[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



                                 ______

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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\
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------
    \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.)
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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 
---------------------------------------------------------------------------
        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:
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \16\ Hickman v. Taylor, 329 U.S. 495 (1947).
---------------------------------------------------------------------------
    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

                                 
