practical
terms we have to make sure that they do not operate to impose
such a requirement. Our Subcommittee needs to examine this
issue, work closely with the Sentencing Commission, the defense
bar, and the Justice Department to make sure that a fair
balance is struck.
I look forward to hearing from our distinguished panel of
witnesses today, and I am now pleased to recognize the
distinguished gentleman from Virginia, the Ranking Member of
the Subcommittee, Mr. Bobby Scott.
Mr. Scott. Thank you, Mr. Chairman. And I want to thank you
for holding this hearing on attorney-client privilege and
corporate waivers of that privilege.
Attorney-client privilege is more usually associated with
the context of protecting an individual from having to disclose
communications with his or her lawyer for the purpose of
criminal or civil prosecution, corporations or persons, for the
sake of legal processes that are also entitled to attorney-
client privilege.
As noted by the United States Supreme Court in Upjohn vs.
U.S., the attorney-client privilege is the oldest of privileges
for confidential communications known to common law. Its
purpose is to encourage full and frank communications between
attorneys and their clients so that sound legal advice and
advocacy can be given by counsel. Such advice or activity
depends upon the lawyer being fully informed by the client.
As noted in other cases, the lawyer-client privilege rests
on the need for the advocate and counselor to know all that
relates to the client's reasons for seeking representation if
the professional mission is to be carried out. This purpose can
only be effectively carried out when the client is free from
consequences or apprehensions regarding the possibility of
disclosure of the information.
Exceptions to protections of the attorney--excuse me.
Exceptions to the protections of the privilege do exist, but
they have generally been limited to the crime-fraud exception,
which holds that the privilege does not apply to an attorney-
client communication in furtherance of a crime, or other cases
where the client has already waived the privilege through
disclosure to a non-privileged third party.
Now it appears that the Department of Justice has
determined that there may be another exception, that is, when
it wishes the corporation to waive the privilege in the context
of a criminal investigation. For some time now I have been
concerned about reports that the Department of Justice is
coercing corporations to waive their attorney-client privilege
during criminal investigations of the corporation and its
employees by making waiver a prerequisite for consideration by
the Department and its recommendation for not challenging
leniency should criminal conduct be established.
Now, this is particularly significant because under
mandatory minimums and sentencing guidelines, prosecutorial
motions for leniency may be the only way to get a sentence
under the mandatory minimum. So in this case, a prosecutor
often has more control over sentencing than the judge.
While the attorney-client privilege doctrine does apply to
corporations, complications arise when the client is a
corporation since the corporate privilege has to be asserted by
persons who may themselves be the target of a criminal
investigation or subject to criminal charges based on the
disclosed attorney-client information. Disclosed information
can be used either in criminal prosecutions or civil
prosecutions. Whatever fiduciary duty an official may have to
the corporation and its shareholders, it is probably superseded
by the official's own self-interest in the criminal
investigation.
And there is no protection for employees of the corporation
against waivers of the attorney-client privilege by officials
who may have their own self-interest at heart. This includes
information provided by employees to corporate counsel to
assist internal investigations by the corporation, even if the
information was under threat of an employee being fired and
even if the information constituted self-incrimination by the
employee.
It is one thing for officials of a corporation to break the
attorney-client privilege in their own self-interest by their
own volition. It is another thing for the Department to require
or coerce it by making leniency considerations contingent upon
it, even when it is merely on a fishing expedition on the part
of the Department. Complaints have indicated that the practice
of requiring a waiver of the corporate attorney-client
privilege has become routine. And, of course, why wouldn't it
be the case? What is the advantage to the Department of not
requiring a waiver in the corporate investigation?
Now, because of the exclusionary rule, when a confession is
coerced or a search is conducted illegally, anything that is
found of that becomes fruit of a poisonous tree and can't be
used in a criminal prosecution. So police and prosecutors who
jeopardize the case by such tainted evidence are generally
disparaged by their colleagues, and thus there is a
disincentive for them to pursue and collect such evidence in
the first place. There is no incentive to collect evidence if
it is going to ruin the case.
Although coerced confessions and illegal searches are
always improper, before the exclusionary rule there was an
incentive for police to coerce confessions and illegally obtain
information because they could make a case based on it, and
there was no penalty.
Here we have the same incentives with respect to the waiver
of corporate privilege. So, not surprisingly, reports are the
demand for waivers are rising, not only by the Department but
by other entities as well, such as auditors as a prerequisite
of issuing a clean audit.
Now, coercing corporate attorney-client privileges has not
been--has not long been the practice in the Department. It has
really been the last two Administrations that have practiced
this, and it has been growing by leaps and bounds. Corporate
attorney-client privilege has not always been the prerequisite
for leniency. Providing non-privileged documents and
information and providing broad access to corporate premises
and employees have been traditional ways to receive benefits of
corporate cooperation.
Some nine U.S. Attorneys General, Deputy Attorneys General,
and Solicitors General have expressed their concerns about the
current Departmental waiver policy. We will hear from witnesses
today who have prosecuted corporate cases without requiring
such waiver. And so, Mr. Chairman, we look forward to the
testimony by the witnesses and to working with you to address
the concerns regarding the Department's corporate attorney-
client waiver policy.
[The prepared statement of Mr. Scott follows in the
Appendix]
Mr. Coble. Thank you, Mr. Scott. And gentlemen, we have
been joined by the distinguished gentleman from California, Mr.
Lungren, the distinguished gentleman from Florida, Mr. Feeney,
and the distinguished gentleman from Massachusetts, Mr.
Delahunt.
Gentlemen, what I am about to do I am very awkward in doing
it. It is customary for the Subcommittee to administer the oath
to the panelists. I know you all. I know you don't need to be
sworn in to tell the truth. But if you don't mind, would each
of you please stand and raise your hands.
[Witnesses sworn.]
Mr. Coble. Let the record show each witness answered in the
affirmative. And I have had the fear if I depart with you all,
then the next panel is going to wonder why I don't depart from
them. But you all, I am not worried about what you all say
violating the truth in any way.
As I said before, we have four distinguished witnesses with
us today. Our first witness is Mr. Robert McCallum, Jr.,
Associate Attorney General of the Department of Justice. In
this capacity, Mr. McCallum advises and assists the Attorney
General and the Deputy Attorney General in formulating policies
pertaining to a broad range of civil justice, Federal and local
law enforcement, and public safety matters. Prior to this
appointment, he served as Assistant Attorney General for the
Civil Division. Mr. McCallum received his undergraduate and law
degrees from Yale University, and was a Rhodes Scholar at
Oxford University.
Our second witness is returning to the Hill after some
extended absence, the Honorable Dick Thornburgh of Kirkpatrick
& Lockhart Nicholson Graham. Mr. Thornburgh's distinguished
public career extends over a quarter of a century. He
previously served as Governor of Pennsylvania, as Attorney
General under Presidents Reagan and Bush, and as Undersecretary
General of the United Nations.
Mr. Thornburgh has been awarded honorary degrees by 31
colleges and universities, and previously served as Director of
the Institute of Politics at Harvard's John F. Kennedy School
of Government. Mr. Thornburgh earned his undergraduate degree
at Yale and his law degree at the University of Pittsburgh
School of Law.
Our third witness is Mr. Thomas Donohue, President and CEO
of the United States Chamber of Commerce. In his current
capacity, Mr. Donohue has expanded the influence of the Chamber
across the globe. He engaged the Chamber Institute for Legal
Reform and revitalized the National Chamber Foundation.
Previously, Mr. Donohue served for 13 years as President and
CEO of the American Trucking Association, and was awarded his
bachelors degree from St. Johns University and a masters degree
from Adelphi University.
Our fourth and final witness today is Mr. William Sullivan,
Jr., litigation partner at Winston & Strawn. In this capacity,
Mr. Sullivan concentrates on corporate internal investigations,
trial practice, white-collar criminal defense, and complex
securities litigation.
Previously, he served for over 10 years as an Assistant
United States Attorney for the District of Columbia, and has
worked in private practice as a litigator. Additionally, Mr.
Sullivan has addressed the World Trade Organization on
Sarbanes-Oxley issues. He received his bachelors and masters
degrees from Tufts University and his law degree from Cornell
University.
Gentlemen, it is good to have you all with us. And as we
have previously told you, without hamstringing you too
severely, we try to apply the 5-minute rule here. And when you
all see that amber light on your panel appear, that tells you
that the ice on which you are skating is becoming thin. You
have about a minute to go. And we're not going to keelhaul
anybody for violating it, but if you can wrap up in as close to
5 minutes as you can.
Mr. McCallum, why don't you kick us off.
TESTIMONY OF ROBERT D. McCALLUM, JR., ASSOCIATE ATTORNEY
GENERAL, U.S. DEPARTMENT OF JUSTICE
Mr. McCallum. Thank you, Mr. Chairman, Ranking Member
Scott, and Members of the Committee. We appreciate at the
Department of Justice this opportunity to appear before you
today.
Now, President Bush, this Congress, and the American people
have all embraced a zero tolerance policy when it comes to
corporate fraud. In passing the landmark Sarbanes-Oxley
legislation in 2002, Congress gave the Department of Justice
clear marching orders: prosecute fully those who would use
their positions of power and influence in corporate America to
enrich themselves unlawfully, and thereby restore confidence in
our financial markets.
And we have done exactly that, Mr. Chairman. From July 2002
through December 2005, the Department has secured more than 900
corporate fraud convictions, including 85 presidents, 82 chief
executive officers, 40 chief financial officers, 14 chief
operating officers, 17 corporate counsel or attorneys, and 98
vice presidents, as well as millions of dollars in damages for
victims of fraud.
Much of our success depends on our ability to secure
cooperation. As Chairman Sensenbrenner noted recently, and I
quote, ``By encouraging and rewarding corporate cooperation,
our laws serve the public interest in promoting corporate
compliance, minimizing use of our enforcement resources, and
leading to the prosecution and punishment of the most culpable
actors.''
The Department's approach to corporate fraud is set forth
in the so-called Thompson Memorandum, issued by Larry D.
Thompson as Deputy Attorney General. Pursuant to that
memorandum, the degree to which a corporation cooperates with a
criminal investigation may be a factor to be considered by
prosecutors when determining whether or not to charge the
corporation with criminal misconduct.
Cooperation in turn depends on--and here I quote the
Thompson Memorandum--``the corporation's willingness to
identify the culprits within the corporation, including senior
executives; to make witnesses available; to disclose the
complete results of its internal investigation; and to waive
attorney-client and work product protections.''
Some critics have suggested that the Department is
contemptuous of legal privileges. Nothing could be further from
the truth. We recognize the ability to communicate freely with
counsel can serve legitimate and important functions and
encourage responsible corporate stewardship and corporate
governance.
But at the same time, we all must recognize that corporate
fraud is often highly difficult to detect. Indeed, in recent
years we have witnessed a series of highly complex corporate
scandals which would have been difficult to prosecute in a
timely and efficient manner without corporate cooperation,
including in some instances the waiver of privileges.
The Thompson Memorandum carefully balances the legitimate
interests furthered by the privilege, and the societal benefits
of rigorous enforcement of the laws supporting ethical
standards of conduct.
There is also a so-called McCallum Memorandum, issued
during my tenure as Acting Deputy Attorney General last year,
which adds to this balancing of the competing interests. The
McCallum memorandum first ensures that no Federal prosecutor
may request a waiver without supervisory review. And second, it
requires each United States Office to institute a written
waiver review policy governing such requests.
Mr. Chairman, I recognize that despite these limitations
and restrictions, there are some critics of the Department's
approach. While I look forward to addressing specific concerns
of the Members of this Subcommittee that may occur during the
questioning, let me make a few preliminary observations.
First, voluntary disclosure is but one factor in assessing
cooperation, and cooperation in turn is but one factor among
many considered in any charging decisions. Disclosure, thus, is
not required to obtain credit for cooperation in all cases;
cooperation may be had by corporations most readily without
waiving anything, simply by identifying the employees best
situated to provide the Government with relevant information.
Nor can the Government compel corporations to give waivers.
Corporations are generally represented by sophisticated and
accomplished counsel who are fully capable of calculating the
benefits or harms of disclosure. Sometimes they agree;
sometimes they do not agree. Whether to disclose information
voluntarily always remains within the corporation's choice. And
in fact, voluntary disclosure is frequently initiated by the
corporate counsel and not by the Government.
Second, under our process, waivers of privileges should not
be routinely sought, and we believe are not routinely sought.
Indeed, they should be sought based upon a need for three
things: timely, complete, and accurate information. And they
should be requested pursuant to the established guidelines, and
only with supervisory approval.
Third, our approach does not diminish a corporation's
willingness to undertake investigations, in our view. Wholly
apart from the Government's criminal investigations, corporate
management owes to its shareholders, not to itself or to its
employees, but to its shareholders, a fiduciary duty to
investigate potential wrongdoing and to take corrective action.
To the extent that shareholders are best served by timely
internal investigations, responsible management will always do
so.
And finally, in some jurisdictions, voluntary disclosure to
the Government waives privileges in civil litigation seeking
monetary damages, thus, it is said, compounding the
corporation's litigation risk. Addressing this concern, the
Committee should be aware that the Evidence Committee of the
Advisory Rules of the Judicial Conference is currently
considering a rule that would limit use by others of privileged
material voluntarily provided by a corporation in its
cooperation with a Government investigation. We at the
Department of Justice will be involved in the Federal Rules
Advisory Committee on Evidence considering that, and we will
watch that debate with interest.
In sum, Mr. Chairman, we believe that the Department has
struck an appropriate balance between traditional privileges
and the American people's legitimate law enforcement needs and
the necessity of establishing standards.
Thank you for the opportunity to testify.
[The prepared statement of Mr. McCallum follows:]
Prepared Statement of Robert D. McCallum, Jr.
Mr. Coble. Thank you, Mr. McCallum.
Mr. Thornburgh.
TESTIMONY OF THE HONORABLE DICK THORNBURGH, KIRKPATRICK &
LOCKHART NICHOLSON GRAHAM LLP
Mr. Thornburgh. Chairman Coble, Ranking Member Scott,
Members of the Subcommittee, I want to thank you for the
invitation to speak to you today about the grave dangers posed
to the attorney-client privilege and work product doctrine by
current governmental policies and practices.
At the outset, let me commend you for being the first
Congressional body to convene a hearing on this very worrisome
situation. The attorney-client privilege, as we all know, is a
fundamental element of the American system of justice, and I
fear that we have all been too slow in recognizing how
seriously the privilege has been undermined in the past several
years by Government action. Your focus on this issue today is
vitally needed and much appreciated.
The attorney-client privilege is the oldest of the
evidentiary privileges originating in the common law of England
in the 1500's. Although the privilege shields from disclosure
evidence that might otherwise be admissible, courts have found
that this potential loss of evidence is outweighed by the
benefits to the immediate client, who receives better advice,
and to society as a whole, which obtains the benefits of
voluntary legal compliance.
These ideas have been embraced time and time again by our
courts. In the words of the Supreme Court, the privilege
encourages ``full and frank communication between attorneys and
their clients, and thereby promotes broader public interest in
the observance of law and the administration of justice.'' The
attorney-client privilege is thus a core element in a law-
abiding society and a well-ordered commercial world.
And yet the previously solid protection that attorney-
client communications have enjoyed has been profoundly shaken
by a trend in law enforcement for the Government to, in effect,
demand a waiver of a corporation's privilege as a precondition
for granting the benefits of cooperation that might prevent
indictment or diminish punishment. These pressures emanate
chiefly from the Department of Justice and the Securities and
Exchange Commission.
Beginning with the 1999 Holder Memorandum, and as more
forcefully stated in the 2003 Thompson Memorandum, the
Department of Justice has made clear its policy that waiver of
the attorney-client and work product protections is an
important element in determining whether a corporation may get
favorable treatment for cooperation. The SEC, in a public
report issued at the conclusion of an investigation, outlined a
similar policy.
Finally, the U.S. Sentencing Commission in 2004 amended the
commentary to its sentencing guidelines so that waiver of
privilege becomes a significant factor in determining whether
an organization has engaged in timely and thorough cooperation
necessary for obtaining leniency. Following the Federal lead,
State law enforcement officials are beginning to demand broad
privilege waivers, as are self-regulatory organizations and the
auditing profession.
While the tone of these documents may be moderate, and
officials representing these entities stress their intent to
implement them in reasonable ways, it has now become abundantly
clear that in actual practice, these policies pose overwhelming
temptations to prosecutors seeking to save time and resources
and to target organizations desperate to save their very
existence. And each waiver has a ripple effect that creates
more demands for greater disclosures, both in individual cases
and as a matter of practice. Once a corporation discloses a
certain amount of information, then the bar is raised for the
next situation, and each subsequent corporation will need to
provide more information to be deemed cooperative.
The result is documented in a survey released just this
week to which over 1400 in-house and outside counsel responded,
in which almost 75 percent of both groups agreed--almost 40
percent agreeing strongly--that a culture of waiver has evolved
in which Government agencies believe it is reasonable and
appropriate for them to expect a company under investigation to
broadly waive attorney-client privilege or work product
protections.
I practice law at a major firm with a significant white-
collar criminal defense practice. My partners generally report
that they now encounter waiver requests in virtually every
organizational criminal investigation in which they are
involved. In their experience, waiver has become a standard
expectation of Federal prosecutors. Others with whom I have
spoken in the white-collar defense bar tell me the same thing.
I am prepared to concede that the significance of these
developments took some time to penetrate beyond the Beltway and
the relatively small community of white-collar defense lawyers.
It is clear, however, that as the legal profession has become
aware of the problem, it has resulted in a strong and
impassioned defense of the attorney-client privilege and the
work product protection.
This issue was the hottest topic at last summer's annual
meeting of the American Bar Association, and at its conclusion,
the ABA House of Delegates unanimously passed a resolution that
strongly supports the preservation of the attorney-client
privilege and opposes policies, practices, and procedures of
Government bodies that have the effect of eroding the attorney-
client privilege.
I was one of those nine former Department of Justice
officials from both Republican and Democratic Administrations
who, as the Chairman noted, signed a letter to the Sentencing
Commission last summer urging it to reconsider its recent
amendment regarding waiver.
It is never a simple matter to enlist such endorsements,
particularly in the summertime and on short notice. And yet it
was not difficult at all to secure those nine signatures
because all feel so strongly about the fundamental role the
attorney-client privilege and work product protections play in
our system of justice.
We feel just as strongly that the other governmental
policies and practices outlined above seriously undermine those
protections. As you know, I served as a Federal prosecutor for
many years, and I supervised other Federal prosecutors in my
capacities as U.S. Attorney, Assistant Attorney General in
charge of the Criminal Division, and Attorney General of the
United States. Throughout those years, requests to
organizations we were investigating to hand over privileged
information never came to my attention. One wonders what has
changed in the past decade to warrant such a dramatic
encroachment on the attorney-client privilege.
Clearly, in order to be deemed cooperative, an organization
under investigation must provide to the Government all relevant
factual information and documents in its possession, and it
should assist the Government by explaining the relevant facts
and identifying individuals with knowledge of them. But in
doing so, it should not have to reveal privileged
communications or attorney work product.
That limitation is necessary to maintain the primacy of
those protections in our system of justice. It is a fair
limitation on prosecutors, who have extraordinary powers to
gather information for themselves. This balance is one I found
workable in my years of Federal service, and it should be
restored.
I was pleased to see the Sentencing Commission earlier this
year request comment on whether it should delete or amend the
commentary sentence regarding waiver. In testimony last fall, I
urged it to provide affirmatively that waiver should not be a
factor in assessing cooperation. I understand that the American
Bar Association will shortly approach the Department of Justice
with a request that the Thompson Memorandum be revised in
similar fashion. These are promising developments.
Mr. Chairman, I thank you again for beginning a much-needed
process of Congressional oversight of the privilege waiver
crisis. This is not an issue that Washington lobby groups have
orchestrated, but it is one that likely will take Congressional
attention to resolve.
Thank you. I look forward to your questions.
[The prepared statement of Mr. Thornburgh follows:]
Prepared Statement of Dick Thornburgh
Good morning, Chairman Coble and members of the Subcommittee, and
thank you for the invitation to speak to you today about the grave
dangers posed to the attorney-client privilege and work product
doctrine by current governmental policies and practices. At the outset,
let me commend you for being the first Congressional body to convene a
hearing on this very worrisome situation. The attorney-client privilege
is a fundamental element of the American system of justice, and I fear
that we have all been too slow in recognizing how seriously the
privilege has been undermined in the past several years by government
actions. Your focus on this issue today is vitally needed and much
appreciated.
The attorney-client privilege is the oldest of the ``evidentiary
privileges,'' originating in the common law of England in the 1500s.\1\
Although the privilege shields from disclosure evidence that might
otherwise be admissible, courts have found that this potential loss of
evidence is outweighed by the benefits to the immediate client, who
receives better advice, and society as a whole, which obtains the
benefits of voluntary legal compliance. These ideas have been embraced
time and time again by the courts--in the words of the Supreme Court,
the privilege encourages ``full and frank communication between
attorneys and their clients and thereby promote[s] broader public
interest in the observance of law and administration of justice.'' \2\
The attorney-client privilege is thus a core element in a law-abiding
society and a well-ordered commercial world.
---------------------------------------------------------------------------
\1\See Berd v. Lovelace, 21 Eng. Rep. 33 (Ch. 1577); Dennis v.
Codrington, 21 Eng. Rep. 53 (Ch. 1580) (finding ``A counselor not to be
examined of any matter, wherein he hath been of counsel'').
\2\ Upjohn Co. v. United States, 449 U.S. 383, 389 (1981).
---------------------------------------------------------------------------
And yet the previously solid protection that attorney-client
communications have enjoyed has been profoundly shaken by a trend in
law enforcement for the government to demand a waiver of a
corporation's privilege as a precondition for granting the benefits of
``cooperation'' that might prevent indictment, or diminish punishment.
These pressures emanate chiefly from the Department of Justice
(``DOJ'') and the Securities and Exchange Commission (``SEC'').
Beginning with the 1999 ``Holder Memorandum,'' and as more forcefully
stated in the 2003 ``Thompson Memorandum,'' DOJ has made clear its
policy that waiver of the attorney-client (and work product)
protections is an important element in determining whether a
corporation may get favorable treatment for cooperation.\3\ The SEC, in
a public ``report'' issued at the conclusion of an investigation,
outlined a similar policy.\4\ Finally, the U.S. Sentencing Commission
in 2004 amended the commentary to its Sentencing Guidelines so that
waiver of privilege became a significant factor in determining whether
an organization has engaged in the timely and thorough ``cooperation''
necessary for obtaining leniency.\5\ Following the federal lead, state
law enforcement officials are beginning to demand broad privilege
waivers, as are self-regulatory organizations and the auditing
profession.\6\
---------------------------------------------------------------------------
\3\ See Memorandum from Deputy Attorney General Larry D. Thompson
to Heads of Department Components and United States Attorneys, Re:
Principles of Federal Prosecution of Business Organizations (January
20, 2003); available at www.usdoj.gov/dag/cftf/business--
organizations.pdf. The DOJ recently re-affirmed that the Thompson
Memorandum remains the Department's official policy. See Memorandum
from Acting Deputy Attorney Robert D. McCallum, Jr. to Heads of
Department Components and United States Attorneys, Re: Waiver of
Corporate Attorney-Client and Work Product Protection (October 21,
2005) (the ``McCallum Memorandum''); available at http://www.usdoj.gov/
usao/eousa/foia--reading--room/usam/title9/crm00163.htm.
\4\ See Report of Investigation Pursuant to Section 21(a) of the
Securities Exchange Act of 1934 and Commission Statement on the
Relationship of Cooperation to Agency Enforcement Decisions, SEC
Release Nos. 34-44969 and AAER-1470 (Oct. 23, 2001) (the ``Seaboard
Report''); available at http://www.sec.gov/litigation/investreport/34-
44969.htm.
\5\ United States Sentencing Commission, Guidelines Manual,
Sec. 8C2.5(g), comment 12 (Nov. 2004).
\6\ For example, in late 2005 the New York Stock Exchange issued a
memorandum detailing the degree of ``required'' or ``extraordinary''
cooperation Members and Member Firms could and should engage in with
the Exchange. See NYSE Information Memorandum No. 05-65, Cooperation,
dated September 14, 2005. Exchange Members engaging in
``extraordinary'' cooperation, including waiver of the attorney-client
privilege, are able to reduce prospective fines and penalties levied by
the Exchange. See, e.g., NYSE News Release, NYSE Regulation Announces
Settlements with 20 Firms for Systemic Operational Failures and
Supervisory Violations (January 31, 2006) (noting that Goldman, Sachs &
Co. had been credited with ``extraordinary'' cooperation by self-
reporting violations, and indicating it received the lowest of three
possible fine amounts), available at http://www.nyse.com/
Frameset.html?displayPage=/press/1138361407523.html.
---------------------------------------------------------------------------
While the tone of these documents may be moderate, and officials
representing these entities stress their intent to implement them in
reasonable ways, it has by now become abundantly clear that, in actual
practice, these policies pose overwhelming temptations to prosecutors
seeking to save time and resources and to target organizations
desperate to save their very existence. And each waiver has a ``ripple
effect'' that creates more demands for greater disclosures, both in
individual cases, and as a matter of practice. Once a corporation
discloses a certain amount of information, then the bar is raised for
the next situation, and each subsequent corporation will need to
provide more information to be deemed cooperative.
The result is documented in a survey released just this week to
which over 1,400 in-house and outside counsel responded, in which
almost 75% of both groups agreed--almost 40% agreeing strongly--that a
``'culture of waiver' has evolved in which governmental agencies
believe it is reasonable and appropriate for them to expect a company
under investigation to broadly waive attorney-client privilege or work
product protections.'' I practice law at a major firm with a
significant white collar criminal defense practice. My partners
generally report that they now encounter waiver requests in virtually
every organizational criminal investigation in which they are involved.
In their experience, waiver has become a standard expectation of
federal prosecutors. Others with whom I've spoken in the white collar
defense bar tell me the same thing.
I am prepared to concede that the significance of these
developments took some time to penetrate beyond the Beltway and the
relatively small community of white collar defense lawyers. It is
clear, however, that as the legal profession has become aware of the
problem, it has resulted in a strong and impassioned defense of the
attorney-client privilege and work product protection. This issue was
the hottest topic of last summer's Annual Meeting of the American Bar
Association (``ABA''), and at its conclusion, the ABA House of
Delegates unanimously passed a resolution that ``strongly supports the
preservation of the attorney-client privilege'' and ``opposes policies,
practices and procedures of government bodies that have the effect of
eroding the attorney-client privilege. . . .'' \7\
---------------------------------------------------------------------------
\7\ This resolution was initially drafted by an ABA Task Force on
the Attorney-Client Privilege, which held public hearings on the issues
raised by recent government practices. A report detailing the Task
Force's work is available at http://www.abanet.org/buslaw/
attorneyclient/materials/hod/report.pdf. ABA members also heard
extensive discussion of the issues at these well attended
presentations. See Conference Report, ABA Annual Meeting, Vol. 21, No.
16 (August 10, 2005).
---------------------------------------------------------------------------
I was one of nine former Attorneys General, Deputy Attorneys
General and Solicitors General, from both Republican and Democratic
administrations, who signed a letter to the Sentencing Commission last
summer urging it to reconsider its recent amendment regarding waiver.
It is never a simple matter to enlist such endorsements, particularly
in the summer and on short notice. And yet it was not difficult at all
to secure those nine signatures, because we all feel so strongly about
the fundamental role the attorney-client privilege and work product
protections play in our system of justice.
We feel just as strongly that the other governmental policies and
practices outlined above seriously undermine those protections. As you
know, I served as a federal prosecutor for many years, and I supervised
other federal prosecutors in my capacities as U.S. Attorney, Assistant
Attorney General in charge of the Criminal Division and Attorney
General. Throughout those years, requests to organizations we were
investigating to hand over privileged information never came to my
attention. Clearly, in order to be deemed cooperative, an organization
under investigation must provide the government with all relevant
factual information and documents in its possession, and it should
assist the government by explaining the relevant facts and identifying
individuals with knowledge of them. But in doing so, it should not have
to reveal privileged communications or attorney work product. That
limitation is necessary to maintain the primacy of these protections in
our system of justice. It is a fair limitation on prosecutors, who have
extraordinary powers to gather information for themselves. This balance
is one I found workable in my years of federal service, and it should
be restored.
I was pleased to see the Sentencing Commission earlier this year
request comment on whether it should delete or amend the commentary
sentence regarding waiver. In testimony last fall I urged it to provide
affirmatively that waiver should not a factor in assessing cooperation.
I understand that the ABA will shortly approach DOJ with a request that
the Thompson memorandum be revised in similar fashion. These are
promising developments.
Mr. Chairman, I thank you again for beginning the much-needed
process of Congressional oversight of the privilege waiver crisis. This
is not an issue that Washington lobby groups have orchestrated, but it
is one that likely will take Congressional attention to resolve.
Thank you, and I look forward to your questions.
Mr. Coble. Thank you, Mr. Thornburgh.
And Mr. Donohue, in a sense of equity and fairness, since I
permitted Mr. McCallum and Mr. Thornburgh to exceed the red
light, I will not crack the hammer on you once that red light
illuminates.
You are now recognized.
TESTIMONY OF THOMAS J. DONOHUE, PRESIDENT AND CEO, U.S. CHAMBER
OF COMMERCE
Mr. Donohue. Thank you, Mr. Chairman, Mr. Scott, Members of
the Committee.
I am here today representing the Chamber and on behalf of a
coalition to preserve the attorney-client privilege, which
includes many of the major legal and business associations in
our country, including the American Chemistry Council, the
American Civil Liberties Union, the Association of Corporate
Counsel, the Business Civil Liberties, Inc., the Business
Roundtable, the Financial Services Roundtable, Frontiers of
Freedom, the National Association of Criminal Defense Lawyers,
the National Association of Manufacturers, the National Defense
Industrial Association, the Retail Industry Leaders
Association, and the Washington Legal Foundation.
I should add that the coalition is working closely with the
American Bar Association, which has separately submitted
written testimony here today detailing its concerns about the
erosion of the attorney-client privilege. ABA policy prevents
the organization from being listed as a member of broader
coalitions.
The privilege to consult with an attorney freely, candidly,
and confidentially is a fundamental constitutional right that
in our opinion is under attack. Recent policy changes at the
Department of Justice and, very importantly, at the SEC have
permitted and encouraged the Government to demand or expect
companies to waive their attorney-client privilege or work
product protections during an investigation.
A company is required to waive its privilege in order to be
seen as cooperating with Federal investigators. A company that
refuses to waive its privilege risks being labeled as
uncooperative, which all but guarantees that it will not get a
chance to come to a settlement or receive, if it needs to,
leniency in sentencing or fines.
But it goes far beyond that, Mr. Chairman. The
uncooperative label can severely damage a company's brand, its
shareholder value, their relationship with suppliers and
customers, and their very ability to survive.
The enforcement agencies argue that waiver of attorney-
client privilege is necessary for improving compliance and
conducting effective and thorough investigation. The opposite,
in my opinion, is true. An uncertain and unprotected attorney-
client privilege actually diminishes compliance with the law.
If company employees responsible for compliance with
complicated statutes and regulations know that their
conversations with attorneys are not protected, they will
simply choose not to seek appropriate legal guidance. The
result is that companies may fall out of compliance, often not
intentionally, but because of a lack of communication and trust
between a company's employees and its attorneys.
Similarly, during an investigation, if employees suspect
that anything they say to their attorneys can be used against
them, they won't say anything at all. That means that both the
company and the Government will be unable to find out what went
wrong, to punish wrongdoers, and to correct the company's
compliance system.
And there is one other major consequence. Once the
privilege is waived, third party private plaintiffs' lawyers
can gain access to attorney-client conversations and use them
to sue the company or other massive settlements. By the way,
right now there are some arguments in the court about partial
protection in waiving, and the question has been raised that
perhaps the Government cannot even guarantee that.
How pervasive has this waiving of the attorney-client
privilege become? Well, last November we presented findings to
the U.S. Sentencing Commission showing that approximately a
third of inside counsel respondents, and as many as 48 percent
of outside counsel respondents, say they had personally
experienced erosion of attorney-client privilege or work
product protections.
After that presentation, the Sentencing Commission asked us
for even more information about the frequency of waivers and
their impact. So our coalition commissioned a second, more
detailed survey and got an even greater response rate from the
members of our coalition partners. We publicly released the
results of this second survey just this morning. They have been
provided to the Committee, along with more detailed coalition
written statements on the subject.
Here are a couple of highlights, and I am going to skip
them because General Thornburgh mentioned them, but 75 percent
of both inside and outside counsel agreed with the statement
that a culture of waiver has evolved to the point the
Government agencies believe it is responsible and appropriate
to expect a company under investigation to broadly waive
attorney-client privilege or waiver protections. Of those who
have been investigated, 55 percent of outside counsel say that
that is the experience that they had.
Now, our coalition is aggressively seeking to reverse this
erosion of confidence in the attorney-client provision and the
conversations covered there. We are pleased that the U.S.
Sentencing Commission has decided to revisit recently amended
commentary to the guidelines that allow the waiver to be a
cooperation factor in sentencing, and we have submitted more
detailed materials to them.
We would encourage this Committee to weigh in with its
support of the attorney-client privilege to the Sentencing
Commission as it reconsiders its guidelines. It is important to
note that the Department of Justice and other regulatory
agencies have created this erosion of the privilege without
seeking input, oversight, or approval from the Congress or the
judiciary. And the plan, Mr. Chairman, that is on the table
now, would allow all 92 jurisdictions of the Department of
Justice across the country to have their own plan, their own
determination, of what is covered and what is protected. That
is going to be a circus.
We seek your input and strongly urge you to exercise your
oversight of the Department of Justice and the SEC to ensure
the protection of attorney-client privilege. Now, let me be
very clear as I close: Our efforts are not about trying to
protect corrupt companies or businesspeople. Nobody wants
corporate wrongdoers caught and punished more than I do and the
legitimate and honest businesspeople that I represent. Rather,
this is about protecting a well-established and vital
constitutional right.
Mr. Chairman, I thank you and the Members of the Committee,
and I look forward to your questions.
[The prepared statement of Mr. Donohue follows:]
Prepared Statement of Thomas J. Donohue
Mr. Coble. Thank you, Mr. Donohue.
Mr. Sullivan.
TESTIMONY OF WILLIAM M. SULLIVAN, JR., LITIGATION PARTNER,
WINSTON & STRAWN, LLP
Mr. Sullivan. Thank you. Good afternoon, Chairman Coble,
Ranking Member Scott, and Members of the Subcommittee. Thank
you for your kind invitation to address you today concerning
the Department of Justice policies and practices with regard to
seeking attorney-client privilege and work product protection
waivers from corporations, and whether the waiver of such
privilege and protection should be relevant to assessing the
corporations' cooperation efforts within the meaning of the
organizational guidelines.
I am currently a partner at the law firm of Winston &
Strawn, where I specialize in white-collar criminal defense and
corporate internal investigations. For 10 years, from 1991 to
2001, I served as an assistant U.S. Attorney for the District
of Columbia. In these capacities, I have been involved in
virtually all aspects of white-collar investigations and
corporate defense.
I have overseen both criminal investigations as a
prosecutor and internal corporate investigations as a defense
attorney. And I have represented both corporations and
individuals in internal investigations and before Federal law
enforcement authorities and regulators as well as in class
action, derivative, and ERISA litigation.
My perspective on corporate cooperation and the waiver of
attorney-client and attorney work product privileges has
therefore been forged not only by my experiences on both sides
of the criminal justice system, but by my participation in the
civil arena as well. This afternoon, I am eager to give you a
view from the arena.
The real issue is not the waiver but what is being waived
and how it was assembled. For business organizations today, the
traditional protections afforded by the attorney-client
privilege and the work product doctrine are under siege. The
privilege reflects the public priority of facilitating the
observance of law through candor with counsel.
Prosecutors and regulators now routinely demand that in
return for the mere prospect of leniency, corporations engage
in intensive internal investigations of alleged wrongdoing and
submit detailed written reports documenting both the depth and
breadth of their inquiry as well as the basis for their
conclusions. Attorney impressions, opinions, and evaluations
are necessarily included.
When pressed on this practice, many prosecutors and
regulators will publicly insist that they are only seeking a
roadmap--the identity of the individuals involved, the crucial
acts, and the supporting documentation. However, this has not
been my personal experience.
Just last week I was asked by a Government regulator in our
very first meeting to broadly waive attorney-client privilege
and work product protection and to provide copies of interview
notes, even before I had completed my client's internal
investigation myself, and accordingly, even before I had
determined as corporate counsel that cooperation would be in my
client's best interest.
Incredibly, I was further asked whether or not I was
appearing as an advocate for my client, the corporation, or
whether I was an independent third party. Presumably, the
regulators had hoped that I would undertake their investigation
for them, despite the fact that I would be paid by my client to
do so.
Most importantly, however, such roadmap requests fail to
relieve the valid concerns of corporations related to privilege
and work product waivers. A less than carefully drawn roadmap
risks a broad subject matter waiver of attorney-client
privilege and attorney work product protection under current
authority applicable in just about every jurisdiction.
The waiver of attorney-client communications arriving in
connection with a factual roadmap subsequently disclosed to law
enforcement extends beyond the disclosure itself and
encompasses all communications on that subject matter. The
consequences of this result can be extreme, in that even a
rudimentary roadmap is the product of information obtained
through thousands of hours of legal work spent conducting
interviews, parsing statements from hundreds of pages of
interview notes, and analyzing thousands and perhaps millions
of pages of both privileged and nonprivileged corporate
documents.
Furthermore, the waiver would be applicable not only to the
law enforcement officials receiving the information, but would
also embrace future third parties, including other Government
agencies and opportunistic plaintiffs' counsel seeking fodder
for class action and derivative strike suits.
In addressing the practice of conditioning leniency for
disclosure of otherwise privileged reports, I believe that a
balance must be struck between the legitimate interests of law
enforcement in pursuing and punishing illegal conduct, the
benefits to be retained by corporations which assist this
process and determine to take remedial action, and the rights
of individual employees.
It is imperative that we do not sacrifice accuracy and
fundamental fairness for expedience and convenience now
routinely requested by the Government. An equilibrium must be
achieved between the aforementioned competing concerns.
The issues being addressed today in this Committee meeting
are not simply part of an academic debate. Across the country,
there are dozens of corporations scrutinized in internal
investigations at any one time, with real consequences for real
people. These investigations directly impact the lives of
thousands of workers and millions of shareholders.
In conditioning leniency upon the disclosure of otherwise
privileged information, we need to accommodate the competing
interests of effective law enforcement, the benefits down to
deserving corporations, the corporation's own interests and its
ability to observe law through consultation with counsel, and
the fundamental rights of individual employees.
Reaching a consensus on the information sought by the
Government, limiting that information to non-opinion factual
work product or perhaps the adoption of a selective waiver for
cooperating corporations, and lucid, comprehensive standards to
guide internal investigations, are each important first steps.
Thank you, and I look forward to your questions.
[The prepared statement of Mr. Sullivan follows:]
Prepared Statement of William M. Sullivan, Jr.
Mr. Coble. Thank you, Mr. Sullivan.
Mr. McCallum, I think--by the way, we apply the 5-minute
rule to ourselves as well, so we will try to move along here.
Mr. McCallum, I think Mr. Donohue may have touched on this.
And where I am coming from is: Does the policy require uniform
review? That is to say, a United States Attorney in the Middle
District of North Carolina, would it be likely or unlikely that
he or she would be operating under a policy that would be
identical to the Eastern District of Virginia?
Your mike is not on, Mr. McCallum.
Mr. McCallum. Mr. Chairman, in response to that question,
the memorandum that I issued does allow for the different
United States Attorneys to institute a review policy in
accordance with the peculiar circumstance of their particular
district.
For instance, the Southern District of New York may be very
different than the District of Montana in terms of the number
of sophisticated corporate cases that involve allegations of
corporate fraud, and therefore the number of people that are in
the Southern District of New York, the number of Assistant
United States Attorneys that are available for the review
process, may be very different than the number of attorneys
that are in a different district.
So it is not identical, but it affords the type of
prosecutorial discretion to the United States Attorney to
determine what it will be, and that is coordinated through the
Executive Office of United States Attorneys in the Department
of Justice as well.
Mr. Coble. I thank you, sir. Now, you indicated, Mr.
McCallum, that in some instances, the corporate defendant may
well be the one to initiate the waiver. Do you have any figures
as to, comparatively speaking, Government initiated or
defendant initiated?
Mr. McCallum. Mr. Chairman, we do not have statistical
figures like that. And most of the surveys, including, we
believe, the survey that we have not yet seen that the Chamber
of Commerce just issued this morning, are based more on
perception and anecdotal evidence than they are on very, very
specific identification of particular cases.
We have been involved in a dialogue with various business
representatives, including the task force of the American Bar
Association that is dealing with this issue, with its chairman.
And we invited him and Jamie Conrad, who is here today, to come
out and talk with the United States Attorneys last year at
their annual conference to make sure that the United States
Attorneys were aware of exactly the concerns and the issues
that the business community was seeing in this.
And we were told at that time that a very detailed study of
particular cases would be prepared and would be provided to us.
And just last week, Mr. Ide, the ABA chairman, indicated to me
that that was forthcoming. That will allow us to dig down into
the specifics because each case is really unique, Mr. Chairman.
And it is that sort of detailed analysis that will be necessary
to determine or refute the ``routineness'' with which these
waivers are requested. We do not believe that they are
``routinely'' requested.
Mr. Coble. I thank you, Mr. McCallum.
Mr. Thornburgh, during your many years of public service,
were you ever aware of any criminal case in which the Justice
Department sought or required an attorney-client privilege
waiver from a cooperating corporation, A, and if so, what was
and is your position on that issue?
Mr. Thornburgh. I am not aware of any such request, Mr.
Chairman, although I can't absolutely verify that such a
request was not made at any time during the 25 years that I
have been affiliated one way or another with the Department of
Justice. It is a development of the last decade or so.
I would just like to add a footnote to Mr. McCallum's
response. It seems to me that the Department is giving up too
much by permitting each United States Attorney to frame his own
set of policies on this kind of question. Uniformity and
internal Department of Justice review has been adopted in any
number of areas that are sensitive, such as issuing a subpoena
to an attorney or to a reporter, or using undercover sting
operations. Those are not within the discretion of the U.S.
Attorney. And when we are dealing with such a sensitive and
venerable privilege as the attorney-client privilege, it seems
to me that ought to be the kind of rule that is applied.
Secondly, I think that there is a controversy, at least,
with regard to statistics about whether or not frequent use is
made of this waiver request. And the easiest way to do that is
to promulgate a review process within the Department so that
you have readily available at your fingertips the absolute
number of times it has been carried out.
If, as the Department claims, these are limited and
infrequent, it would not impose any undue burden. If, on the
other hand, they are as the perceptions indicate from this
report, it would provide a solid base for evaluating whether or
not this process is going forward in the right manner.
Mr. Coble. I thank you, Mr. Thornburgh. I see my time has
expired. Gentlemen, we probably will have a second round of
questioning because I have questions for Mr. Sullivan and Mr.
Donohue. This is significant enough, I think, to do that.
The gentleman from Virginia.
Mr. Scott. Thank you, Mr. Chairman.
Mr. Chairman, we have a public policy on the attorney-
client privilege which we are trying to protect. There are
other kinds of public policies that can't be--where you can't
use certain things as evidence when you are trying to
investigate and fix a problem. You can't--the fact that you
fixed a product subsequently can't be used to show negligence
of the former product because that would obviously discourage
fixing. Evidence that you tried to settle a case can't be used
as an admission because that would discourage settlements.
Is there a public policy that we want to protect in trying
to protect, to the extent possible, the attorney-client
privilege, Mr. McCallum?
Mr. McCallum. Ranking Member Scott, there is unquestionably
recognized within the Department of Justice the societal
benefits that attend to the attorney-client privilege and work
product privilege and various other privileges. And it is
certainly something that the United States Attorneys are--and
the other Federal prosecutors are mindful of.
And I think that one of the things that you are alluding to
is something that all three of my distinguished panelists have
touched on, and that is the providing of information to the
Government, whether to a regulator or to a prosecutor, and the
consequences of that disclosure in the civil litigation area.
Now, that, I mentioned previously, is an area that the
Federal Rules Advisory Committee on Evidence is looking at. It
is also an area that there have been bills introduced for the
Congress to address that issue. So I think that there is
certainly recognition.
Mr. Scott. Well, I think Mr. Donohue kind of alluded to
civil litigation because if somebody blurts something out in a
criminal investigation totally unrelated to what may be said
affecting civil litigation, you could open yourself up to all
kinds of problems including massive punitive damages if all
that information got out. Is that right?
Mr. McCallum. There is a consequence of a waiver of
attorney-client privilege, and one context being a waiver in
other contexts. That is correct, Mr. Scott.
Mr. Scott. Okay. Well, have you ever asked for waivers in
individual cases?
Mr. McCallum. I am sure that, like former Attorney General
Thornburgh, I can't tell you that that has never happened. I
am--it has never happened in any case that I am involved in.
And I think there is one issue that needs to be focused on
here, is that there is an issue of attorney-client waivers,
privilege waivers, by the corporation. That is, the lawyers who
represent the corporation. In my opening statement, I made the
point that they do not represent the management. They do not
represent employees.
And I am sure that Mr. Sullivan, every time he does an
internal investigation and interviews a witness, he explains to
them exactly who he represents, i.e., that it is the
corporation, and that that individual who is being interviewed
is not his client and there is no attorney-client privilege
between him and that individual.
Mr. Scott. Well, I mean, in an individual criminal case
where an individual is the defendant, have you ever asked for a
waiver of attorney-client privilege?
Mr. McCallum. I never have, Mr. Scott. But my experience
over my 35-year career has been predominately in the civil
litigation area. So I would not be someone who would be able to
respond to that effectively.
Mr. Scott. Have you ever had cases that the defendant, the
corporate defendant, got leniency for cooperation when they had
not waived attorney-client privilege?
Mr. McCallum. I cannot personally testify to that. I can
tell you that within the Department, I am informed by those
that have extensive experience in the criminal area that that
is indeed the case, that cooperation is but one factor in the
Thompson Memorandum in determining whether to indict someone.
And it is a factor, of course, in the Sentencing Commission
current matters.
Mr. Scott. Can you get the cooperation benefit without
waiving attorney-client privilege?
Mr. McCallum. There are--there are any number of instances,
I am informed, in which that is indeed the case, yes, and that
the circumstances of a corporation providing information may
not require the waiver of attorney-client privileged
information of work product information.
Mr. Scott. Let me ask one further question. Mr. Sullivan,
you represent corporations, many of whom have multi-
jurisdictional activities. Would there be a problem in having
92 different processes in terms of what the attorney-client
privilege may be?
Mr. Sullivan. Ranking Member Scott, yes. I think that would
be a very difficult road to navigate. It is difficult enough
working with prosecutors and regulators who are insistent that
you do their work for them. And in fact, if I am in a situation
where I am evaluating a cooperative mode for purposes of
obtaining favorable treatment by the Government in exchange for
a new compliance program, ferreting out wrongdoing--which would
be my obligation in any event--to the extent that I would have
to, in a multi-district context, deal with a variety of
competing considerations along the same lines would make my job
much more difficult and would also cause intractable problems
on the part of the corporation in terms of negotiating a
resolution.
Let me also add that I know the context here is
cooperation, but I don't think the presumption of innocence
should be forgotten. And when I addressed the Committee a few
minutes ago and mentioned that at the very first meeting I was
asked to waive the privilege, I also mentioned that I had not
even conducted an internal investigation and therefore had not
made up my mind as to whether I have defensible conduct or not.
So I think that also illuminates the mindset that corporate
counsel are dealing with today.
Mr. Coble. I thank the gentleman.
We have been joined by the distinguished gentleman from
Ohio, Mr. Chabot.
And in order of appearance, the Chair recognizes the
distinguished gentleman from Florida, Mr. Feeney.
Mr. Feeney. Thank you, Mr. Chairman. And I am grateful for
the testimony from all our distinguished panel.
You know, I had an observation I thought perhaps you could
talk a little bit about because I think you have gone into some
details about the importance historically of the attorney-
client privilege.
By the way, I would point out that most of us who, you
know, practiced law at one point think of this more in the
context of criminal--of violent crime as opposed to corporate
crime, exactly for the reasons that former Attorney General
Thornburgh laid out. This really hasn't been used until the
last 8 or 10 years, this waiver requirement.
But the average violent criminal doesn't have deep pockets.
And other than the fact that if he fails to comply and waive
privilege, for example, there is very little incentive. He is
not subject to fines because he has got the empty pocket
defense. He is not worried about civil litigants. But for a lot
of the reasons that Mr. Donohue laid out, the pressure on
corporate clients and business clients is immense to find favor
as they cooperate, and there is an enormous pressure on them.
I do understand the necessity at times to try in a
corporate context, especially with respect to fraud, to find
out what everybody knew, and that would include corporate
counsel. What I am worried about, and I guess I want to put it
in this respect--Mr. Sullivan might be the best person to
answer this--we live in a very new climate on Wall Street. I
mean, investors appropriately expect a lot more transparency.
We had things like Enron and WorldCom.
But in some ways, we may have overreacted. Post-Sarbanes-
Oxley, directors have some real problems. Number one, we don't
have a standard set of accounting principles, so that a major
international corporate firm may be responsible, and the
directors individually liable, to know where every box of
pencils or paper clips are. And we don't have standards to
protect people based on de minimis standards.
When directors or executives with corporations go and they
hire an independent auditor nowadays, they are not allowed to
seek the guidance of their auditor. They can't get help from
one of the top four accounting firms that they have to pay.
That firm is not allowed to tell them how to comply with
Sarbanes-Oxley.
Now we are in a position where if we are going to have what
amounts to blanket waivers or, in some jurisdictions, anyway,
what amounts to blanket waivers, where corporate executives and
corporate directors, who are going to be held personally
responsible even if they didn't necessarily know about mis-
actions that somebody else in the corporation took over, can't
be candid with their lawyer and cannot count on candid advice
back.
That type of chilling effect makes it almost impossible for
anybody with any sense to agree to be a member of the board of
directors today, and I thought maybe Mr. Sullivan and Mr.
Donohue could talk about this in the totality of the
circumstances today in corporate law. I mean, this is just one
more burden that makes it almost impossible to try to do your
job in an honest way as a member of a board or an executive at
a major corporation.
Mr. Sullivan, go ahead.
Mr. Sullivan. Thank you, Mr. Feeney. Well, in fact, you are
absolutely correct. Corporations have noticed a dearth of
willing applicants in terms of individuals who are willing to
serve on boards. What is attempted these days is to maintain a
level of independence, both with outside counsel as well as
special audit committees, special litigation committees, and as
you mentioned, even accountants.
But it also goes right back to what Mr. McCallum said, and
he is absolutely correct. I am well aware of the Upjohn
warnings, and when I am pursuing an internal investigation, I
am obligated and I do advise the individuals whom I am
interviewing that I do not represent them.
But in fact, if we move forward and they are led to believe
that not only do I not represent them but I am also going to
turn over everything they say to the Government at a moment's
notice, upon caprice or whim because I am interested in
maintaining the best possible position of the corporation, we
are in a situation where, as Mr. Donohue mentioned, I won't get
any information at all.
The corporate entity is an artificial entity, true. It has
legal responsibilities, true. But it also is run and managed by
people. The acts of the employees are imputed to the
corporation. So you must deal with the people because they are
the ones who bind the corporation.
And for my--from my perspective as well as the perspective
of independent directors or board members or auditors or
management, we need to be able to access facts. We need to be
able to do it freely, without any concerns about where those
facts may ultimately go. And we need to be able to manage the
information we have so that we can evaluate properly how to
respond to Government inquiries.
As I mentioned before, all too often the first mode that a
corporation will pursue is cooperation. They will find or seek
to find the responsible employees and throw them under the bus.
That is not necessarily the best policy. In a free-flowing
exchange of information environment where the lawyer can
carefully evaluate the information he has, he can make the best
decision for that corporation in how to deal with regulators
and ultimately save everybody a lot of money, shareholders and
individual investors.
Mr. Scott. Mr. Donohue?
Mr. Donohue. I serve on three public company boards of
directors. And I will say in response to your inquiry that,
first of all, it is getting harder and harder to attract
competent directors, not only because of the fear of liability,
which is getting greater, but because of the extraordinary
amount of time and process that has to be followed following
the Sarbanes-Oxley rules and their implementation.
What directors most worry about, other than running the
company, leading the company and having good management that
operates in an honorable way, are two things, and that is
dealing with regulators of every type and shape and dealing
with the Justice Department. And by the way, when you get
people like Mr. McCallum here, if he were to come out and deal
with the issues that individual companies have to deal with, we
would do fine.
But they have the greatest collection of young, soon-to-
make-it, want-to-be-famous kinds of lawyers all around the
country who, by the way, don't have the same amount of judgment
and experience, and many have little or no idea what
corporations do and how they are supposed to work.
So when 92 different groups--by the way, and when there is
an approval, it will be approval by the U.S. Attorney for one
of his underlings--they are going to have 92 different
approaches to do this, it is going to get a little more
complicated for most of the companies on whose boards I serve.
And I am not--we are not talking about huge criminal
issues; there are always questions with the SEC and others. And
it gets very, very complicated when everybody has got a
different rule. Everybody has got a different way of
approaching it. And standing behind them like vultures on a
fence are the class action and the mass action lawyers that are
sucking the vitality out of American industry. And they are
doing it, maybe unintended, but they are doing it with the help
of our Government, who is putting us in that kind of a position
that it shouldn't happen.
Mr. Coble. The gentleman's time has expired.
The distinguished gentleman from Massachusetts, Mr.
Delahunt, recognized for 5 minutes.
Mr. Delahunt. I would think, Mr. Sullivan, that you must
find yourself in a position where not only do you have to
inform the employee that you are not his lawyer, but there is
going to be a likelihood that what he tells you will become--
you will at some point in time be compelled to reveal to the
Government exactly what he says.
Have you run into that situation?
Mr. Sullivan. Yes, Mr. Delahunt. As part of the Upjohn
warnings, I am required to advise the employee that I represent
the company, that the privilege resides with the company, and
that the privilege can be waived by the company at any time----
Mr. Delahunt. And that----
Mr. Sullivan [continuing]. And in any manner.
Mr. Delahunt [continuing]. In a significant number of
cases, the privilege is waived.
You know what I can't understand, Mr. McCallum, is what
happened in the past 10 years? You know, for 20 years of my own
professional life, I was a--I was a prosecutor. Did a number of
sophisticated white-collar crime investigations. And, I mean,
there are grand juries. There is the use of informants. You
know, we knew how to squeeze people without sacrificing or
eroding the attorney-client privilege.
You know, I just have this very uneasy feeling that it is
the easy way to do it, you know. There is a certain level of,
you know, why should I--why should I have to really exercise
myself to secure the truth?
You know, from what I understand, there has been no review
in terms of the frequency of the waiver. There is no data.
There is nothing empirical. But, you know, Mr. Thornburgh and
Mr. Sullivan, you know, I am sure they have had extensive
practices. At least anecdotally, you know, they are here. They
are concerned.
Is there something that I am missing that the traditional
law enforcement investigatory techniques were insufficient?
Mr. McCallum. Mr. Delahunt----
Mr. Delahunt. I got to tell you something. I am a little
annoyed with the Sentencing Commission, too, making this a
factor. You know, where did that come from? Go ahead.
Mr. McCallum. I believe it came from the defense bar, who
wanted to pin down for certain that if there was a waiver--to
answer the second question first----
Mr. Delahunt. Sure. Thanks.
Mr. McCallum [continuing]. If there was a waiver, that it
would necessarily be deemed cooperation for purposes of a
downward departure. But let me----
Mr. Delahunt. Well, I would just dwell on that for a minute
because we will get a second round.
Mr. McCallum. Okay.
Mr. Delahunt. I would want to--I would want to hear that
coming from, you know, some criminal defense lawyer, saying
that that is the import of it. Because that tells me that if
they are looking for that kind of certainty, that this is being
used frequently. This is--this is becoming the rule rather than
the exception. But go ahead and take a shot at my----
Mr. McCallum. Let me respond to the first question, Mr.
Delahunt, and that is what has happened recently over the
years? I think we only have to look back to the 1997 through
2006 era to see a spate of very complicated, very complex, very
arcane, very difficult to determine corporate frauds of immense
proportions in terms of the dollar amounts involved which
also----
Mr. Delahunt. With all due respect, Mr. McCallum, I got to
tell you something. That just doesn't--that doesn't hold water.
You know, I am sure immense complex fraud has been being
perpetrated, you know, since the days of the robber barons. If
we don't have the resources in the Department of Justice to
conduct the necessary investigations to deal with it, then
let's assess it on a resource basis. Let's not do it the easy
way that erodes, I believe, a fundamental principal of American
jurisprudence.
I mean, if that is what you are telling me, I won't accept
it because of my own experience. You know, fraud is nothing
new. Uncovering it maybe is, but, I mean, there is--you have--
you know, you can use immunity. There are informants. There are
grand juries. There are all kinds of ways to do it.
And I am sure Mr. Thornburgh, being a former Attorney
General and a former, I think, Attorney General in a State, I
am sure he supervised or conducted a series of heavy
investigations that are as complex as anything that, you know,
occurred from 1997 to date, and did it in a way that didn't
erode significant legal principles that are embedded in our
jurisprudence.
I will be back, and you can think about the question.
Mr. McCallum. Thank you.
Mr. Coble. The gentleman's time has expired.
The distinguished gentleman from California.
Mr. Lungren. Mr. Chairman, it is always fun being with my
friend from Massachusetts. I was trying to figure out what he
said when he said ``partay,'' and then I thought he was talking
about getting a drink and going out someplace. [Laughter.]
Mr. Delahunt. I can't understand what you are talking
about.
Mr. Lungren. But I understand. You weren't talking about a
party, you were talking about a part A. I got that. Okay.
And Mr. Sullivan, I have been informed by counsel here that
the two of you used to work together, so that you used to be
one of those fellows that resembled the remarks of Mr. Donohue.
[Laughter.]
But now you have made it.
Mr. Sullivan. Mr. Volkov was a fine mentor.
Mr. Lungren. And I wondered if you had to deal with 92
different jurisdictions. It would certainly improve your
billables. [Laughter.]
Mr. Sullivan. I try to get involved in----
Mr. Lungren. But those Italian suits could be kept up, as
it was.
Just to put it on the record, I submitted a letter last
August to the Sentencing Commission regarding my concerns about
the Sentencing Commission's commentary with respect to the
rule. It looks to me like that amendment authorizes and
encourages the Government to require entities to waive the
attorney-client privilege and work product protections as a
condition of showing cooperation. And that is the huge concern
I have here.
Let me ask you this, Mr. McCallum: Should we in the
Congress believe that any time the Administration refuses to
waive executive privilege, that the Administration is not
cooperating with the Congress?
Mr. McCallum. Absolutely not, Mr. Lungren. I would--I would
hesitate to make that argument. There are benefits, and I think
that in my opening statement I described that there are
definitely benefits, societal benefits, from attorney-client
privilege.
Mr. Lungren. But, see, that--I understand. See, that is my
problem. If we in the Congress were to every time the President
says that there is a reason to protect executive privilege, not
only for his administration but for future administrations,
that every time he did that he was violating the sense of
cooperation that should prevail between two equal branches of
Government, I think we would be wrong.
And I see the Justice Department taking a position that if
a corporate defendant or potential defendant refuses to waive
that privilege, that is a priori evidence of the fact that they
are not cooperating. And that is the problem I really have
here.
See, the President makes the arguments--and I think that
you should--and the Department makes the arguments that there
is a reason for those privileges that the executive branch has.
And the reason is part institutional, but part to have that
ability to speak within yourselves, that is, that institution
of the administration, which is more than the President but is
personified by the President. He can talk to his advisors
without believing that we are going to hear everything he says.
And here you have a situation where you want a corporation
to follow the law, I presume. And you would want the
corporation to listen to good counsel, I would think. And here
we have got a rule that seems to me to work in the opposite
direction.
And I think that that weighs heavy on me and other Members
here on this panel. And so I would ask, don't you see the
creeping intrusion here? I mean, first you have the first
memorandum. Now we have the second memorandum, which is a
little tighter and a little tougher. And then, following that,
you have the Sentencing Commission saying, well, that is a bad
idea. As a matter of fact, we are going to have that as
evidence of cooperation, and the lack of it as evidence of lack
of cooperation.
What is a corporate counsel to do under those
circumstances?
Mr. McCallum. Well, there are a series of questions there,
Mr. Lungren. Number one, with respect to the Sentencing
Commission, the Department's position has been we would be
comfortable with the Sentencing Commission going back to where
it was before that amendment.
Mr. Lungren. Well, is that your position? Is that the
Administration's position?
Mr. McCallum. I believe that that is the Department of
Justice's review----
Mr. Lungren. That is what I mean.
Mr. McCallum [continuing]. Underway at this particular
time. I do not know whether that has been absolutely finalized.
But my review of that is that there would not necessarily be an
objection to going back to the way it was before, where it was
not addressed.
Number two, let me talk about the issue of cooperation.
Attorney-client privilege waivers are only one factor with
respect to cooperation. There are many other ways for a
corporation under the Thompson Memorandum to indicate and to
provide a degree of cooperation that will impact both the
decisions on the charging of the corporation and on the
determination of recommendations to be made to any sentencing
commission about--or to any sentencing body about a downward
deviation. So I don't--I don't think that it is accurate to
assert that privilege waivers are the sine qua non or the
absolute requirement in order to achieve a status of
cooperation with prosecutors.
With respect to the diversity of jurisdictions, the 92
different districts, as I indicated previously, this is not a
situation in which one size fits all. And what the McCallum
Memorandum really did was to recognize a best practices that
was, in my view, attendant to United States Attorneys across
the United States in which privilege waiver requests, formal
ones from the Government, as opposed to privilege waiver offers
voluntarily from corporations, would go through some sort of
supervisory review that would preserve for the peculiar
circumstances of that particular district and the United States
Attorney there a degree of flexibility.
But all of that would be done in coordination through the
Executive Office of United States Attorneys. So I don't think
it is an accurate picture to paint, 92 different definitions of
what is attorney-client privileged and what is not attorney-
client privileged. It is a second set of eyes to reassure that
there is a deliberate and considered process before attorney-
client privilege waivers are requested by the Department of
Justice.
Mr. Lungren. Thank you.
Mr. Coble. The gentleman's time is expired.
The distinguished gentleman from Ohio, Mr. Chabot.
Mr. Chabot. Thank you, Mr. Chairman.
Mr. Donohue, if I could begin with you. Can you give the
Subcommittee any examples from your members of instances where
a request for a Department of Justice--for an attorney-client
waiver resulted in unnecessary consequences for the
corporation, perhaps a third party suit, for example, and
arguably the information could have been gathered without a
waiver?
Mr. Donohue. Well, sir, you have just put your finger on
why this is a very difficult matter to challenge, either here
in the Congress or in the courts, because most companies that
have been painted into this box are not going to come forward
and give you an example. I know many examples. I would suggest
it is probably in our mutual best interests not to lay out the
names of a bunch of companies.
I could tell you a couple of interesting points. In one
matter that I am aware of, the prosecutor in a jurisdiction
gave a public speech and said, in our jurisdiction, anybody
failing to waive the privilege will be considered guilty. I
passed that material on to the Justice Department; I don't know
how it was used.
But if you were to go--and by the way, it is very, very
important to understand that the SEC and the Justice Department
have hundreds and thousands of investigations going on. And the
great amount of these have nothing to do with fraud. They have
arguments about proper accounting and all kinds of other
issues.
Where there is fraud, there should be a vigorous
investigation. But, you know, I was trying to think of a good
example that I might use. You know, the Inquisition supposedly
had the blessing of the Church, but their means weren't very
appropriate. And when Mr. McCallum began today, he laid out a
rationale of why they should be able to do these things because
of the assignment they were given to respond to Sarbanes-Oxley.
My understanding is that the privilege is a constitutional
protection, and that the end does not justify the means, and
that the serious nature of this--and I think the point made
about resources did not--should not put the companies in the
position of conducting investigations, which I am aware of
many, to supplement the work and actually do the work of the
prosecutors.
And I ended my statement by saying if people maliciously,
directly, and intentionally go out and violate the law and they
are in the American business community, lock them up. But you
try and go out, as Mr. Sullivan indicated, and deal with these
prosecutors--and you have got two sets of them; you got the SEC
and you got the Justice Department, and they are playing off
each other, and they are sitting in the same rooms, you know,
when you have a civil issue and you have a criminal issue. And
I would just say, you know, if you and I want to walk down a
hall one day, I will give you four or five examples. But with
the Chairman's permission and protection, I am not going to do
that here. [Laughter.]
Mr. Chabot. Thank you very much.
Mr. Sullivan, if I could ask you the next question. What
alternative techniques are available to prosecutors to obtain
the needed information from a corporation without requiring a
waiver of the attorney-client privilege?
Mr. Sullivan. Mr. Delahunt alluded to many, drawing upon
his years as a prosecutor. There are all types of investigative
techniques. There is cooperation undertaken by individuals
within the corporation. There is the grand jury process, with
subpoenas. There are wires.
What also is available, and which I suggested, for purposes
of a corporation who is--which is interested in cooperating, is
the factual recitation, which is actually quite common: a
factual review of what the outside counsel's investigation has
yielded, with a view toward working in concert with the
Government, ferreting out the criminal activity as it is
perhaps determined to be a rogue element or an independent
group working without knowledge of management. We see that in
export control cases, for example, where shipments are made
abroad by individuals who have an incentive for sales
commissions without the knowledge of management or at least
without management understanding that ineffective internal
controls were in place.
All of this suggests that the corporate entity itself and
outside counsel, certainly responsible management, as Mr.
Donohue has mentioned, has an interest in abiding by the law.
And to the extent that it becomes aware of problems with the
law, either through its own inquiry or through an external
source, a subpoena or whatnot, outside counsel working with in-
house counsel wants to ferret that out and find it out.
And we will assist the Government to the extent that it is
in our best interests to provide them with the roadmap, with
the factual outline, who you should talk to, what this document
means. But we shouldn't have to and we don't want to provide
them with our mental impressions, our specific interview notes,
our opinion work product, and our sensitive discussions with
employees because we want to preserve the ability to talk to
them again about another problem so that we can continue to
observe the law.
And the factual recitation is not something that is
ultimately going to be a problem. Factual recitations are found
in indictments every day in a very public context. If you want
to learn what happened in a particular case, what went wrong,
read the Government's indictment. And we will help you with
that factual outline to preserve our ability to interact with
you and to get credit for cooperation. But you should be
encouraged, Mr. Prosecutor, and you should insist on doing your
own legal analysis.
Mr. Chabot. Thank you.
Mr. Coble. The gentleman's time is expired. I thank the
gentleman.
Gentlemen, as I said earlier, I think this issue warrants a
second round, so we will commence that now.
Mr. Donohue, I may be repetitive, but I want to be sure
this is in the record. In your testimony, you mentioned that
erosion of the attorney-client privilege will frustrate
corporate efforts to comply with regulations and statutes.
Elaborate a little bit more in detail about that.
Mr. Donohue. Mr. Chairman, what happens in a company is
when issues of significance--it happens with me every day--come
up that we are dealing with some Federal regulation, some
political regulation, whatever it is, the first thing we do is
call the general counsel. When we are sued, as people are on a
regular basis, the first thing we do is call the general
counsel. And these are all civil matters.
But I want to have a feeling that when I sit down and talk
to Steve Bokat, who is the general counsel of the United States
Chamber of Commerce, that what I am talking about is going to
stay there. And if I had a feeling that in matters where there
may be differences with the Government, there may be
differences with regulars, if I talk to him, if anybody wanted
to bring an action against us, he is going to be up sitting--
talking about what we discussed, I am not too sure I am going
to talk to him. Nor am I going to go and get my regulatory
counsel, nor am I going to go down and get my outside counsel.
At least--you know, the term ``counsel'' is used up here a
great deal. And if you look to your right, you have your
counsel, and you sure want to make sure that what you are
talking to him about is not blabbed all over this place.
Mr. Coble. Yes. Well, that is what I thought you----
Mr. Donohue. And I think we have a constitutional right to
do that.
Mr. Coble. Thank you, Mr. Donohue.
Mr. Sullivan, in your testimony, you noted that you
represented a client before a regulator who requested a waiver
prior to your client's declining to cooperate or deciding to
cooperate.
What impact would such a waiver have on your ability to
represent a client corporation, given--under those facts?
Mr. Sullivan. Thank you, Mr. Chairman. Of course, I
declined that request immediately. And in fact, as Mr. Donohue
so perceptively referenced only upon hearing my anecdote, there
was more than one law enforcement agency representative in
there. There was the tag team, as he referenced a few moments
ago.
As I said before, this was a very early meeting, a meet and
greet, if you will, where I was attempting to outline to them
what my preliminary view of the evidence I had gathered after
only a couple weeks would suggest, as a function of how to
address their concerns.
I had not made up my mind as to what I would do in terms of
seeking cooperation or defending. As I said before, we should
never forget about the presumption of innocence as a corporate
representative, as a corporate lawyer, and we should always
ferret out the facts and then have a good understanding of the
law and those facts to understand whether or not there was a
crime committed and whether or not there was a credible
defense.
But to go directly to answer your question, if I had
undertaken to waive the privilege, how would I walk into that
company's office the following day? We had not determined that
a crime had been committed or that there were regulatory
problems. I needed to find out what went on, and in the best
way possible, so that I could represent that client in an
informed way.
Who would speak to me, Mr. Chairman? What type of evidence
would I be able to gain? I would be nothing more than an arm of
the Government. I would in fact have been deputized. My role
would be completely eliminated. It makes no sense, particularly
when, if I found there was wrongdoing and I needed to work with
the Government, I would be most pleased to do so by rendering
factual, non-opinion work product.
Mr. Coble. I thank the gentleman.
The gentleman from Virginia. The distinguished gentleman
from Virginia. [Laughter.]
Mr. Scott. Thank you, Mr. Chairman.
Mr. Sullivan, why would a corporation do an in-depth
investigation of suspected employee misconduct if the report of
that investigation has to be turned over to the prosecutors?
Mr. Sullivan. Well, frequently reports are turned over to
prosecutors. In fact, we see public reports very frequently. We
just saw a very public Fannie Mae report. Shell has got a
report. Baker Botts has got Freddie Mac's report on its
website.
The difference is, again, reports outlining factual
undertakings and understandings as opposed to attorney work
product and attorney-client communications. And----
Mr. Scott. Well, let me ask it another way. If you are
writing such a report, would you be writing it to be read by
the president of the corporation or by the prosecutor? I mean,
you know, you would say things differently depending on who the
audience is.
Mr. Sullivan. Sure. And it depends who I represent and what
my charge might be. The individuals who, for example, are
writing the Fannie Mae report may have been reporting to an
independent board, an independent accounting board or an
independent board of directors, coming in after the fact to
outline what facts happened. I think they would be very
cautious in outlining any opinion work product in that report.
And to be fair to the Justice Department, I have not seen
requests for waiver of attorney-client communications. It is
all work product. And I am not saying that in any way to
suggest that it is any less nefarious. It is the opinion
attorney work product, which is perhaps the most dangerous.
But to the extent that I would undertake to write a report,
a report for the general counsel or for the board of directors,
I would insist that it be a privileged document, that it would
include my mental impressions and opinions, thereby covering it
as work product, perhaps made in anticipation of litigation as
well. It would certainly be an attorney-client communication
because I would be proffering it to the general counsel. But I
would never want that to go elsewhere. A parsed, very narrowly
drawn factual recitation I might be persuaded to part company
with.
One thing I would like to also mention, Ranking Member
Scott. You earlier in the hearing talked about public policies
regarding inadmissible information and material. I think that
was a very important point. I would like to bring out that I
have represented Federal prosecutors in internal DOJ
investigations--OPR investigations, Office of Professional
Responsibility.
There is no compelled waiver of the fifth amendment. There
is no compelled self-incrimination under pain of losing your
job in the Justice Department. There is a Supreme Court case on
that, Garrity. Nevertheless, I am literally asked by Justice
Department officials to bring my employees in and to tell them
they either tell me everything or they walk.
And I have no problem doing that because there is no
specific type of due process in a corporation. But the next
step is, and by the way, once you get something from that
employee and if it is an incriminatory fifth amendment waiver,
I did it, I want it, Mr. Sullivan. And that is where I draw the
line.
They don't extract from their own employees. Why should
they ask that kind of duress of mine, or of my clients?
Mr. Scott. Thank you. Exactly who can waive the privilege?
Mr. Sullivan. The corporation, to the extent that the
corporation has the privilege when we are dealing with
corporations and employees.
Mr. Scott. Who? Who? The CEO?
Mr. Sullivan. We would have to get that consent of
representative management, whoever is running the program, the
board, in consultation with counsel.
Mr. Scott. Can the CEO waive the privilege?
Mr. Sullivan. Not as an individual. He has got to only do
it on behalf of the corporation as a function of his role as a
corporate representative.
Mr. Scott. Is that right, Mr. Donohue?
Mr. Donohue. I believe procedurally the CEO could move,
with probably advice of his lawyer, to waive the privilege. But
in these kinds of instances, this would be so sensitive that it
would already be up to the board, and the board would be
informed of that change in circumstance.
Mr. Sullivan. And that is what I meant by----
Mr. Donohue. That probably wouldn't have been done four or
5 years ago, but it would sure be done today.
Mr. Scott. Are you aware of--the Department indicated that
they don't--you can get full cooperation without a waiver. Are
you aware of cases where full cooperation credit on sentencing
was given without a waiver of attorney-client privilege?
Mr. Donohue. Mr. Scott, I am sure it has. I cannot give you
a definitive case. The more difficult the case, the more
visible the Justice Department and the SEC has been in
announcing the case and how they are going to be successful and
all these terrible things that have happened before they have
had their full investigation, the more aggressive the SEC and
Justice Department lawyers are going to be to try and make sure
that they are successful.
And when they are having problems in finding what they
thought they were going to find, then they want the company to
investigate it for them, and they want people to break the
privilege. We are not trying to protect criminals. We are
trying to protect a constitutional protection that is given to
individuals and corporate individuals, and we believe it is
being eroded.
Mr. Scott. Mr. Chairman, could I ask one other question?
In terms of corporate organization, which attorney--do all
attorneys in the corporation have the privilege, or is it just
corporate counsel we are talking about? And let me follow up on
that by saying, I mean, there is some--if you are trying to
discuss certain activities, trying to come up with a process
that may be kind of borderline legal, would you help yourself
by having the person in that position you are talking to be an
attorney where you wouldn't get that privilege if it was not an
attorney? And do you find people hiring lawyers in kind of non-
lawyer positions to try to get a privilege?
Mr. Donohue. Mr. Scott, I am going to respond and then ask
Mr. Sullivan if he would make sure I am correct. But I am not
sending him a fee. [Laughter.]
You know, generally, when one is dealing with broad
corporate matters, the general counsel of the corporation, who
is an officer of the court by his own professional standing,
would be the person that would have this role with the CEO or
other executives.
There are, however, issues, for example, on SEC questions
or environmental questions or other matters where there are
senior lawyers within the institution, probably but not
necessarily working for the general counsel, who on those
matters would be seen as the more senior person with whom
discussions and therefore protected discussions could have been
held.
Mr. Sullivan, you have had a minute to think about that.
Mr. Sullivan. You are absolutely right. My experience has
been working with the general counsel and other lawyers in the
company who hold particular expertise in various areas as
questions may arise. But no privilege determinations are made
without the assent and consent of the board or a special
committee who is operating in a joint way--a special committee
on accounting, a special litigation committee--so that there is
usually a board approval at the highest levels for such----
Mr. Scott. Board approval to determine who has a privilege
and who doesn't?
Mr. Sullivan. Well, board approval relating to waiver of
the privilege.
Mr. Scott. Well, I mean, if you have in a certain
department--for example, sometimes a person may be hired as a
lawyer; sometimes they may have expertise and are not a lawyer.
Would the lawyer have--would there be a privilege when the
person happens to be a lawyer and a privilege when the person
does not happen to be a lawyer, and would there be an advantage
in hiring somebody for that position who is a lawyer?
Mr. Sullivan. The privilege is held by the corporation. And
to the extent that, for example, outside counsel is acting at
the behest of the corporation for purposes of pursing an
internal investigation, individual employees who are
interviewed by that counsel do not hold a privilege
relationship with that investigating counsel. The privilege is
held by the corporate entity, and it can be waived only through
the exercise of a determination by management in consultation
with the board.
Mr. Donohue. But Mr. Scott----
Mr. Scott. That is if you have a lawyer. If you have a non-
lawyer in that position, he wouldn't have a privilege. Is that
right?
Mr. Donohue. Yes. But even the lawyer--for example, as you
can imagine in this town, the Chamber is full of lawyers. So if
we looked at it as if it were a public company and I walked in
the door and talked to any of the lot of lawyers, there is no
implied privilege there.
The privilege is when you seek legal guidance from those
people who are in a corporate position to give it and protect
it. And so walking down to the cafeteria with any number of the
lawyers that work for us in some other--and I think Mr.
Sullivan--again, I am not paying him a fee--I think he would
suggest that there would be no implied privilege there.
Mr. Sullivan. I would agree.
Mr. Coble. The gentleman's time is expired.
The distinguished gentleman from Florida.
Mr. Feeney. Thank you.
General Thornburgh, you said you don't recall using this
required waiver in prosecutions during your tenure as AG. You
can think of, you know, briefly a hypothetical where it would
be appropriate in order for a corporation to have considered to
have cooperated where the attorney-client privilege would be
waived, can you not?
Mr. Thornburgh. I think there are certainly going to be
situations where the corporation itself may take the initiative
to waive the privilege in order to make available to the
Government----
Mr. Feeney. But off the top of your head, you can't think
of where it would be appropriate for the Justice Department to
waive--to require a waiver in order for the corporation to have
considered cooperating?
Mr. Thornburgh. I can't, but I wouldn't want to rule it
out. I mean, there might be----
Mr. Feeney. Okay. I think that is very telling.
And with that, you know, Mr. McCallum, I have to tell you,
I am, you know, typically a huge supporter of giving the
Justice Department the tools that it needs because these are
very dangerous times, and we want to clean up Wall Street,
Enron, and WorldCom. We're a disaster for investors.
But I would ask you: Have there been any successful
prosecutions that you know of of major Wall Street fraud that
would not have been successful in the absence of a required
waiver?
Mr. McCallum. I can't speak to that because I was not
personally involved to a degree to be able to assess the
strength or weaknesses of any of those cases.
I would, in response to the previous question, indicate to
you, Mr. Feeney, that with respect to circumstances in which it
would be clear that a waiver of attorney-client privilege might
be necessary would be when the investigation implicates or
creates suspicion regarding the general counsel's activity and
whether that person is complicit within the fraud. That would
be one, you know, prime example that is obvious.
But I can't talk to you with regard to the second question.
I can't address the issue of would the prosecution of X have
succeeded without a----
Mr. Feeney. If you would be willing to give us a list, I
think I would like to know that, Mr. Chairman, with unanimous
consent of the Committee, if you would be willing to go back
and get us that information.
General Thornburgh?
Mr. Thornburgh. Yeah. I want to amplify a bit my response.
Under the crime-fraud exception, there is no privilege. So it's
not a waiver of a privilege; it is that the privilege doesn't
arise in the first place.
I want to say one thing, if I might. Having been one of
those young, zealous prosecutors that Tom Donohue so eloquently
described earlier on, I want to come to their defense. We want
our prosecutors to use every single tool that is legally
available to them. On the other hand, I don't want to castigate
those prosecutors for the faults that we are speaking about
today.
This, unfortunately, is a matter of Department policy. And
they are empowered to pursue these waivers by the policy of the
Department of Justice. And it is that level upon which this
requires some redress.
Mr. Feeney. I thank you, General Thornburgh. And on that
one, I wanted to go back to Mr. McCallum.
Mr. McCallum, as I said, I tend to be a huge supporter of
the tools the Justice Department needs. But I am not persuaded
by the position of the Justice Department in this case--in this
case yet. I mean, you start out your remarks by talking about
the number of prosecutions.
My goal would be investor confidence and investor security.
Prosecuting successfully lots of directors, CFOs, CEOs, and
COOs is not necessarily the type of successful, clean Wall
Street that I want to see.
And toward that end, you know, Mr. Donohue suggested that a
lot of directors nowadays and top level management are spending
a good portion, if not the majority of their time, not only
building a better, cheaper, quality mousetrap, but on
compliance with regulatory burdens and legal burdens. It
doesn't seem like that helps investors, and it doesn't seem
like that helps a solid corporate governance strategy.
You know, one of the concerns that I have is that if I am a
director--let's assume hypothetically I am a director trying to
do the right thing, which is to make profits for the
shareholders and succeed in business. And let's assume for
purposes of my hypothetical that even though I am a
Congressman, I am an ethical guy. And let's assume, since it is
my hypothetical, that I am trying to do the right thing.
If I have an accounting question, I want to go to my
independent auditor. I am not allowed to do that under
Sarbanes-Oxley. If there is a close call on a legal or ethical
issue, I want to go to the corporation's general counsel. I am
terrified to do that for the same reason that if I were a
Catholic and there was no protection for things I said to my
priest, I would be afraid to confess some of my sins and I
would not be able to get the absolution that I were seeking.
So can you see that some of the things that we want to
accomplish with solid corporate governance, with people focused
on doing the right thing but making a profit for their
shareholders, providing a better widget for the marketplace,
can you see how some of these concerns--I am not worried about
the Enron fraud case. I am worried about the guy trying to do
the right thing and how he is afraid to talk to, in the one
case, his accountants, and in this case, his lawyers.
Mr. McCallum. Mr. Feeney, we certainly hear the arguments
that are made by the business community on that side relating
to the chilling effect. I would submit to you that our view of
the compliance environment is indeed that corporations are
spending more time on compliance. There is more regulatory
supervision and oversight that has been imposed as a result of
the corporate frauds. And I think that corporate governance is
better off for it.
Rather than being deterred from seeking counsel from the
general counsel, we believe that management is--in fact has
been encouraged to seek advice and counsel, and there are any
number of institutional investors who assess the legal risks
and who try to determine whether there are compliance programs
in place that are vigorously followed and that are effective.
That has become part of the investment decision that
institutional investors make these days because of the frauds
that--corporate frauds that have been experienced in the
financial community over the--over the past 6, 7, 8 years.
Mr. Feeney. Well, just one brief follow-up. If that is part
of the investor decision-making process, does that account for
the enormous flight into international investments and the fact
that since Sarbanes-Oxley, for example, at that time 90 percent
of foreign firms that went public raised 90 percent of their
capital in the U.S. Today it's the reverse. Foreign
corporations, not just because of Sarbanes-Oxley but because of
the legal burden, are fleeing, and capital markets are moving
overseas where there is no requirement for some of these things
and these burdens.
Mr. McCallum. Well, I think that doesn't speak to the issue
of the improvements in corporate governance, corporate
standards, and corporate citizenship within the United States.
And there has been, I would submit, a restoration of confidence
in the American corporate culture and in the American financial
markets as a result of many of the regulatory oversight matters
that have been instituted by the Congress and enforced by the
Department of Justice.
Mr. Coble. The gentleman's time is expired.
The distinguished gentleman from Massachusetts.
Mr. Delahunt. Mr. McCallum, let me give you a chance to
respond to part A. You know, what happened in the past decade
since I left, you know, my previous career as a prosecutor? You
know, what information do you receive now from waiver of the
attorney-client privilege that absolutely cannot be developed
from other mechanisms, other tools that have existed, you know,
for the past 30, 40 years?
Mr. McCallum. Well, Mr. Delahunt, there are three standards
that are articulated in the Thompson Memorandum.
Mr. Delahunt. I am not interested in the standards. What I
am interested in, you know, is in the course of an
investigation, there are--there is a litany of investigative
methods, mechanisms, and tools--we could repeat them--that are
insufficient that have increased the reliance on the waiver.
Mr. McCallum. All right. There are issues regarding the
timeliness of the information and whether or not a particular
criminal activity and the consequences of it can be addressed
regardless of the investment of significant resources in an
adequately--in a timely manner to respond to both the public
need, the financial market needs.
Number two, the completeness of the information. I would
submit to you that even in the investigations that you
diligently pursued, you were not always confident that despite
all of the efforts that you had used and all of the tools that
you had used, that the information that you found was, in fact,
complete. the whole story, all the facts, with all of the
documents. And then----
Mr. Delahunt. I--go ahead. I am.
Mr. McCallum. Excuse me. And then thirdly is the accuracy
of that information. That is, there are subjective judgments
that are necessarily made regarding the credibility of
witnesses, the credibility of documentation, and all of that
is----
Mr. Delahunt. Right. But documentation and witness
credibility, they can all be tested via grand jury testimony. I
mean, everything that you say I can envision occurring without
the need to secure the waiver.
What I am concerned about, even--I think that, you know,
there has been a restoration of confidence. I think that that
in fact has happened as a result of legislative policy. I think
it has happened probably because of aggressive enforcement. And
I think that is good for our financial markets, and over time,
I think it would attract capital as opposed to encourage its
flight.
But I am concerned about the attorney-client privilege
because I can see slippage in that privilege. You know, today
it's, you know, the corporation. You know, tomorrow it's that
priest, you know, that I might have gone to confession to. All
right? I mean, it makes me very, very uncomfortable, and I
really do think that this is a shortcut method to secure
evidence that can be developed by alternative means.
You know, I thought Mr. Thornburgh made a good suggestion
in terms of the review that alluded to. I would like to see
you, the Department on its own, conduct a review. Get us some
information. You know, get us some data. I mean, who is doing
this and who is initiating it? Because it is a concern.
And, you know, I think that you can probably sense by the
questions that have been posed, as well as observations by
individual Members, that there is a real concern here. And you
don't want someone like Lungren from California, you know a far
right conservative Republican, and Delahunt, this Northeast
liberal, filing legislation on this because I think that is the
order of magnitude that is being expressed here.
So respectfully, that is a message that I think you can
bring back to Justice, is that there is concern about the
Thompson/McCallum Memorandum. Okay?
Mr. McCallum. I will certainly take that message back, Mr.
Delahunt.
Mr. Coble. And for the record, let me say that far left-
winger and that far right-winger are both pretty good guys.
Gentlemen, before I forget it, I want to introduce into the
record, without objection, coalition letters to preserve the
attorney-client privilege.
[The coalition letters follow in the Appendix]
Mr. Coble. Gentleman, we thank you all very much for being
here. In order to ensure a full record and adequate
consideration of this issue, the record will be left open for
additional submissions for 7 days. Any written questions that a
Member of the Subcommittee wants to submit should also be
submitted within the same 7-day period.
This concludes the Oversight Hearing on White-Collar
Enforcement, Part 1, Attorney-Client Privilege and Corporate
Waivers. Thank you again, gentlemen. And the Subcommittee
stands adjourned.
[Whereupon, at 1:50 p.m., the Subcommittee was adjourned.]
A P P E N D I X
----------
Material Submitted for the Hearing Record
THE HONORABLE ROBERT C. SCOTT, A REPRESENTATIVE IN CONGRESS FROM THE
STATE OF VIRGINIA, AND RANKING MEMBER, SUBCOMMITTEE ON CRIME,
TERRORISM, AND HOMELAND SECURITY
Mr. Chairman, I want to thank you for holding this hearing on the
attorney/client privilege and corporate waivers of the privilege. While
attorney/client privilege is more usually associated with the context
of protecting an individual from having to disclose communications with
his or her lawyer for the purpose of criminal or civil prosecution,
corporations are ``persons'' for the sake of legal processes and are
also entitled to the attorney/client privilege.
As noted by the U.S. Supreme Court in Upjohn Co. v. U.S, the
attorney-client privilege is the oldest of the privileges for
confidential communications known to the common law. Its purpose is to
encourage full and frank communication between attorneys and their
clients so that sound legal advice and advocacy can be given by
counsel. Such advice or advocacy depends upon the lawyer being fully
informed by the client. And as the Court noted in Trammel v. United
States, 445 U.S. 40, 51 (1980): ``The lawyer-client privilege rests on
the need for the advocate and counselor to know all that relates to the
client's reasons for seeking representation if the professional mission
is to be carried out.'' This purpose can only be effectively carried
out when the client is free from consequences or apprehensions
regarding the possibility of disclosure of the information.
Exceptions to protections of the privilege do exist, but they have
generally been limited to the crime/fraud exception, which holds that
the privilege does not apply to attorney/client communications in
furtherance of a crime or fraud, and where the client has already
waived the privileged information through disclosure of it to a non-
privileged third party. Now, it appears that the Department of Justice
has determined that there is another exception - when it wishes the
corporation to waive the privilege in the context of a criminal
investigation. For sometime, now, I have been concerned about reports
that the Department of Justice is coercing corporations to waive the
attorney client privilege during criminal investigations of the
corporation and its employees, by making waiver a prerequisite to
consideration by the Department of it recommending or not challenging
leniency should criminal conduct be established. This is particularly
significant because under mandatory minimums and sentencing guidelines,
prosecutorial motions for leniency may be the only way to have a
sentence reduced below the mandatory minimum, since the prosecution
often has more control over sentencing than the judge.
While the attorney/client privilege doctrine does apply to
corporations, complications arise when the client is a corporation,
since the corporate privilege has to be asserted by persons who may,
themselves, be the target of a criminal investigation, or subject to
criminal charges based on disclosed attorney/client information.
Disclosed information can be used in either criminal or civil
prosecutions. Whatever fiduciary duty an official may have to the
corporation and its shareholders, it is superseded by the official's
own self-interest in a criminal investigation. And there is no
protection for employees of the corporation against waivers of
attorney/client privileges by officials in their own self interest.
This includes information provided by employees to corporate counsel to
assist internal investigations by a corporation, even if the
information was under threat of the employee being fired , and even if
the information constituted self-incrimination by the employee.
It is one thing for officials of a corporation to break the
attorney/client privilege in their self interest of their own volition;
it's another thing for the Department to require or coerce it by making
leniency consideration contingent upon it, even when it is merely a
fishing expedition on the part of the Department. Complaints have
indicated that the practice of requiring waiver of corporate attorney
client/privilege has become routine Department procedure. Why wouldn't
this be the case? What is the advantage to the Department of NOT
requiring waiver in a corporate investigation? Because of the
``Exclusionary Rule,'' when a confession is coerced, or a search is
conducted illegally, it becomes ``fruit of a poisonous tree'' and
cannot be used in a criminal prosecution. Police and prosecutors who
jeopardize a case by such tainted evidence are booed by their
colleagues and become laughing stocks in their professions. Thus, there
is a disincentive for them to pursue and collect such evidence in the
first place. Although coerced confessions and illegal searches were
always improper, before the Exclusionary Rule, there was every
incentive for police to coerce confessions and illegally obtain
information, because they could make cases on it, and there was no
penalty if they didn't. Here we have the same incentives with respect
to waiver of the corporate privilege, so not surprisingly, reports are
that demand for waivers are rising, not only by the Department, but by
other entities, as well, such as auditors as a prerequisite to issuing
a clean audit.
Coercing waivers of corporate attorney/client privilege has not
long been a practice withing the Department. It has apparently crept
forward as a result of a series of Department policy memos, starting
with one by former Deputy Attorney General Eric Holder and followed by
one from Former Deputy Attorney General Larry Thompson. Then, there was
a proposed Sentencing Commission guideline recognizing and guiding the
practice and, recently, another memo by Acting Deputy Attorney General
Robert McCallum, whom we will hear from today.
Waiver of attorney/client privilege has not always been a
prerequisite to leniency. Providing non-privileged documents and
information, and providing broad access to corporate premises and
employees, have been traditional ways to receive the benefits of
corporate cooperation. Some 9 former U.S. Attorneys General, Deputy
Attorneys General, and Solictors General have express their concerns
about the current Department waiver policy. And we will hear from
witnesses today who prosecuted corporate cases without requiring such
waivers. So, Mr. Chairman, I look forward to the testimony of our
witnesses and to working with you to address the concerns regarding the
Department's corporate attorney/client waiver policy. Thank you.
__________
SUBMISSION TO THE SUBCOMMITTEE ON CRIME, TERRORISM, AND HOMELAND
SECURITY FROM THE COALITION TO PRESERVE THE ATTORNEY-CLIENT PRIVILEGE,
COMPRISED OF THE FOLLOWING ORGANIZATIONS: 1. AMERICAN CHEMISTRY
COUNCIL; 2. AMERICAN CIVIL LIBERTIES UNION; 3. ASSOCIATION OF CORPORATE
COUNSEL; 4. BUSINESS CIVIL LIBERTIES, INC.; 5. BUSINESS ROUNDTABLE; 6.
NATIONAL ASSOCIATION OF CRIMINAL DEFENSE LAWYERS; 7. NATIONAL
ASSOCIATION OF MANUFACTURERS; AND, 8. U.S. CHAMBER OF COMMERCE
Chairman Coble, members of the House Judiciary Subcommittee on
Crime, Terrorism and Homeland Security, we appreciate the opportunity
to submit the following statement for the record of today's hearing to
examine the erosion of the attorney-client privilege in the corporate
context.
It is our firm belief that the attorney-client privilege in the
corporate context has been significantly weakened in recent years due
largely to current Justice Department investigative policies and
practices and recent amendments to the U.S. Sentencing Guidelines that
put companies in the position of having to waive their attorney-client
privilege during federal investigations in order to receive credit,
during charging and sentencing decisions, for having fully cooperated
with the authorities. This statement explains our concerns, and
provides the Subcommittee with historical context for the importance of
the attorney-client privilege.
Background and Importance of the Attorney-Client Privilege
Attorney-client confidentiality is the foundation of the
relationship between a lawyer and client. The attorney-client privilege
is essentially an evidentiary or procedural right recognized by the
courts when one party to litigation or other adversarial matter wishes
to exclude documents or communications from the other party's requested
production of the first party's files, when those files include
attorney-client confidences. But increasingly, demands to waive the
attorney-client privilege are being made outside the authority and
oversight of the courts; increasingly, privilege waiver demands are
unilaterally made by prosecutors, enforcement officials, and third-
party plaintiffs. Those demanding such waivers of the privilege believe
they are entitled to everything and anything that may assist them in
investigating potential misconduct at the company, even if the
information is privileged. Even corporate auditors are demanding to see
privileged information as the price of a ``clean'' audit letter.
While lawyers are generally bound by rules of professional ethics
\1\ to preserve their clients' confidences, it is the attorney-client
privilege that allows a client to assert the right to the
confidentiality of its conversations with counsel. While the workings
of the privilege are more familiar in the context of an individual who,
confronted with a threat of prosecution or suit, consults a lawyer and
expects that the content of their conversations will be confidential,
the U.S. Supreme Court confirmed that corporations are similarly
entitled to the protections of the privilege in the landmark case of
Upjohn Co. v. United States.\2\
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\1\ See, for example, Model Rule of Professional Conduct 1.6, and
its counterpart rule in every state's code of professional
responsibility.
\2\ Upjohn Co. v. U.S., 449 U.S. 383 (1981).
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The main general exceptions to the clients' rights to maintain the
privileged status of conversations with their attorneys are:
the crime-fraud exception (the privilege cannot apply
to conversations in which the lawyer's advice or services will
be used in furtherance of a crime or fraud); and
the exception for discovery of communications that
the client previously waived through disclosure to any non-
privileged party; such a disclosure can invalidate the client's
right to invoke the privilege's protections against other third
parties who demand production of the communications in the
future.\3\
\3\ We have provided a more detailed explanation of the privilege
and its application as Attachment A.
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Privilege In The Post Sarbanes-Oxley Environment
While nothing has technically changed in the laws governing the
application of the privilege in the corporate context in recent years,
past corporate accounting scandals have raised concerns about the need
for corporations to operate in a more transparent and accountable
fashion. However, we believe that weakening the attorney-client
privilege is counterproductive to the ultimate twin goals of promoting
corporate compliance and rewarding corporate self-reporting.
Since lawyers employed or retained by a corporation represent the
entity (rather than individual employees, officers or directors), they
are particularly aware of the need to protect the privilege. Corporate
counsel find that privilege is essential to successfully counseling
those officers and employees on compliance and ethics in the daily
conduct of business. In order to perform their functions optimally,
corporate lawyers must be included in executive corporate decision-
making. Success requires that they encourage clients to take a moment,
and seek legal advice in an increasingly fast paced, competitive,
complex and regulated business environment.
The privilege allows corporate counsel to advise against poor
choices and help clients understand the adverse legal implications of
suggested activities without fear that their sensitive conversations
will be made public in the future. Furthermore, it provides an
important incentive to those with relevant information or concerns
about possible wrongdoing to share what they know with their counsel,
who can then advise them and the company to pursue remedial actions and
proactively prevent similar problems in the future. If employees
believe that the attorney-client privilege will not protect the
confidentiality of those conversations, conversations that are in the
company's best interests and continued legal health will likely not
occur. As the Supreme Court declared in the Upjohn case - ''An
uncertain privilege. . .is little better than no privilege at all.\4\
---------------------------------------------------------------------------
\4\Upjohn, supra note 2,449 U.S. at 393.
---------------------------------------------------------------------------
Privilege Waiver Requests Are on the Rise
Demands for waiver of privilege fall into four main categories:
1. the prosecutorial context (involving the Department of
Justice, U.S. attorneys or state attorneys general);
2. the regulatory context (most commonly with the SEC);
3. the adversarial civil litigation context (in which the
other side is demanding access to privileged or work-product
material as a matter of right); and
4. the corporate audits context (as the company's external
auditors seek to comply with the Public Company Accounting
Oversight Board's excessive interpretation of Sarbanes-Oxley
internal controls requirements).
Unfortunately, waiver of privilege to any one of these groups opens
these same files to the potential future discovery demands of any third
party seeking the same or even related information stemming from the
same matter for most any other purpose. Attempts to craft a limited
waiver agreement (through the execution of a confidentiality agreement)
with government investigators or prosecutors would not be enforceable
in most jurisdictions when subsequent document production demands were
made.
The Government is Contributing to Privilege Erosion
In recent years \5\, particularly on the federal level, criminal
law enforcement and regulatory authorities have adopted policies and
employed practices and procedures that suggest that if corporations
disclose documents and information that are protected by the corporate
attorney-client privilege and work-product doctrine, they will receive
credit for ``cooperation.'' While this sounds like an option that a
company can choose to exercise or not, the reality is that corporations
have no practical choice but to comply with this waiver demand. In
federal criminal cases against companies, prosecutors' ability to
assert a need for waiver is reinforced by both the Justice Department's
internal policies on charging decisions (the Thompson Memorandum) \6\,
as well as a provision of the Federal Sentencing Guidelines which
suggests that prosecutors can demand waiver of privilege if they feel
that it is important to making their case.\7\ In the case of the SEC,
the precedent of the ``Seaboard Report'' and the SEC's Enforcement
Division's focus on lawyers as needed ``gatekeepers'' are
emphasized.\8\ Furthermore, the SEC's strategies are being imitated by
other agencies, such as the IRS, the DOL, the EPA, the FEC and others.
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\5\ Former leaders of the Department of Justice have testified in
alignment with our coalition that the aggressive waiver policies in
play today were not the norm during their tenures, and are not only
unnecessary to accomplishing the Department's goals, but deplorable and
inappropriate. See, e.g., the testimony of former Attorney General Dick
Thornburgh before the US Sentencing Commission at http://www.ussc.gov/
corp/11--15--05/Thornburgh.pdf; and the submitted statement of nine
former senior DOJ officials, including former Attorneys General, Deputy
Attorneys General and Solicitors General, attached to this filing
because the Commission did not post it to its website.
\6\ Deputy Attorney General Larry Thompson issued a 2003 memorandum
that addressed the principles of federal prosecution of business
organizations. (Memorandum from Deputy Attorney General Larry Thompson
to Heads of Department Components and U.S. Attorneys, ``Principles of
Federal Prosecution of Business Organizations'' (Jan. 20, 2003)
(available at http://www.usdoj.gov/dag/cftf/corporate--guidelines.htm).
The Thompson Memorandum (which updates the ``Holder Memorandum,''
originated by one of his predecessors, Eric Holder) lists nine factors
that federal prosecutors should consider when charging companies. One
of the nine factors is the corporation's ``timely and voluntary
disclosure of wrongdoing and its willingness to cooperate in the
investigation of its agents, including, if necessary, the waiver of
corporate attorney-client and work product protections.'' This
provision in practice is interpreted to require that companies
routinely identify and hand over damaging documents, disclose the
results of internal investigations, furnish the text and results of
interviews with company officers and employees, and agree to waive
attorney-client and work product protections in the course of their
cooperation.
\7\ Amendments made to the US Sentencing Guidelines, which became
effective in November of 2004, state that in order to qualify for a
reduction in sentence for providing assistance to a government
investigation, a corporation is required to waive confidentiality
protections if ``such waiver is necessary in order to provide timely
and thorough disclosure of all pertinent information known to the
organization.'' (U.S. Sentencing Guidelines Manual Sec. 8C2.5 (2004)
(emphasis added) (available at http://www.ussc.gov/2004guid/8c2--
5.htm.)
\8\ Federal regulators, and particularly the SEC, have begun to
adopt policies and practices mirroring those of the Department of
Justice, which while discussing ``cooperation credit,'' mention
disclosures of protected confidential information. See, e.g., the
Seaboard Report, [``Report of Investigation Pursuant to Section 21(a)
of the Securities Exchange Act of 1934 and Commission Statement on the
Relationship of Cooperation to Agency Enforcement Decisions,'' Exch.
Act Rel. No. 44969 (Oct. 23, 2001)]; in the Seaboard Report, the SEC
outlined some of the criteria that it considers when assessing the
extent to which a company's self-policing and cooperation efforts will
influence its decision to bring an enforcement action against a company
for federal securities law violations. The concern that waiver of the
attorney-client privilege and work-product protections are now viewed
as necessary elements evidencing a company's cooperation is bolstered
by public remarks made by former SEC enforcement chief Stephen Cutler,
in his remarks made during a program discussing the changing role of
lawyers in remedying corporate wrongdoing during a presentation at
UCLA's Law School in the Fall of 2004 (``The Themes of Sarbanes-Oxley
as reflected in the Commission's Enforcement Program,'' (September 20,
2004) (transcript available at http://www.sec.gov/news/speech/
spch092004smc.htm.)
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Even prosecutors who traditionally recognized that criminal charges
ought to be rarely applied against corporate entities now often employ
the threat of criminal prosecution of the entity to secure the
company's assistance in their criminal investigations and prosecutions
of individuals who are actually responsible for malfeasance and the
target of the government's probe. Because recent cases of corporate
failures are complex, the size and sophistication of the government's
investigations into complex frauds has increased correspondingly. This
build-up has placed tremendous public pressure on prosecutors to obtain
convictions of bad actors, which has lead many prosecutors to look for
ways to coerce the ``assistance'' of companies under investigation.
Formerly, a company could show cooperation by providing access to
both relevant documents and information and to the company's workplace
and employees. The definition of a company's ``cooperation'' did not
entail production of legally privileged communications and attorneys'
litigation work product. Under current practices, in order to convince
the prosecutor or regulator that the company is cooperating with the
investigation, and indeed to avoid being accused of engaging in
obstructionist behavior, companies are told directly or indirectly to
waive their privileges.
While the DOJ repeatedly states that cooperation and waiver of the
privilege is only one of the nine criteria they examine under the
Thompson Memorandum, and is rarely determinative, our surveys suggest
otherwise. Furthermore, we do not believe the DOJ has done enough to
promote reliable and enforceable internal guidelines interpreting the
purpose of this policy, when it is to be applied, and what safeguards
should be in place to prevent abuse. Coalition constituents tell us
that privilege waiver is inevitably the pivotal consideration that
determines whether a company will be able survive prosecution in a
manner that will allow it to return to its business at the conclusion
of the investigation, even if the government finds that no further
prosecution is warranted.
Waiver of the Privilege has had a Negative Impact
The Department of Justice has maintained that the privilege is not
in danger, primarily because DOJ very rarely seeks waivers.\9\
Confident that this contention is incorrect, the Coalition to Preserve
the Attorney-Client Privilege, which includes organizations that have
signed this statement, decided to collect empirical data on the
prevalence of waiver requests, as well as other indicators of the
current health of the attorney-client privilege.
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\9\ See, e.g., Mary Beth Buchanan, ``Effective Cooperation by
Business Organizations and the Impact of Privilege Waivers,'' 39 Wake
Forest L. Rev. 587, 598 (2004).
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To accomplish our goal, we conducted several surveys to collect
information about privilege erosion in 2005. In the first survey, over
700 corporate lawyers gave their perspectives on the privilege and its
application in the corporate context. Over 350 responses came from
corporate counsel, many of them general counsel and the remainder came
from outside counsel who specialize primarily in white collar criminal
defense. We were struck by the strong response rate, and the unanimity
of the message sent by respondents from different disciplines. The
following are the results from our survey:\10\
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\10\ An executive summary of this survey and its results is online
at http://www.acca.com/Surveys/attyclient.pdf.
Reliance on privilege: In-house lawyers confirmed
that their clients are aware of and rely on privilege when
consulting them (93% affirmed this statement for senior-level
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employees; 68% for mid and lower-tier employees).
Absent privilege, clients will be less candid: If the
privilege does not offer protection, in-house lawyers believe
there will be a ``chill'' in the flow or candor of information
from clients (95%); indeed, in-house respondents stated that
clients are far more sensitive as to whether the privilege and
its protections apply when the issue is highly sensitive (236
of 363), and when the issue might impact the employee
personally (189 of 363).
Privilege facilitates delivery of legal services: 96%
of in-house counsel respondents said that the privilege and
work-product doctrines serve an important purpose in
facilitating their work as company counsel.
Privilege enhances the likelihood that clients will
proactively seek advice: 94% of in-house counsel respondents
believe that the existence of the attorney-client privilege
enhances the likelihood that company employees will come
forward to discuss sensitive/difficult issues regarding the
company's compliance with law.
Privilege improves the lawyer's ability to guarantee
effective compliance initiatives: 97% of corporate counsel
surveyed believe that the mere existence of the privilege
improves the lawyer's ability to monitor, enforce, and/or
improve company compliance initiatives.
Struck by the responses to our survey, the United States Sentencing
Commission, which is reviewing its 2004 decision to include new
privilege waiver language in its organizational sentencing guidelines,
asked us to conduct further research in several areas of particular
interest. We offer you today the results of this new survey, which are
being unveiled for these hearings; they are attached and at the end of
this document.
In brief, this second survey \11\, found:
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\11\ The second survey's results are online at http://www.acca.com/
Surveys/attyclient2.pdf.
A Government Culture of Waiver Exists: Almost 75% of
both inside and outside counsel who responded to this question
expressed agreement (almost 40% agreeing strongly) with a
statement that a ```culture of waiver' has evolved in which
governmental agencies believe it is reasonable and appropriate
for them to expect a company under investigation to broadly
waive attorney-client privilege or work product protections.''
(Only 1% of inside counsel and 2.5 % of outside counsel
---------------------------------------------------------------------------
disagreed with the statement.)
`Government Expectation' \12\ of Waiver of Attorney-
Client Privilege Confirmed: Of the respondents who confirmed
that they or their clients had been subject to investigation in
the last five years, approximately 30% of in-house respondents
and 51% of outside respondents said that the government
expected waiver in order to engage in bargaining or to be
eligible to receive more favorable treatment.
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\12\ The survey defined `government expectation' of waiver as a
demand, suggestion, inquiry or other showing of expectation by the
government that the company should waive the attorney-client privilege.
Prosecutors Typically Request Privilege Waiver - It
Is Rarely ``Inferred'' by Counsel: Of those who have been
investigated, 55% of outside counsel responded that waiver of
the attorney-client privilege was requested by enforcement
officials either directly or indirectly. Twenty-seven percent
of in-house counsel confirmed this to be true (60% of in-house
counsel responded that they were not directly involved with
waiver requests). Only 8% percent of outside counsel and 3% of
---------------------------------------------------------------------------
in-house counsel said that they ``inferred it was expected.''
DOJ Policies Rank First, Sentencing Guidelines Second
Among Reasons Given For Waiver Demands: Outside counsel
indicated that the Thompson/Holder/McCallum Memoranda are cited
most frequently when a reason for waiver is provided by an
enforcement official, and the Sentencing Guidelines are cited
second. In-house counsel placed the Guidelines third, behind
``a quick and efficient resolution of the matter'' (1) and DOJ
policies (2).
Third Party Civil Suits Among Top Consequences of
Government Investigations: Fifteen percent of companies that
experienced a governmental investigation within the past 5
years indicated that the investigation generated related third-
party civil suits (such as private antitrust suits or
derivative securities law suits). Of the eight response options
that asked respondents to list the ultimate consequences of
their clients' investigations, related third-party civil suits
rated third for in-house lawyers. The first and second most
common outcomes for in-house counsel were that the government
decided not to pursue the matter further (24%), or that the
company engaged in a civil settlement with the government to
avoid further prosecution (18%). For outside counsel, the most
cited outcome was criminal charges against individual leaders/
employees of the company (18%), and a decision by the
government not to prosecute (14%). ``Related third party civil
litigation'' finished fifth (for outside counsel respondents)
with 12%.
Faced with this evidence of privilege erosion and increasingly
successful (coerced) unilateral government waiver demands, we conclude
that the government believes it has a right to determine when clients
can and cannot exert their Constitutional privilege rights.
Privilege erosions are almost inevitable in situations where
prosecutors have immense leverage and companies very little; a
company's failure to ``cooperate'' could have severe impact on its
reputation, its financial well-being and even its very existence. While
companies have a good reason to complain about forced or coerced waiver
of their privileges, lawyers who advise their clients to take a stand
and fight against privilege erosions are potentially subjecting the
company to a long, costly, and hostile prosecution, at the end of which
the client will have paid dearly even if it is ultimately acquitted.
Faced with such situations, many corporations will conclude that
the protection of their privileged communications and files is not
worth risking the negative publicity that could follow the company's
stark refusal to divulge its ``secret'' conversations with its lawyers
in asserting privilege.\13\ Though a difficult decision, companies must
consider the affect of asserting privilege in these situations on the
company's shareholders or investors, customers and suppliers, and its
standing in the marketplace.
---------------------------------------------------------------------------
\13\ Unfortunately, a decision to waive for the short-term gain of
``getting along'' with a current prosecution could also be later
questioned if the results of waiver are even more devastating further
down the road in an unrelated third party action. Boards and executives
know that civil suits ensuing after the ``successful'' completion of a
settlement with the government can have more damaging effects on the
company's long-term viability than the instant matter.
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The Role of Congress in Protecting the Attorney-Client Privilege
In the Subcommittee's continued oversight, we ask you to join us in
sending a message to the Department of Justice that the Thompson
Memorandum is inconsistent with the foundational role of the attorney-
client privilege in our system of justice, and that the prosecutorial
powers regarding privilege exercised thereunder are inappropriate. The
attorney-client privilege is a client's right under our legal system,
and its application serves the purposes of corporate compliance, self-
reporting, and corporate responsibility. Privilege waiver should not be
coerced or even considered when assessing whether a corporation is
cooperating in an investigation or can qualify for leniency. We believe
that Congress should send a clear message to the federal prosecutors at
the Department of Justice and other regulatory agencies that companies
and their employees should not be punished for preserving their rights
to exercise their attorney-client privileges. Further, we believe
Congress should hold further hearings to request that the Department of
Justice provide more meaningful information on privilege waiver
requests by prosecutors and its progress in policing the practices of
US attorneys in the field.
Similarly, we urge Congress to request similar changes to similar
procedural enforcement powers exercised at the SEC. We agree that
aggressive enforcement of wrongdoing and harsh penalties for wrongdoers
is appropriate, but stripping clients of their privilege rights -
especially when it is clear that even when provided under a
confidentiality agreement, privilege waiver may be irreversible in many
jurisdictions - is not a necessary or appropriate tactic for an agency
to employ in the course of an investigation, even before any finding of
entity complicity or culpability for a failure is made.
Finally, we urge the Subcommittee to communicate these concerns to
the United States Sentencing Commission as it engages in its current
process of reconsidering the 2004 amendment to the Guidelines'
commentary language, which the Justice Department views as codifying
its policy of requesting privilege waiver routinely as an emblem of
cooperation. The waiver of the right to effective and meaningful legal
counsel is not an appropriate demand to make of a defendant, and should
not be the standard by which the courts determine whether an entity has
properly facilitated the government's investigation of charges against
individuals or the entity.
attachment a
The Attorney-Client Privilege and its Operation in the Corporate Legal
Setting
Following is a working definition of the attorney-client privilege
and how it applies in the corporate context. Before the privilege can
attach to a client's communication with its attorney, the following
requirements must be satisfied:
The entity that wishes to hold the privilege must be
the lawyer's client.
The person to whom the client's communication is made
must be a member of the bar of a court or a subordinate of such
a person.
The lawyer to whom the communication is made must be
acting as a lawyer (and not, for instance, as a business
person).
The communication must be made without non-client and
non-essential third parties present (it could be made, for
instance, at a crowded restaurant, but not at a table with
other non-client folks around to overhear; it could be
conducted as an email exchange, but not if non-client,
``unnecessary'' parties are cc'ed or are forwarded the email
later).
The communication must be made for the purpose of
securing legal services or assistance, and not for the purpose
of committing a crime or fraud.
The client must claim and not waive the
privilege.\14\
\14\ These criteria were laid down by the court in United States v.
United States Mach. Corp., 89 F. Supp. 357, 358-59 (D. Mass. 1950), and
have set the standard for privilege qualification ever since.
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While the privilege will attach to almost all communications that
satisfy these requirements, what it protects is actually very narrow in
scope. The privilege does not protect the client from the discovery
through other means and sources of any relevant facts. It just protects
the ``consult.'' Indeed, one of the best arguments in favor of
privilege protection is precisely that it doesn't prevent anyone from
discovering all the facts necessary to make their case, whatever that
may be: it simply requires the government or a civil litigant to do
their own work to prove their case, so as not to deprive the client's
ability to communicate openly with its attorney.
If the application of the privilege to a conversation, documents or
a written communication between lawyer and client is challenged, the
party claiming the benefit of the privilege has the burden of proving
its applicability.\15\
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\15\ Federal Trade Commission v. Lukens Steel Co., 444 F.Supp. 803
(D.D.C. 1977).
---------------------------------------------------------------------------
The related ``work product doctrine'' offers qualified protection
for materials prepared by or for an attorney when litigation is
anticipated (even if the litigation never arises or ends up taking on a
different form). Attorney work product material can enjoy the same
level of protection as attorney-client privileged materials, but if the
work product does not disclose the mental impressions of the attorney,
a court may order its production if good cause for the documents'
production is established (such as it would be unreasonable or
impossible for the other side to replicate the work on their own).
One of the most contentious and difficult issues for companies
concerned about privilege issues is the production of the internal
investigation notes of the company's lawyers (and their agents). Many
companies self-investigate and self-report problems and the number of
self-reports are increasing as a result of Sarbanes-Oxley and related
legislation and regulation at the federal, state and agency levels. But
self-reporting a problem, by its very nature, confirms to an adversary
or prosecutor that the ideal place to begin their evaluation of the
company's problems would be a thorough review of the company's internal
investigation and any communications made between lawyers and the
company regarding the failure. Producing these investigation summaries
and reports entails the disgorgement of the attorney's work product and
attorney-client confidences, and the U.S. Supreme Court set forth the
standard for protecting such work from discovery in Hickman v.
Taylor.\16\
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\16\ Hickman v. Taylor, 329 U.S. 495 (1947).
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The attorney work product doctrine suggests that it is unfair for
the other side to have access to another party's attorney's thought
process, her impressions and thoughts, and even her strategies in
unlocking and mapping her potential case by the selection of which
employees to interview (and which to skip); which files she reviews,
and so on.
__________
SURVEY RESULTS, ``THE DECLINE OF THE ATTORNEY-CLIENT PRIVLEGE IN
CORPORATE CONTEXT,'' PRESENTED BY THE FOLLOWING ORGANIZATIONS: 1.
AMERICAN CHEMISTRY COUNCIL; 2. ASSOCIATION OF CORPORATE COUNSEL; 3.
BUSINESS CIVIL LIBERTIES, INC; 4. BUSINESS ROUNDTABLE; 5. THE FINANCIAL
SERVICES ROUNDTABLE; 6. FRONTIERS OF FREEDOM; 7. NATIONAL ASSOCIATION
OF CRIMINAL DEFENSE LAWYERS; 8. NATIONAL ASSOCIATION OF MANUFACTURERS;
9. NATIONAL DEFENSE INDUSTRIAL ASSOCIATION; 10. RETAIL INDUSTRY LEADERS
ASSOCIATION; 11. U.S. CHAMBER OF COMMERCE; AND, 12. WASHINGTON LEGAL
FOUNDATION
__________
LETTER FROM FORMER JUSTICE DEPARTMENT OFFICIALS TO THE HONORABLE
RICARDO H. HINOJOSA, CHAIRMAN, U.S. SENTENCING COMMISSION
__________
LETTER FROM THE AMERICAN BAR ASSOCIATION TO THE SUBCOMMITTEE ON CRIME,
TERRORISM AND HOMELAND SECURITY
__________
LETTER FROM THE HONORABLE DANIEL LUNGREN, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF CALIFORNIA TO THE HONORABLE RICARDO H. HINOJOSA,
CHAIRMAN, U.S. SENTENCING COMMISSION
August 15, 2005
The Honorable Ricardo H. Hinojosa
Chairman
U.S. Sentencing Commission
One Columbus Circle, N.E.
Washington, D.C. 20002-8002
Re: Sentencing Guidelines Commentary Involving Waiver of
Attorney-Client Privilege and Work Product Doctrine--Comments
on Notice of Proposed Priorities
Dear Judge Hinojosa:
As a member of the House Judiciary Committee and its Subcommittee
on Crime, Terrorism and Homeland Security, I have been following with
great interest the debate over the recent amendment to the Commentary
to Section 8C2.5 of the Federal Sentencing Guidelines, which I believe
threatens to erode the long-standing attorney-client and work product
protections afforded under our system of justice. As one who played an
active role in the adoption of the Sentencing Guidelines statute, this
causes me great concern. Although I am pleased that the Commission has
announced plans to reconsider this issue during its regular 2005-2006
amendment cycle-and urge the Commission to follow through on this
process-I remain concerned that the amendment process does not provide
a more timely remedy for the problem. Therefore, I would appreciate
hearing your thoughts about possible ways to address this problem more
urgently.
As you know, on April 30, 2004, the Commission submitted to
Congress a number of amendments to Chapter 8 of the Sentencing
Guidelines relating to ``organizations''--a broad term that includes
corporations, partnerships, unions, non-profit organizations,
governments, and other entities--which became effective on November 1,
2004. One of these amendments involved a change in the Commentary to
Section 8C2.5 that authorizes and encourages the government to require
entities to waive their attorney-client and work product protections as
a condition of showing cooperation with the government during
investigations. Prior to the adoption of this privilege waiver
amendment, the Sentencing Guidelines were silent on the privilege issue
and contained no suggestion that such a waiver would ever be required.
Although the Justice Department has followed a general internal
policy--with the adoption of the 1999 ``Holder Memorandum'' and the
2003 ``Thompson Memorandum''--of requiring companies to waive
privileges in certain cases as a sign of cooperation, I am concerned
that the privilege waiver amendment might erroneously be seen as
Congressional ratification of this policy, resulting in even more
routine demands for waiver. I am informed that, in practice, companies
are finding that they have no choice but to waive these privileges
whenever the government demands it, as the threat to label them as
``uncooperative'' in combating corporate crime simply poses too great a
risk of indictment and further adverse consequences in the course of
prosecution. Such an unbalanced dynamic simply goes too far. Even if
the charge is unfounded, an allegation of ``noncooperation'' can have
such a profound effect on a company's public image, stock price and
credit worthiness that companies generally yield to waiver demands.
As both a former California Attorney General and a current Member
of Congress, I appreciate and support the Commission's ongoing efforts
to amend and strengthen the Sentencing Guidelines in order to reduce
corporate crime. Creating incentives to increase the practice of
corporate ethics and legal compliance is imperative. Unfortunately, I
believe the privilege waiver amendment is likely to undermine rather
than strengthen compliance with the law in several ways.
First of all, the privilege waiver amendment seriously weakens the
attorney-client privilege between companies and their lawyers and
undermines their internal corporate compliance programs, resulting in
great harm to the public. Lawyers can play a key role in helping
companies and other organizations to understand and comply with complex
laws, but to fulfill this role, lawyers must enjoy the trust and
confidence of the entity's leaders and must be provided with all
relevant information necessary to represent the entity effectively,
ensure compliance with the law, and quickly remedy any violations. By
authorizing the government to demand waiver of attorney-client and work
product protections on a routine basis, the amendment discourages
entities from consulting with their lawyers. This, in turn, impedes the
lawyers' ability to effectively counsel compliance with the law and
discourages them from conducting internal investigations designed to
quickly detect and remedy misconduct. As a result, companies and the
investing public will be harmed.
I am also concerned that the privilege waiver amendment will
encourage excessive civil litigation. In California and most other
jurisdictions in the nation, waiver of attorney-client or work product
protections in one case waives the protections for all future cases,
including subsequent civil litigation matters. Thus, forcing companies
and other entities to routinely waive their privileges during criminal
investigations results in the waiver of those privileges in subsequent
civil litigation as well. As a result, companies are unfairly forced to
choose between waiving their privileges, thereby placing their
employees and shareholders at an increased risk of costly civil
litigation, or retaining their privileges and then facing the wrath of
government prosecutors.
For these reasons, I believe that the recent privilege waiver
amendment to the Sentencing Guidelines is likely to undermine, rather
than strengthen, compliance with the law. In addition, I believe that
it will undermine the many other societal benefits that arise from the
essential role that the confidential attorney-client relationship plays
in our adversarial system of justice. My concerns are also shared by
many former senior Justice Department officials--including former
Attorneys General Ed Meese and Dick Thornburgh, former Deputy Attorneys
General George Terwilliger and Carol Dinkins, former Solicitors General
Ted Olson, Seth Waxman and Ken Starr, and many others--who I understand
are preparing to submit their own joint letter to the Commission in the
near future. Therefore, I urge the Commission to follow through on its
initial plan to address and remedy the privilege waiver issue as part
of the 2005-2006 amendment cycle. The new amendment should state
affirmatively that waiver of attorney-client and work product
protections should not be a mandatory factor for determining whether a
sentencing reduction is warranted for cooperation with the government
during investigations.
While I believe that such an amendment is appropriate and
desirable, it is my understanding that changes made during the upcoming
2005-2006 amendment cycle will not become effective until November 1,
2006. Because the current privilege waiver language in the Commentary
to the Guidelines will continue to cause the problems described above
until it is removed, I would appreciate your thoughts regarding any
additional remedies--legislative or otherwise--that could resolve this
problem more promptly.
Thank you for your consideration, and I look forward to hearing
from you at your earliest convenience.
Sincerely,
Daniel E. Lungren
Member of Congress
cc:
United States Sentencing Commission
One Columbus Circle, N.E.
Suite 2-500, South Lobby
Washington, D.C. 20002-8002
Attention: Public Affairs--Priorities Comment
Members of the U.S. Sentencing Commission
The Honorable F. James Sensenbrenner, Jr.
Chairman, House Judiciary Committee
The Honorable John Conyers, Jr.
Ranking Member, House Judiciary Committee