[Senate Hearing 109-835]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-835
 
 THE THOMPSON MEMORANDUM'S EFFECT ON THE RIGHT TO COUNSEL IN CORPORATE 
                             INVESTIGATIONS

=======================================================================

                                HEARING

                               before the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 12, 2006

                               __________

                          Serial No. J-109-108

                               __________

         Printed for the use of the Committee on the Judiciary



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                       COMMITTEE ON THE JUDICIARY

                 ARLEN SPECTER, Pennsylvania, Chairman
ORRIN G. HATCH, Utah                 PATRICK J. LEAHY, Vermont
CHARLES E. GRASSLEY, Iowa            EDWARD M. KENNEDY, Massachusetts
JON KYL, Arizona                     JOSEPH R. BIDEN, Jr., Delaware
MIKE DeWINE, Ohio                    HERBERT KOHL, Wisconsin
JEFF SESSIONS, Alabama               DIANNE FEINSTEIN, California
LINDSEY O. GRAHAM, South Carolina    RUSSELL D. FEINGOLD, Wisconsin
JOHN CORNYN, Texas                   CHARLES E. SCHUMER, New York
SAM BROWNBACK, Kansas                RICHARD J. DURBIN, Illinois
TOM COBURN, Oklahoma
           Michael O'Neill, Chief Counsel and Staff Director
      Bruce A. Cohen, Democratic Chief Counsel and Staff Director


                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Feingold, Hon. Russell D., a U.S. Senator from the State of 
  Wisconsin, prepared statement..................................    75
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont.     4
    prepared statement...........................................    77
Specter, Hon. Arlen, a U.S. Senator from the State of 
  Pennsylvania...................................................     1

                               WITNESSES

Donohue, Thomas J., President and Chief Executive Officer, U.S. 
  Chamber of Commerce, Washington, D.C...........................    20
Mathis, Karen J., President, American Bar Association, Chicago, 
  Illinois.......................................................    22
McNulty, Paul J., Deputy Attorney General, Department of Justice, 
  Washington, D.C................................................     2
Meese, Edwin, III, former Attorney General, Ronald Reagan 
  Distinguished Fellow in Public Policy, and Chairman, Center for 
  Legal and Judicial Studies, The Heritage Foundation, 
  Washington, D.C................................................    18
Sheppard, Mark B., Partner, Sprague & Sprague, Philadelphia, 
  Pennsylvania...................................................    26
Weissmann, Andrew, Partner, Jenner & Block, LLP, New York, New 
  York...........................................................    24

                         QUESTIONS AND ANSWERS

Responses of Paul J. McNulty to questions submitted by Senators 
  Leahy and Schumer..............................................    37

                       SUBMISSIONS FOR THE RECORD

Business Roundtable, Paul M. Montrone, Chairman & Chief Executive 
  Officer, Fisher Scientific International Inc., Chairman, Civil 
  Justice Reform Task Force, Washington, D.C., letter............    56
Coalition to Preserve the Attorney-Client Privilege, joint 
  statement......................................................    58
Donohue, Thomas J., President and Chief Executive Officer, U.S. 
  Chamber of Commerce, Washington, D.C., prepared statement......    71
Mathis, Karen J., President, American Bar Association, Chicago, 
  Illinois, prepared statement and attachments...................    80
McNulty, Paul J., Deputy Attorney General, Department of Justice, 
  Washington, D.C., prepared statement...........................   109
Meese, Edwin, III, former Attorney General, Ronald Reagan 
  Distinguished Fellow in Public Policy, and Chairman, Center for 
  Legal and Judicial Studies, The Heritage Foundation, 
  Washington, D.C., prepared statement...........................   123
Sheppard, Mark B., Partner, Sprague & Sprague, Philadelphia, 
  Pennsylvania, prepared statement...............................   132
Thornburgh, Dick, Kirkpatrick & Lockhart Nicholson Graham LLP, 
  Washington, D.C., prepared statement...........................   139
Weissmann, Andrew, Partner, Jenner & Block, LLP, New York, New 
  York, prepared statement.......................................   144


 THE THOMPSON MEMORANDUM'S EFFECT ON THE RIGHT TO COUNSEL IN CORPORATE 
                             INVESTIGATIONS

                              ----------                              


                      TUESDAY, SEPTEMBER 12, 2006

                              United States Senate,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:30 a.m., in 
room SD-226, Dirksen Senate Office Building, Hon. Arlen 
Specter, Chairman of the Committee, presiding.
    Present: Senators Specter and Leahy.

 OPENING STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM 
                   THE STATE OF PENNSYLVANIA

    Chairman Specter. Good morning, ladies and gentlemen. It is 
9:30. The Judiciary Committee will now proceed with this 
oversight hearing on the practices of the Department of Justice 
on the issue of departmental policy on calling for a waiver of 
attorney-client privilege and the elimination of the corporate 
practice of paying for counsel fees of their employees in the 
defense of criminal charges or the investigation of criminal 
charges.
    There is a memorandum of the Department which provides 
``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 attorney-client privilege and work product 
protection,'' and then a further provision on a ``corporation's 
promise of support to culpable employees and agents either 
through advancing of attorney's fees,'' et cetera, all of which 
goes to the ``value of a corporation's cooperation.''
    This memorandum and these policies may well have the effect 
of significantly modifying the traditional balance on a 
criminal prosecution where the Government has the burden of 
proof because of the Government's power in establishing a 
criminal case, which leaves traditionally the suspect or 
ultimately the accused with privileges--the attorney-client 
privilege being one--and the obligation or practice of 
corporation's employees to pay counsel fees, which can be so 
prohibitive as to be coercive in an individual's decision on 
whether or not to defend himself or herself.
    The issue of privilege is one which the Government 
exercises with some forcefulness on some frequency. Executive 
privilege, certainly where the President were to invoke 
executive privilege, who could say that the President was being 
uncooperative, where we have the recurrent issue coming up in 
hearings before this Committee on nominees, including Supreme 
Court, where the Government says there is a privilege attached 
to what goes on in the Solicitor General's office, where we 
recently had Chief Justice Roberts and Justice Alito with 
documents and papers which the Government insisted on 
withholding, and understandably so, because of the overlying 
issue of privilege.
    The Southern District of New York has taken up this issue 
in an opinion by Judge Lewis Kaplan, strongly worded, 
condemning the Department of Justice's procedures on 
constitutional grounds in the KPMG case. So we have a matter 
here which involves very fundamental considerations of 
constitutional rights, due process rights, Sixth Amendment 
rights.
    Quite a number of former key employees of the Department of 
Justice, including Attorneys General, have objected to this 
policy, and this Committee will be scrutinizing it to see if it 
is appropriate for the Department of Justice to act.
    We turn now to our first witness, the distinguished Deputy 
Attorney General Paul McNulty. He served with distinction as 
the United States Attorney for the Eastern District of 
Virginia, handling many very important and high-profile cases. 
He is a graduate of Grove City College and Capital University 
School of Law.
    Thank you for joining us, Deputy Attorney General McNulty, 
and we look forward to your testimony.

    STATEMENT OF PAUL J. MCNULTY, DEPUTY ATTORNEY GENERAL, 
            DEPARTMENT OF JUSTICE, WASHINGTON, D.C.

    Mr. McNulty. Thank you very much, Mr. Chairman. It is good 
to see you, and it is good to be here today.
    Today's hearing is about duty--the duty of prosecutors and 
the duty of corporate officials. It is about how those duties 
are brought together to enforce the law and to protect the 
integrity of the marketplace.
    People of good will and great distinction have criticized 
how we at the Department of Justice are fulfilling our duty. 
These are smart and experienced people, and their concerns must 
be taken seriously. But, Mr. Chairman, as a United States 
Attorney and Deputy Attorney General for the past 5 years, I 
have a little experience myself, and I would like, therefore, 
to suggest five realities that I have observed in relation to 
the practice of waiving attorney-client privilege in corporate 
fraud prosecutions.
    Reality number 1, Federal prosecutors have a duty to the 
taxpayers of this country to hold corporate officials and 
corporations accountable for criminal wrongdoing. Our job is to 
protect the integrity of public markets, to ensure that 
investors have a safe place to entrust their hard- earned 
dollars. And it is not in the interests of taxpayers, and 
investors in particular, for corporate fraud investigations to 
drag on for years.
    Reality number 2, those corporations want out from under 
the dark clouds of criminal wrongdoing as quickly as possible. 
The moment it becomes known that a corporation could be facing 
a criminal investigation and potential prosecution, the value 
of that company's stock begins to plummet, its shareholders 
lose money, and the board of directors quickly recognizes its 
fiduciary duty to those shareholders. It immediately sets out 
to locate the cancer of corporate corruption, excise the tumor, 
and get the company back on the road to good health. It is not 
in the interests of shareholders for corporate criminal 
investigations to drag on for years.
    Reality number 3, most corporations, therefore, are anxious 
to cooperate with Government investigations. Whether it is the 
Holder memo, the Thompson memo, a McNulty memo, or no memo, 
corporations will continue to cooperate in order to bring 
criminal investigations to an end, to bring them out from under 
the dark cloud of potential prosecution.
    Reality number 4, there are many ways for Government 
investigators to get the facts in a corporate fraud 
investigation, to find out who did what when. Some ways are 
faster and more productive than others. One of the most 
productive ways to get the facts is for a cooperating 
corporation to tell the Government what it knows. It is not the 
only way for the Government to learn the truth, but, generally 
speaking, disclosing the results of the company's internal 
investigation is one of the best ways. Let's face it. Searching 
for hot documents in rooms full of paper or on servers filled 
with computer files is much slower than looking through a 
three-ring binder or a CD-ROM identifying the most relevant 
evidence.
    As a general counsel of a Fortune 500 company recently told 
me, ``If I could bring a Justice Department investigation to a 
close by turning over an internal investigation and I did not 
do it, my board would fire me.''
    Reality number 5, once a corporation has turned over the 
internal report and the prosecutor is ready to decide, indict 
or not indict, the corporation will insist, will demand that 
its cooperation be given full consideration along with other 
relevant factors in deciding not to indict the company. 
Thompson memo or no memo, the waiving of attorney-client 
privilege will always be argued by a company in its defense. 
And why shouldn't it be? Would it be fair to treat a company 
that did not cooperate, that circled the wagons and fought the 
Government every step of the way, the same as one that said to 
the Government, ``We are on your side, we will help you get the 
truth''? I am sure if prosecutors took that approach, my phone 
would be ringing off the hook.
    Mr. Chairman, Senator Leahy, three final thoughts.
    First, the attorney-client privilege is an extremely 
important component of our constitutional order and great legal 
tradition. The Justice Department may not and will not do harm 
to this principle of basic fairness. But just as drug-
trafficking defendants routinely waive their constitutional 
right to a trial by jury in exchange for reduced charges, so, 
too, a corporation can waive a basic right when it is in its 
interests to do so.
    Second, the waiving of the attorney-client privilege is 
just one part of one factor out of nine factors cited in the 
Thompson memorandum for consideration in deciding whether to 
prosecute a company. But such a waiver can make a big 
difference for the hopes and dreams of shareholders who are 
anxiously waiting for their investments to bounce back.
    And, third, when it comes to waiving attorney-client 
privilege, we rarely have an interest in legal advice or 
counsel contemporaneous with the investigation. Mr. Chairman, 
we take the Sergeant Joe Friday approach--''Just the facts, 
ma'am.''
    The Justice Department stands ready to work with everyone 
who has a suggestion for improving this waiver process. We are 
currently holding discussions with several interested parties. 
All we seek at the end of the day is the ability under the 
right circumstances to get the facts as quickly as possible and 
to fulfill our duty to the taxpayers and investors.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. McNulty appears as a 
submission for the record.]
    Chairman Specter. Thank you, Mr. McNulty.
    I turn now to our distinguished Ranking Member, Senator 
Leahy, for his opening statement.

  STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM THE 
                        STATE OF VERMONT

    Senator Leahy. Well, thank you, Mr. Chairman. I appreciate 
you having this hearing. I think it is extremely important.
    The protection of communications between client and lawyer 
has been fundamental to our Nation's legal justice system since 
its inception, as Mr. McNulty, of course, and just about 
everybody else in the room knows. The right to counsel has long 
been recognized as essential to ensure fairness and justice and 
equality under the law for all Americans. This administration 
has taken extraordinary steps to investigate and prosecute the 
press and to intimidate the press and critics and attorneys 
while it has claimed unlimited privileges and an extraordinary, 
unprecedented amount of secrecy for itself.
    As a former prosecutor, like the Chairman, I understand all 
too well that our democracy requires a healthy respect for the 
law and that criminal wrongdoing has to be punished, and 
wrongdoers who profit at the expense of ordinary Americans have 
to be held accountable. That is true for all, including 
corporate wrongdoers and those who violate the public's trust.
    Following Enron's collapse in 2001, I authored the criminal 
provisions in the Public Company Accounting Reform and Investor 
Protection Act that strengthened existing criminal penalties 
for corporate crime. I have since repeatedly offered stronger 
criminal penalties and accountability for war profiteering and 
contractor fraud. Those did not go through because the Bush 
administration blocked them. But, historically--apparently one 
thing we can do is war profiteering. That is allowed in the war 
in Iraq today.
    Historically, the attorney-client privilege has been 
balanced with competing objectives, including the need to 
ensure cooperation with the Government in criminal or 
regulatory probes. Now, the issue, of course, Mr. McNulty, as 
you have stated, is does the Department have this balance 
right.
    In the wake of the major corporate scandals at Enron, 
WorldCom, and elsewhere, you revised your policy. We have the 
Thompson memorandum, and now we have increased emphasis and 
scrutiny of a corporation's cooperation with the Government.
    But there is a growing number of critics of the Thompson 
memorandum, including former Republican Attorneys General. They 
have expressed concern that the Department's policy is too 
heavy-handed and that the policy has created a dangerous 
culture of waiver in our criminal justice system. Last month, 
the American Bar Association adopted a resolution opposing the 
Department's policy. Last Friday, the Wall Street Journal 
editorial board joined the criticism of Attorney General 
Gonzales and the Thompson memorandum, noting that the coercive 
intimidation it represents is ``more than a PR problem'' for 
the administration.
    Now, I am not one who automatically joins Wall Street 
Journal editorials. I think this time they are absolutely 
right. As I said, I am a former prosecutor. If I had taken a 
position like this when I was a prosecutor that, ``Boy, you 
better cooperate or, wow, we are really going to hit you with a 
lot of charges,'' the judges on the criminal bench in my State 
would have referred me to the Vermont Bar Association for 
sanctions. And I hope, even with a Federal bench that is very, 
very beholden to this administration, that they might consider 
the same thing.
    Now, I hold no brook for the kind of corporate wrongdoing 
and greed that has robbed a lot of our people. But just as I 
wanted to make sure the people I prosecuted had their rights so 
that I ended up getting a conviction that would be upheld, you 
ought to do the same. And I really cannot see any reason to 
tell a corporation, ``Well, you better give up all your rights 
or you are in real trouble.'' And I hear this from a lot of 
corporations, this idea of a CEO telling you, ``Well, if I do 
not just turn everything over and waive my rights and then we 
get in trouble, the board is going to fire me.'' Good Lord. 
Have we gotten to that point in this country?
    Erosion of the right to counsel undermines the fairness of 
our criminal justice system for all Americans. I am really 
worried about this, and as I said, I hold no brief for the 
people who have broken this law, just as I held no brief for 
the murderers and rapists and others that I prosecuted. But I 
also know that we have a rule of law in this country, and 
something I worry that we sometimes forget about.
    Thank you, Mr. Chairman. I will put my whole statement in 
the record. It is a lot stronger than that.
    Chairman Specter. Without objection, it will be made a part 
of the record.
    [The prepared statement of Senator Leahy appears as a 
submission for the record.]
    Chairman Specter. Mr. McNulty, when you say that the 
Department of Justice wants to do fundamental fairness, it is 
really not a matter for the Department of Justice to make that 
determination. That is a matter for the courts. You refer to 
the experience you have had as a prosecuting attorney. I made 
no reference to the experience that I have had. Senator Leahy 
talks about being a prosecutor. We understand that a prosecutor 
is a quasi-judicial official, but a big part of the 
prosecutor's responsibility is as an advocate. So it is not for 
the prosecutor to make the decision as to what is fundamental 
fairness.
    Now, you establish at the outset as your departmental 
policy that the value of a corporation's cooperation will be 
determined as to whether there will be charges. Well, charges 
themselves are a substantial penalty. That is the reality. We 
have a presumption of innocence in the law, but the man on the 
street thinks that if an individual is charged, it is somewhere 
between he must be guilty or he must have done something wrong. 
But there is a heavy opprobrium attached to a charge. And the 
right to counsel is just very, very fundamental.
    Would you say the President was being uncooperative, Mr. 
McNulty, if the President asserted executive privilege when the 
Conyers Judiciary Committee in the House asked him for 
materials which touch on executive privilege?
    Mr. McNulty. No. I am not familiar with when it was 
asserted in that instance, but I would assume that that was not 
inappropriate.
    Chairman Specter. Was the administration, President Bush's 
administration, uncooperative when they said to Senator Leahy, 
on a long letter he wrote for then-Judge Roberts's information, 
that they were not going to tell him what Judge Roberts did as 
an Assistant Solicitor General because it would chill the work 
of the Solicitor General's office?
    Mr. McNulty. No.
    Chairman Specter. Was the Department of Justice being 
uncooperative when similar requests for Deputy Solicitor 
General Alito's materials were not turned over?
    Mr. McNulty. No.
    Chairman Specter. Well, of course not. When you say that 
corporations want to have investigations completed promptly, 
you are exactly right, but so do individuals. The reality is 
that investigations drag on and on and on and on. And it may be 
that many of them, if not most of them, have to drag on. But it 
is a very, very heavy burden hanging over any individual to be 
subject to an investigation.
    Mr. McNulty, I conducted investigations as a D.A. 
contemporaneously with what the Department of Justice 
conducted. It was not under your watch. It was a long time ago. 
But Federal prosecutors do not deserve any merit badges for 
promptness, necessarily. But delays are very tough on 
individuals as well as on corporations.
    What is your reaction, Mr. McNulty, to the opinion of Judge 
Kaplan in the Southern District on the KPMG case, saying that 
there was a denial of fundamental due process and there was a 
denial of the Sixth Amendment right to counsel in that case by 
the Government's practices and policies?
    Mr. McNulty. Well, we are litigating the Kaplan decision, 
so I am going to say just a few things. There is a lot you 
cannot say when it is an ongoing litigation like that. But we 
have stated that we disagree with the judge's reasoning in that 
case. The judge essentially concluded that the Thompson 
memorandum was unconstitutional because it created a pressure 
on the corporation to cut off the attorney's fees of the 
defendants.
    We do not believe that is the correct reading of the 
Thompson memo. That case is on appeal now. So we essentially 
have taken that decision up.
    Chairman Specter. My time has expired. I yield to Senator 
Leahy.
    Mr. McNulty. Mr. Chairman, I will be happy to just keep 
listening. I just want to make sure that if there was an 
opportunity to respond to some of the things you said, I did 
not want to--I wanted to look for an opportunity down the road 
at some point here to be able to respond.
    Chairman Specter. You have a further response to make?
    Mr. McNulty. You made a number of different points, and I--
    Chairman Specter. Take them up and respond.
    Mr. McNulty. Okay. I will just say a few key things.
    Chairman Specter. Sure.
    Mr. McNulty. First of all, with regard to the analogy of 
the executive privilege issue as it relates to this discussion, 
I appreciate certainly the point that there are- -it is 
important to respect the nature of confidential communications, 
and in various contexts and various places, confidential 
communications are critical to the way in which things operate. 
We all understand that. But the fact that both instances 
involve the confidentiality of communications to me is not as 
significant as the distinctions between those different areas.
    One, that is, the executive branch's actions, has to do 
with the way in which co-equal branches of Government work 
together to try to deal with these questions of getting 
information from the executive branch.
    In this case, we are talking about a corporation facing 
criminal prosecution. One of the things lost in a lot of this 
discussion is this issue, the Thompson memorandum--and before 
that, by the way, the Holder memorandum, which has virtually 
the identical language as the Thompson memo on this subject--
    Chairman Specter. Yes, but the prior administration did not 
establish it as governmental policy. Point that out at the same 
time, Mr. McNulty. If you are going to refer to it, lay it all 
on the table.
    Mr. McNulty. Well, I am--
    Chairman Specter. Well, wait a minute. It was optional with 
U.S. Attorneys.
    Mr. McNulty. It is optional now with U.S. Attorneys.
    Chairman Specter. Excuse me?
    Mr. McNulty. It is optional now with U.S. Attorneys.
    Chairman Specter. Well, that is not my understanding.
    That is not the way I read your policy. That is not the way 
everybody else reads your policy. Big difference between what 
you are doing now and what was done under Attorney General 
Reno.
    Mr. McNulty. With great respect to you, sir, I have to 
disagree with that. This was guidance given to prosecutors-
    Chairman Specter. Well, are you saying that the Thompson 
memo is not binding on U.S. Attorneys around the country?
    Mr. McNulty. No.
    Chairman Specter. Because if you are, I think that is good 
news to a lot of U.S. Attorneys.
    Mr. McNulty. It is no more binding than any previous 
guidance to U.S. Attorneys as to how to make decisions, which 
is what--
    Chairman Specter. I am not interested in any previous 
guidance to U.S. Attorneys. I want to know flat-out is the 
Thompson memorandum binding on U.S. Attorneys.
    Mr. McNulty. It sets forth the guidance there to exercise 
when making a decision. It is binding as to here are 
considerations that you are take up, but it does not say you 
are to demand attorney-client waiver in a particular situation. 
Not at all. It is just guidance as to how to make a decision.
    Chairman Specter. Well, of course it does not, but it lists 
it as a prime consideration on whether they are going to be 
charged.
    Mr. McNulty. Yes.
    Chairman Specter. Well, I take your last answer to mean 
that this is policy which the U.S. Attorneys have to follow.
    Mr. McNulty. That is fine. I am not trying to quibble on 
that point, sir. It is just that what I am saying is that it is 
not changed with regard to how we give guidance to prosecutors 
in the field who are trying to work with companies on this 
question. In the absence of this, you would have prosecutors on 
an individual basis trying to decide, Will we prosecute the 
company or not prosecute the company when we have the evidence 
to do so? And that is the time this comes up. The evidence and 
the ability to charge is now present. The question is: Do it or 
not do it? What factors should be taken into consideration? We 
give them nine.
    Chairman Specter. But that is when you have the evidence, 
and balance in the criminal justice system is to impose the 
burden of proof on the prosecution and to require the 
prosecution to gather the evidence in a context where those who 
are being investigated or charged have the attorney-client 
privilege as well as other privileges.
    When you talk about the executive privilege between co- 
equal branches, it is true, but the Senate Judiciary on 
confirmation stands in a pretty good position as a co-equal 
branch. When you talk about the power of the Government, it is 
very, very elevated compared to the power of the individual, 
and that is why they have the burden of proof, and that is why 
you have the privilege against self-incrimination, and that is 
why you have the attorney-client privilege, to put a balance in 
the system. And the concern that I have is of the material 
imbalance. Congress can protect itself with the executive 
branch, but an individual, a corporate employee is very 
different from the corporation. And the corporate employee's 
interests are very different from the corporation. The 
corporation wants to get the matter closed early for financial 
reasons. The individual who has the attorney-client privilege 
and who wants to have his counsel fees paid so he can defend 
himself wants to stay out of jail or wants to be treated 
fairly.
    Do you have some further comments on the opening line of 
questions?
    Mr. McNulty. Thank you, sir. I will stop there.
    Chairman Specter. Senator Leahy?
    Senator Leahy. Well, thank you, Mr. Chairman. You know, I 
sort of hear you dancing all around the question of whether it 
is mandatory in U.S. Attorneys. There is not a single U.S. 
Attorney in the country who does not think this is the--who 
does not believe this is the policy. They feel this is the 
policy. They understand this is the policy. The Thompson memo, 
to follow up on what the Chairman was saying, even seems to 
encourage companies to fire employees under some circumstances 
to show their cooperation. Good Lord. This means you kind of 
come in with a sledgehammer and hope that everybody will run 
like hell.
    Don't these policies compel corporate employees to waive 
their right against self-incrimination or risk losing their 
jobs? I mean, it is kind of an interesting choices, isn't it? 
You either testify or you might lose your job. No compulsion 
there.
    Mr. McNulty. Now you are talking about whether or not 
employees must cooperate with an internal investigation. I am 
sorry, Senator Leahy. I am not sure if I understand--
    Senator Leahy. The Thompson memo seems to encourage 
companies to fire employees under certain circumstances to show 
their cooperation--if they do not show cooperation.
    Mr. McNulty. Well, what the Thompson memo says is that one 
of the factors in looking at a company's conduct at the time of 
deciding whether to charge it criminally or not is if it has a 
compliance program. And anyone responsible for drafting a 
compliance program that would pass the straight- face test 
includes a discipline procedure. How do you handle people who 
fail to comply with an internal investigation?
    Senator Leahy. Mr. McNulty, you are probably getting into a 
definition of what ``is'' is. What you are saying, in effect, 
is you either cooperate and give us everything we want or you 
are in deep trouble. I mean, really, it comes down to that. It 
comes down to that. A corporation, if I was sitting on a board 
of a corporation, of course, I would be worried because I would 
see the Government coming in and saying, ``You better waive 
your rights, or we are really going to get you. Not we might 
just a little bit get you. If you don't waive your rights, we 
are really going to get you.'' And don't you actually end up in 
a perverse way where a company is going to be very concerned 
about putting in some very specific guidelines and monitor 
those very specific guidelines to make sure everybody is 
behaving themselves, because they are afraid if they slip off 
those guidelines just a little bit, the Federal Government, 
with enormous resources, can play a ``gotcha'' game.
    Mr. McNulty. No, I do not believe that is the intent of 
this--
    Senator Leahy. Okay. That is your answer. Now, the KPMG 
case you said is still being litigated. Are you going to appeal 
Judge Kaplan's decision?
    Mr. McNulty. I believe that is what is going on, although I 
don't know at this moment. I will have to check to see if we 
have already filed.
    Senator Leahy. Will you check and let us know whether you 
have appealed? But it is your intention--
    Mr. McNulty. We have appealed already.
    Senator Leahy. You have appealed. All right.
    You know, the Coalition to Preserve the Attorney-Client 
Privilege found that 30 percent of in-house respondents and 51 
percent of outside counsel for companies that have been under 
investigation during the last 5 years said the Government 
expected waiver of the attorney-client privilege in order to 
engage in bargaining or to be eligible to receive more 
favorable treatment. It gives them the impression that if you 
refuse to waive the attorney-client privilege, which is, after 
all, the bedrock of our constitutional legal system, it assumes 
that it means the corporate defendant is not cooperating. Is 
that right?
    Mr. McNulty. Well, first of all, that is based upon this 
information that we are requiring or compelling a waiver--I am 
sorry. I am not sure I follow the question. Would you please--
    Senator Leahy. Let me go to another one. My time is up. But 
I will go back to that in written questions.
    Yesterday was the fifth anniversary of the September 11th 
attack. We find in a new study that your Department's 
prosecutions have declined dramatically since September 11th. I 
will not go back to on September 10th when you wanted to--when 
your Department wanted to cut substantially the 
counterterrorism money but take since then. In 2002, right 
after, Federal prosecutors filed charges against 355 defendants 
in terrorism cases. Now it is 46. Nine out of ten terrorism 
cases do not go anywhere. But even those that you do list as 
terrorism convictions, I remember people in my State getting 
longer sentences for drunk-driving cases.
    Are we cooking the books a little bit here?
    Mr. McNulty. No, sir.
    Senator Leahy. Well, then why--I mean, I understand we do 
not catch Osama bin Laden. That is not your Department. But if 
we really have this great terrorist threat, why are people 
getting practically no penalties? In most States, traffic court 
or stealing a couple TV sets get higher penalties. What is 
going on? Is this just to make it look like we are doing 
something without--and hoping that nobody will look at nothing 
ever happened?
    Mr. McNulty. I am not sure I understand what you are 
talking about. My sense is that the penalties have been 
extremely high. In fact, we have taken some criticism--
    Senator Leahy. What is the lowest penalty on a terrorism 
case that you have seen?
    Mr. McNulty. I could not tell you off the top of my head, 
but I know I have seen--
    Senator Leahy. Would it surprise you if it was a matter of 
months?
    Mr. McNulty. It would depend upon the case itself and what 
was the subject of the conviction and who the judge was that 
sentenced and what was the jurisdiction--
    Senator Leahy. Well, who the judge was, a lot of these 
cases it is a plea bargain where the sentence is exactly what 
you, the Department of Justice, recommended. Many times these 
are sentences that are similar to what might be recommended in 
a misdemeanor case. I mean, either you are being tough on 
terrorism or you are trying to get numbers to say you have 
convictions, but they are pretty minor cases.
    Mr. McNulty. Can I answer the question?
    Senator Leahy. Whatever you like, Mr. McNulty. You are the 
Deputy Attorney General.
    Mr. McNulty. We have seen sentences that go from life in 
prison to much lower sentences. It all depends upon the facts 
of the case and what--
    Senator Leahy. How many life imprisonment?
    Mr. McNulty. I do not know off the top of my head.
    Senator Leahy. One? Two?
    Mr. McNulty. Many more than one or two. Just Moussaoui and 
Richard Reid alone would be two right there.
    Senator Leahy. Okay. Three? Four?
    Mr. McNulty. In Virginia, I can call on that memory much 
easier. We had a life sentence for Al-Tamimi. We had a 60-year 
sentence for Abu Ali. We had recently a 25-year sentence for 
another Virginia jihad case. The Virginia jihad cases, 11 
convictions probably averaged somewhere from 15 years to life 
or 75 years, somewhere in that category. I can think of cases--
    Senator Leahy. What would be the median sentence?
    Mr. McNulty. I am not familiar with any study that has 
looked at the sentences of--
    Senator Leahy. Take a look at the Track study.
    Mr. McNulty. That study recently reported on the question 
of cases brought by U.S. Attorney's Offices, according to the 
coding numbers, the way in which U.S. Attorney's Offices 
identified terrorism cases at the time they charged them, 
which, by the way, is a different way for the Department of 
Justice to count or to keep track of terrorism cases. We also--
    Senator Leahy. In other words, if they are really 
successful, it is your case. If they don't, it is their case. 
Is that it?
    Mr. McNulty. No. At the time a case is brought--
    Senator Leahy. Just thought I would ask.
    Mr. McNulty. The case at the time it was brought, the 
Assistant United States Attorney logs it in and gives it a code 
number, and they have to do the best they can at that. 
Sometimes when they bring a case, they think it is going to 
turn out a certain way, and they coded it one way. But it does 
not always turn out that way.
    Senator Leahy. Were a number of the cases after September 
11th--a number of the cases pending that had been coded one way 
before September 11th retrospectively coded a different way?
    Mr. McNulty. Nothing has been retrospectively coded. But 
after September 11th, Assistant United States Attorneys had a 
new category to pay special attention to when it came to 
coding.
    Senator Leahy. But did that mean that they coded some of 
the cases after September 11th that had already been pending 
with different numbers?
    Mr. McNulty. No, I am not familiar with doing that.
    Senator Leahy. There has never been a case like that?
    Mr. McNulty. I am not familiar with that, sir. I have not 
heard that.
    Senator Leahy. Okay. Your answer?
    Mr. McNulty. I think we are finished.
    Chairman Specter. Thank you, Senator Leahy.
    Mr. McNulty, in your prepared statement you have listed a 
number of cases where the Government prosecuted and got jail 
sentences, and I congratulate you on those cases. I think there 
have been many very important cases which you have brought and 
have gotten convictions and have gotten jail sentences, and the 
Department is to be commended on that. And certainly your own 
record as United States Attorney was an impeccable one, and 
your nomination to be Deputy Attorney General was greeted very 
favorably in all quarters, including on this Committee.
    Senator Leahy. I supported it.
    Chairman Specter. I would make just a couple of comments 
about the proceedings, and that is, the heavily publicized 
fines which we see on these conferences from the Department of 
Justice I find very unimpressive. I think the fines are not 
really very meaningful as a matter of deterrence or as a matter 
of punishment. But the jail sentences are. They are really 
very, very meaningful. And I would urge you to focus on that in 
the disposition of cases, and not to settle the cases but to 
carry them through, if necessary, in order to get the 
appropriate judgment of sentence at the very end.
    I am not suggesting at all being easy on corporate America. 
This Committee is now considering legislation which would make 
it a criminal offense for a corporate executive knowingly to 
put into interstate commerce a defective product, knowing and 
willfully, with results in death or serious bodily injury. And 
the illustrative case on that is the Pinto case where the 
evidence showed that Ford put the gas tank in the back because 
it saved a few dollars as opposed to putting it in some other 
location, and a calculation was made as to how many damage 
cases they had and what the costs would be to the corporation. 
And that definition constitutes malice under common law, which 
would support prosecution for murder in the second degree.
    In the Ford-Firestone case, where the evidence showed that 
both Ford and Firestone knew these defective tires were on the 
cars, resulting in many deaths and many, many serious injuries, 
we legislated to impose criminal penalties.
    And this idea of imposition of criminal responsibility has 
been objected to very vociferously by the corporate community. 
And I can understand that. But I would not consider trying to 
structure a prosecution without the traditional burden of proof 
and attorney-client privilege and privilege against self-
incrimination.
    So the suggestion is not being made to you that you be soft 
on corporate America, but that you respect the traditional 
rights. And as I read this policy on the consideration of the 
``value of a corporation's cooperation'' in charging, I think 
it is coercive, may even rise to the level of being a bludgeon. 
And when I referred to the individuals who want to avoid going 
to jail to have their defense fees paid, it is not only going 
to jail, they just want an opportunity to have fair treatment 
on the adjudication to show they were not, in fact, guilty.
    I would ask you to reconsider your policy as to whether the 
U.S. Attorneys are bound, if there is some leeway there to go 
back to the Holder standard, or what I understand to be the 
Holder standard, where the memorandum had language similar to 
the memorandum authored by Mr. Thompson but was not binding on 
the U.S. Attorneys. They could consider it or not. Or if your 
current policy is not binding on the U.S. Attorneys, to make 
that specific.
    Mr. McNulty. Well, Mr. Chairman, I will do that. That is 
the thing I pledged to you this morning, is that we are looking 
at this and will consider all possibilities.
    Look, I have got the Chairman, the Ranking Member upset. I 
have got former DOJ officials writing letters. We have got 
everybody complaining. The easiest thing for me to do today 
would be to come here and say we are just going to go ahead and 
change this policy and make everybody happy. But I would not be 
doing the right thing as I sit here and I think it through as 
well as I possibly can as a public servant. I really believe 
that the perception that is in existence here concerning what 
we are doing and how this works is different from the reality. 
And if I did not think that, I would not come here and say it.
    And I have spent many hours trying to study this and 
understand it. I did this when I was a U.S. Attorney. I had the 
conversations with corporate counsel. I negotiated attorney-
client privilege waivers. I experienced that firsthand. I have 
talked to many, many U.S. Attorneys about this. I chaired the 
Attorney General's Advisory Committee when the McCallum memo 
went out in order to coordinate the views on this subject. And 
I really do not see this as the kind of coercive practice that 
is being described by the groups. This is one factor to 
consider when the corporation is facing criminal prosecution. 
It is not an investigation issue. It is a charging issue, 
because it has already been determined that the violations of 
criminal law have occurred. Now the question is: Do you charge 
the company or not charge the company?
    And we tell the prosecutors, Look at nine factors. As U.S. 
Attorney, I did not even consider this to be one of the big 
ones. One of the big ones is, How pervasive is the criminal 
conduct? Did you try to stop it? Did you have an effective 
compliance effort ahead of time to try to keep this from 
occurring? How far does it go up the ladder? Was the CEO 
involved in it? Those are the questions that you ask when you 
are trying to decide to charge the company or not.
    Now, if they have cooperated, which they almost always do 
because they say, look, we are an independent board of 
directors with a fiduciary duty to get to the wrongdoing and 
make sure that we clean this up; we are on your side, how can 
we help put this behind us? That is when the issue of well, do 
you know what is going on? Do you have a report that you can 
hand us that says this is where the wrongdoing occurred, we 
have investigated it, and we are prepared to assist you and 
find out the facts.
    If they are willing to do that, which any prosecutor in his 
right mind would say, yes, that would be very helpful to us, 
should they not get credit for that when it comes to charging 
the company criminally or not charging the company? That is all 
we are telling the U.S. Attorney, is consider this. The text of 
the Thompson memo language itself says this is one factor to be 
considered when making this decision. And that is what this 
attorney-client waiver factor amounts to. We are not trying to 
coerce anybody into doing it. We are giving them an option of 
providing us information if they will try to persuade us not to 
charge them criminally.
    Chairman Specter. Just a couple more comments, and I will 
yield again to Senator Leahy. Mr. McNulty, I am not upset. I 
regard this as a conversation among three lawyers talking about 
what ought to be done here as a matter of public policy, three 
lawyers who have had some experience in the field and want to 
come to a proper conclusion.
    Chief Justice Roberts said that when he argued cases before 
the Supreme Court, it was a conversation among equals. I was 
enormously impressed with his confidence and thought that he 
could be Chief Justice with that attitude when he was a lawyer.
    [Laughter.]
    Chairman Specter. This is just a discussion among three 
lawyers. But I do not think somebody ought to get credit for 
waiving a constitutional right or ought to get credit--or ought 
to get a demerit or a deficit for asserting a constitutional 
right. I think the response of the prosecutor ought to be 
exactly neutral. If someone asserts a constitutional right, 
that is ordained by a power of the Constitution, which in and 
of itself has enormous magnitude and a lot of experience in 
coming to that privilege and a lot of experience in applying 
that privilege. Stated differently, privilege against self-
incrimination is a lot smarter than Arlen Specter. I am sure of 
that.
    So I would not give anybody credit for waiving it, and I 
would not consider it a negative factor if it was asserted.
    Mr. McNulty. But thousands of criminals today, as we sit 
here, will get that very benefit for waiving a constitutional 
right. Thousands of criminals today in the United States will 
stand before a court at a plea bargaining hearing and say--the 
court will ask in a colloquy, ``Do you understand that you are 
waiving your right to a trial by jury, the right of the 
Government to prove its case beyond a reasonable doubt''--the 
right, the right, the right. And the defendant will say, ``Yes, 
Your Honor. Yes, Your Honor, I do.'' And why is he doing that? 
He is doing that because the Government is going to hold him 
accountable for one of five counts or two of five counts and 
drop three counts, and he prefers that than to go to trial and 
risk conviction on all five counts. That is--
    Chairman Specter. I think he is doing it because he is 
guilty.
    Mr. McNulty. Well, of course.
    Chairman Specter. That is why he is saying, ``I plead 
guilty,'' and when he pleads guilty, he gives up a lot of 
rights. And I think he has pleaded guilty because he thinks if 
he does not, it is going to be proved anyway. But if he could 
defend himself and if he could go through a proceeding where 
the conclusion is not guilty, which is different than innocent, 
because the Government has not met its burden of proof, and he 
has counsel and someone to pay for the counsel--we sometimes 
lose sight of how expensive lawyers are, but when I practiced 
law, my fees were so high that I could not afford to hire a 
lawyer who charged those fees. Seriously. I did not earn enough 
as a lawyer to pay someone the hourly rate that I had to charge 
other people.
    So I think when he pleads guilty, he does so because he is 
guilty, and he thinks if he does not, it is going to be proved. 
And, of course, it is fair on sentencing. And I think the 
cooperation of an individual along the way is fair for the 
judge to consider on sentencing, but not as to the charge by 
the prosecutor.
    Senator Leahy?
    Senator Leahy. Well, Mr. McNulty, like the Chairman, I have 
respect for you. I voted for you both as U.S. Attorney and 
Deputy Attorney General. I appreciate your comment that you are 
concerned that you have upset the Chairman and myself. You do 
not have to worry about upsetting me, although I must note that 
you are probably the first person in 6 years in this 
administration that has given a darn whether he upset me or 
not.
    [Laughter.]
    Senator Leahy. And I keep a daily journal. I intend to mark 
this in my journal as sort of a red banner day, unique, the 
first time anybody in this administration gave a darn. I will 
probably put it differently in the journal that they actually 
upset me.
    But you and I should probably discuss this further, and I 
will not take the time. We have both gone over our time here, 
but I cannot tell you how concerned I am. It is not just a plea 
bargain. Heck, I have been there with plea bargains, both as a 
defense attorney and as a prosecutor. But there are lot of 
things that go on leading up to that time, and not the least of 
which is the Government has to prove they have a pretty good 
case, and the person says, ``Okay, you got me.'' Now, let's 
figure out what we do about it.
    And then there is a certain advantage to both sides in 
avoiding a trial at that time, especially in the kind of trials 
you are talking about, where the Government could be spending 
millions of dollars in a trial; and the other side of that, if 
they are guilty, let's work it out.
    But what has happened, you have corporations and somebody 
says, Look, I cannot keep these people on salary because while, 
in effect, not the case of the Government having to prove they 
are guilty, but they are going to have to prove beyond a 
reasonable doubt that they are innocent, we are just going to 
cut them loose. We are going to cut them loose. They are going 
to suddenly be without a salary. They are suddenly going to be 
there where they really can be coerced into a plea. And you 
know yourself when you are talking about some of these things 
of conspiracy or obstruction of justice, you get into kind of a 
gray area where, if you know that you are going to have to hire 
very expensive lawyers to prove it, you may well want to look 
for a plea.
    What I am worried about is that--and I hold no brief for 
it, whether it is corporate criminals or the person who puts on 
a ski mask and points a gun in your face. But I do worry that 
if the Government has made a mistake in bringing a case, they 
can ruin a whole lot of people's lives, and you can have a 
whole lot of people cut loose.
    I look at the judge's ruling in the KPMG case and others, 
and as I said, I found the Wall Street Journal editorial rather 
compelling. I am really worried about this. I am really worried 
that we take this attitude that the Government is always right, 
and if you have been charged, you must be guilty. And I know no 
matter how much you talk about the presumption of innocence, I 
know every time I walked into a courtroom as a prosecutor, the 
jury would always say of course they are presumed innocent, and 
they are thinking, ``Yeah, right.'' You already have an 
enormous number of arrows in your quiver. And I cannot imagine 
a U.S. Attorney who does not consider this mandatory.
    So maybe, Mr. McNulty, you and I should sit down and chat 
about this some more. Your answers are not going to change 
beyond what you have given here today, but I am really, really 
concerned about it. I think the fact that you have a number of 
very conservative Republican Attorneys General who have raised 
a question about this, others across the political spectrum--
across the political spectrum have raised a question about it. 
I would look at it very carefully. But maybe you and I might 
chat.
    Mr. McNulty. I am happy to do that and address as best I 
can the worries that you do have here. We want to get it right. 
We do not want to be doing something that is inappropriate or 
unreasonable. But we want to do our job, and that is the 
question here.
    We are not interested, just to clarify, in a lot of what 
would fall into attorney communications with their clients, the 
advice they are giving them in terms of the ongoing 
investigation. That is not sought. That is discouraged in the 
memo. And occasionally--rare, rare circumstance could you have 
an investigation involving perhaps a crime itself being 
committed in that conversation, but that would be a very 
unusual situation.
    So we are not interested in a lot of what you might be 
thinking would be communications that should definitely not be 
touched. We are talking really here about the contents of an 
internal investigation. That is the very large percentage of 
what this conversation is about today--What happened? And the 
company has a fiduciary duty, an incentive to find that out 
fast. And, Senator Leahy, when it comes to finding that out 
fast, yes, they go to employees and they begin to question 
them, and they have what are called Upjohn warnings, and they 
tell them right up front, ``Here is the deal. We do not 
represent you. We represent the company. The attorney-client 
privilege belongs to the corporation, not to any individual. 
And you are free to answer these questions or not, but we do 
have an internal policy at this corporation''--as all good 
companies do. I imagine if you went and looked at Fortune 500 
companies, you might find 500 compliance plans just like this, 
which say that when we are doing an investigation, as a 
condition of your employment you need to speak truthfully to 
our folks.
    And that will exist whether the Thompson memo is in place 
or not. If today I walked out of the room and said to you, ``We 
will repeal the Thompson memo,'' tomorrow corporations would 
still go to people to get them to talk. They would still be 
compelled to cooperate. Corporations would still have counsel 
calling the Government and saying, ``How can we help resolve 
this case?'' And prosecutors would still be faced with the 
question. Now that you have helped me, what should we do with 
you? What should we do with the company itself? Do we charge or 
not charge under respondeat superior? And the company would 
say, ``Well, can I write you a letter laying out the arguments 
why we should not be charged?''
    Senator Leahy. Mr. McNulty, I am aware of this. You know, I 
had--it has been years since I was a prosecutor, but I have a 
lot of friends in the corporate world. I am well aware of this. 
I have a lot of friends in the prosecution world and the 
defense bar. I am well aware of this. You do not have to--and I 
am sure the Chairman is, too. You do not have to give us Plea 
Bargaining 101. But the fact is--and you must be aware--that 
the amount of concern that has been raised by the ABA, that has 
been raised by former Attorneys General, that has been raised 
by both the business community, the non-business community, 
maybe--maybe--it may not all be as serendipitous as you seem to 
indicate. That is what I am saying.
    I understand what you say. A lot of what you say I do not 
disagree with. But in my years here, in six different 
administrations, I have never seen such concern, especially 
concern toward an administration that has been very, very, I 
think in many ways, lenient on the business community. I am 
thinking of the war profiteering and things like that, where 
your administration blocked efforts in that regard.
    But what I am saying when you see the number of people, 
Republicans or Democrats, who have raised concern about this 
and the very prestigious people raising concerns about it, I 
think it is worth taking a second look. I really do.
    Chairman Specter. We have honestly taken a lot more time up 
in our discussion here, and we have done so because there are 
so many items on the Senate agenda that others on the Committee 
could not be here. But we have also done so because I think 
your U.S. Attorneys may be interested in the dialogue and may 
have some effect on their thinking and the way they put the 
matters into operation. So it is always useful, and we do not 
have a chance to dialogue with you often publicly, Mr. Deputy 
Attorney General. So we utilized the time to keep you here for 
an hour, but I think to a good purpose.
    It is nice sometimes when only Senator Leahy and I are here 
so we have a little more time for a discussion and do not 
adhere so strictly to the time limits which we customarily do.
    Senator Leahy. I can tell Mr. McNulty is delighted that we 
had all that extra time.
    [Laughter.]
    Chairman Specter. Thank you very much, Mr. McNulty.
    Mr. McNulty. Thank you, Mr. Chairman. Thank you, Senator 
Leahy.
    Chairman Specter. We turn now to our distinguished second 
panel: former Attorney General Edwin Meese; President of the 
U.S. Chamber of Commerce, Tom Donohue; President Karen Mathis 
of the American Bar Association; Andrew Weissmann, Esquire, of 
Jenner & Block; and Mark Sheppard, Esquire, from Sprague & 
Sprague.
    Our lead witness is Hon. Edwin Meese, who is the Ronald 
Reagan Distinguished Fellow in Public Policy and Chairman of 
the Center for Legal and Judicial Studies at the Heritage 
Foundation. Mr. Meese was at Governor Reagan's right hand as 
his chief of staff, instrumental in Governor Reagan's election 
to the Presidency, served as domestic counselor in the first 
term of President Reagan, was Attorney General in the second 
term. He sat at this table in 1985 for his confirmation 
hearings, and I personally had the opportunity to work with him 
both as domestic counselor in structuring the armed career 
criminal bill and in his excellent work as Attorney General 
from 1985 through the end of President Reagan's second term.
    We appreciate your taking the time to join us, Mr. Meese, 
and we look forward to your testimony.

 STATEMENT OF EDWIN MEESE III, FORMER ATTORNEY GENERAL, RONALD 
  REAGAN DISTINGUISHED FELLOW IN PUBLIC POLICY, AND CHAIRMAN, 
CENTER FOR LEGAL AND JUDICIAL STUDIES, THE HERITAGE FOUNDATION, 
                        WASHINGTON, D.C.

    Mr. Meese. Thank you, Mr. Chairman. As you point out, I am 
an official of the Heritage Foundation. For the record, may it 
be noted that the Heritage Foundation takes no Government 
money, nor does contract work, and is a nonpartisan public 
policy research and education institution here in Washington, 
D.C.
    Let me also say that I have submitted written testimony, 
which I ask be made part of the record, and I will summarize 
it.
    Chairman Specter. Without objection, it will be made a part 
of the record, as will all the written statements.
    Mr. Meese. Mr. Chairman, I have spent almost 48 years of my 
professional career, most of that time involved in one or 
another with law enforcement. I have been a career prosecutor 
for many years. I have educated prosecutors, and I have 
directed prosecutors. And I say that to provide some 
perspective as to my testimony this morning.
    First of all, let me say that I have great respect for 
Deputy Attorney General McNulty, who just testified, as well as 
for Robert McCallum, who was the author of a revised version of 
the so-called Thompson memorandum, both of whom are men of 
great integrity and great professionalism and ethical conduct. 
I must point out, as I think has already been referred to, 
however, by the Committee, that there are literally thousands 
of Assistant United States Attorneys throughout the country, 
and it is important that they receive the proper guidance in 
terms of the application of constitutional rights. And so I 
commend the Committee for convening this hearing and, 
interestingly enough, having it chaired and having the Ranking 
Member be former prosecutors themselves.
    I believe that the abrogation of the attorney-client 
privilege in any form would be a threat to constitutional 
rights, would be bad policy, unwise practice, and would be 
counterproductive to both compliance with the law and with just 
criminal proceedings. Let me mention four reasons why I believe 
that to be true.
    First of all, the attorney-client privilege is most needed, 
I believe, in corporate investigations and corporate 
prosecutions. In an age of overcriminalization, particularly in 
regard to business conduct, there is a real question of whether 
a certain course of conduct is or is not a violation of law. 
Likewise, there is often a dispute over whether a specific 
action should be a crime in any event. And so as Senator Leahy 
said, these type of cases involved often a gray area. And so 
for that reason, effective legal representation and legal 
counsel is extremely critical.
    Secondly, I believe that abrogating the attorney-client 
privilege is counterproductive to the compliance with the law. 
We want corporations to get the best legal advice. We want them 
to conduct investigations where there is whistleblower 
indications or other reasons to believe that there is a 
possibility of improper conduct taking place. And so I think it 
would be unjust then to have the results of their seeking legal 
advice and conducting an investigation in-house to then, in 
order to ensure compliance, have that turned around and used as 
evidence against them.
    Thirdly, I believe it would be wrong for the Government to 
have the power to coerce business firms into not providing 
legal counsel or not continuing the employment of employees who 
they believe to be innocent of criminal activity.
    And, fourth, I think that if you abrogate the attorney-
client privilege, you encourage corporate officials to keep 
information from their counsel, which, both from the standpoint 
of good lawyering as well as the standpoint of compliance with 
the law, would be necessary.
    The remedy I suggest--and it is included in more detail in 
my written testimony--is, first of all, let me point out I 
think the work of Robert McCallum and the memo that he issued 
in 2005 is a significant reform. But I also believe it does not 
go far enough. In that regard, I would suggest that the 
memorandum be amended to eliminate any reference to waiver of 
attorney-client privilege or work product protections in the 
context of determining whether to indict a business 
organization. In the same manner and in the same context, I 
think that all references in the memorandum to a company's 
payment of its employees' legal fees or continuing their 
employment should be eliminated.
    Secondly, I think that the written policies should 
explicitly state that requests for waiver will not be approved 
except in exceptional circumstances, and exceptional 
circumstances should generally be limited to those that would 
bring into operation what is well established as the crime 
fraud exception to the attorney-client privilege.
    Third, I would suggest that in the meantime, prior to those 
reforms, that the Justice Department should make available to 
the public specific uniform national policies and procedures 
governing waive requests and that this become a national 
standard.
    And, finally, in order to promote the responsible use of 
waiver requests, I believe the Justice Department should 
collect and publish statistics on how often waiver is 
requested, how often business organizations agree to those 
requests, and how often organizations waive even apart from any 
requests by prosecutors.
    I think that these suggestions would enable the public 
generally as well as the Congress to understand more about how 
this particular problem is being handled by the Department.
    Thank you.
    [The prepared statement of Mr. Meese appears as a 
submission for the record.]
    Chairman Specter. Thank you very much, Mr. Meese.
    We now turn to the President and CEO of the U.S. Chamber of 
Commerce, Thomas Donohue. Mr. Donohue established in the 
Chamber the Institute for Legal Reform. He serves on the 
Product's Council for the 21st Century Workforce and the 
President's Advisory Committee for Trade Policy. He has his 
bachelor's degree from St. John's University and a master's 
from Adelphi.
    Thank you for coming in today, Mr. Donohue, and the floor 
is yours.

 STATEMENT OF THOMAS J. DONOHUE, PRESIDENT AND CHIEF EXECUTIVE 
      OFFICER, U.S. CHAMBER OF COMMERCE, WASHINGTON, D.C.

    Mr. Donohue. Thank you, Mr. Chairman, and a special thanks 
to you and Senator Leahy and others for organizing this 
hearing. And thank you for saying a bit about my background. 
You all know that I am the one person here who is not a lawyer, 
but spend more time talking to corporate leaders than most.
    I am here this morning on behalf of the Chamber, and I am 
also testifying on behalf of the Coalition to Preserve the 
Attorney-Client Privilege, which includes most of the legal and 
business associations in this country.
    I am here to ask the Committee, either through oversight of 
the Department of Justice or by enacting legislation, to 
invalidate provisions of the DOJ's Thompson memorandum and 
similar policies at other Federal agencies, like the SEC, that 
prevent executives and employees from freely, candidly, and 
confidentially consulting their attorneys. We want you to help 
fix this problem.
    While the intention of the former Deputy Attorney General 
Larry Thompson--who, by the way, now serves on our board of 
directors--to crack down on corporate wrongdoing was laudable 
and appropriate, the policies set forth in the Thompson 
memorandum violate fundamental constitutional and long-
recognized rights in this country in their implementation by 
U.S. Attorneys and their colleagues around the country.
    They obstruct--rather than facilitate--corporate 
investigations, and they were developed--and implemented-- 
without the involvement of Congress or the judiciary.
    This would perhaps be just another classic case of a 
Federal agency overstepping its bounds if the consequences were 
not so profound.
    The attorney-client privilege is a cornerstone of America's 
judicial system. This privilege even predates the Constitution, 
as you have indicated.
    The Thompson memorandum violates this right by requiring 
companies to waive their privilege in order to be seen as fully 
cooperative with Federal investigators. This has effectively 
served notice to the business community, and to the attorneys 
that represent them, that if you are being investigated by the 
Department and you want to stay in business, you better waive 
your attorney-client privilege.
    A company that refuses to waive its privileges risks being 
labeled as ``uncooperative,'' which all but guarantees that 
they will not get a favorable settlement. The ``uncooperative'' 
label severely damages a company's brand, its shareholder 
value, its relationship with suppliers and customers, and its 
very ability to survive.
    Being labeled ``uncooperative'' also drastically increases 
the likelihood that a company will be indicted, and one need 
only look to the case of Arthur Andersen to see what happens to 
a business that faced the death blow-- notwithstanding the fact 
that the Supreme Court found later on that it was all handled 
badly.
    Once indicted, a company is unlikely to survive even 
defending itself in a trial or make the outcome of that trial 
relevant. Keep this fact in mind the next time you hear a 
Justice official use the phrase ``voluntary waiver.''
    The enforcement agencies argue that waiver of attorney-
client privilege is necessary for improving compliance and 
conducting effective and thorough investigations.
    The opposite may be true. An uncertain or 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, many will 
simply choose not to talk to their attorneys.
    The result is that the company may fall out of compliance--
not intentionally--but because of a lack of communication and 
trust between the 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 much 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 plaintiff lawyers can 
gain access to attorney-client conversations and use them to 
sue the company or obtain massive settlements.
    Despite our coalition's repeated attempts to work with the 
Justice Department to remedy these problems, Justice has 
refused to acknowledge the problem or has argued that the 
attorney-client privilege waiver is only very rarely formally 
requested in an investigation. However, to debate the frequency 
of ``formal'' waiver requests or ``voluntary waivers'' is to 
engage in a senseless game of semantics.
    As the CEO of the country's largest business association 
and as a member of three public company boards, I know how the 
game is played by prosecutors. As long as the Department of 
Justice exercises policies that threaten companies with 
indictment if they do not waive their privilege willingly, 
whether in the front line formal request or not.
    Efforts to reform the Thompson memorandum have been 
ineffective. Last year, Associate Attorney General McCallum put 
out another memo, but what his memo said, Mr. Chairman, is 93 
U.S. Attorneys, using the Thompson memorandum, which I also 
read and we read as compelling, they can put together their own 
interpretation of that policy. I am not sure that is a great 
idea, as the former Attorney General indicated.
    I will end now by saying it does nothing to change the 
internal policies that penalize companies when the Justice 
Department and the SEC comes to visit.
    What perhaps is most disturbing, as I wrap up here, is that 
the Thompson memorandum was developed without any input of the 
gentlemen sitting here or your colleagues or without any input 
of the courts.
    Compromise reforms or half-baked ideas for softening the 
memo are not going to fix this. I call on the Congress and your 
Committee to use your influence--and you happen also to have a 
very important seat on the Appropriations Committee--to get a 
little more attention to this matter. You know, the coalition 
got a letter back from the Justice Department and it said, 
well, they were not going to do anything about this because the 
Congress told them to get real tough on corporate crime. If we 
take away the rights of protection from corporations and 
corporate officials, when do we take it away from Congressmen 
and religious leaders and individual citizens? And that is what 
we are here about, Mr. Chairman.
    Thank you very much.
    [The prepared statement of Mr. Donohue appears as a 
submission for the record.]
    Chairman Specter. Thank you, Mr. Donohue.
    Our next witness is Ms. Karen Mathis, President of the 
American Bar Association; been active with the ABA for more 
than 30 years, member of the ABA Board; bachelor's degree from 
the University of Denver, law degree from the University of 
Colorado.
    Thank you for coming in today, Ms. Mathis, and we look 
forward to your testimony.

     STATEMENT OF KAREN J. MATHIS, PRESIDENT, AMERICAN BAR 
                 ASSOCIATION, CHICAGO, ILLINOIS

    Ms. Mathis. Thank you. Good morning, Chairman and Ranking 
Member. Thank you so much for allowing me to be here to testify 
with you. As you indicated, I am the President of the American 
Bar Association, and I am a practicing lawyer in Denver, 
Colorado.
    Chairman Specter. Ms. Mathis, is your button on for the 
microphone?
    Ms. Mathis. Thank you. Can you hear me now, Senator? And 
were you able to hear me earlier?
    Chairman Specter. Yes. Go ahead.
    Ms. Mathis. I am here today on behalf of the American Bar 
Association and its more than 410,000 members. The American Bar 
Association strongly supports the attorney-client privilege and 
the work product doctrine. We are concerned about the 
provisions of the Department of Justice's Thompson memorandum 
and related Federal governmental policies that have seriously 
eroded these fundamental rights.
    We are working in close cooperation with a broad coalition 
which includes legal and business leaders, ranging from the 
U.S. Chamber of Commerce to the American Civil Liberties Union, 
in an effort to reverse these governmental waiver policies. We 
are concerned about the separate provisions of the Thompson 
memorandum that erode employees' constitutional and other legal 
rights, including the right to effective legal counsel.
    The Justice Department policy outlined in the 2003 Thompson 
memorandum erodes the attorney-client privilege and the related 
work product doctrine by requiring companies to waive these 
protections in most cases in order to receive cooperation 
credit during investigations.
    The ABA is concerned that the Department's waiver policy 
has caused a number of profoundly negative effects.
    First, it has resulted in the routinely compelled waiver of 
attorney-client privilege and work product protections. The 
policy states that the waiver is not mandatory and should not 
be required in every situation. However, most prosecutors 
regularly require companies to waive in return for cooperation 
credit. There is a growing culture of waiver, and it was 
confirmed by a recent survey of over 1,200 corporate counsel, 
which was conducted by the Association of Corporate Counsel, 
the National Association of Criminal Defense Lawyers, and the 
American Bar Association.
    Second, the policy seriously weakens the attorney-client 
privilege and work product doctrine. It discourages companies 
from consulting with their lawyers, and it impedes lawyers' 
ability to effectively counsel compliance with the law.
    Third, the policy undermines companies' internal compliance 
programs by discouraging them from conducting internal 
investigations designed to quickly detect and remedy 
misconduct.
    For these reasons, the ABA believes that the Department's 
waiver policy undermines rather than enhances compliance with 
the law.
    In an effort to persuade the Department to reconsider and 
revise its policies, the ABA sent a letter to Attorney General 
Gonzales in May recommending specific revisions, and we have 
included that in our written testimony. In its July response 
letter, the Department failed to address many of the specific 
concerns raised and simply restated the existing policy. We 
have included that in our submission.
    Last week, a group of ten prominent former senior Justice 
Department officials from both parties, as the Senators have 
indicated, sent a letter to General Gonzales and raised many of 
the same concerns. This remarkable letter came from the people 
who ran the Department, and their widespread concerns should be 
of concern and interest to the Senators.
    The ABA urges this Committee, exercising its oversight 
judgment and authority, to send a strong message to the 
Department that the Thompson memorandum is improperly 
undermining attorney-client privilege and work product 
protections, and it must be changed to protect these 
fundamental rights.
    This memorandum also contains language that violates 
employees' legal rights by pressuring their employers to take 
certain punitive actions against them during investigations. In 
particular, it instructs prosecutors to deny cooperation credit 
to companies that assist or support their so-called culpable 
employees or agents in several ways: by paying for their legal 
counsel, by participating in a joint defense or information-
sharing agreement, by sharing relevant information with the 
employees, or by declining to fire or sanction them for 
exercising their Fifth Amendment rights.
    The ABA strongly opposes these provisions. By forcing 
companies to conclude that their employees are culpable, long 
before guilt has been proven or assessed, the policy reverses 
the presumption of innocence principle.
    The ABA urges the Committee to encourage the Justice 
Department to eliminate these employee-related provisions from 
the Thompson memorandum, and we believe that this change and 
the other reforms we have discussed earlier in this testimony 
would strike a proper balance between effective law enforcement 
and the preservation of essential attorney-client, work 
product, and employee legal protections.
    I would like to thank the Committee, the Chairman, and the 
Ranking Member on behalf of the ABA for allowing us to present 
this testimony and refer you to our more complete written 
testimony.
    Thank you, Senators.
    [The prepared statement of Ms. Mathis appears as a 
submission for the record.]
    Chairman Specter. Thank you very much, Ms. Mathis.
    Our next witness is Mr. Andrew Weissmann, partner of Jenner 
& Block in New York. He had been in the Department of Justice 
and was the prosecutor of more than 30 individuals relating to 
the Enron Task Force, where he was the Enron Task Force 
Director. He is currently actively engaged in criminal defense 
work, has a bachelor's degree from Princeton and a law degree 
from Columbia.
    Thank you for coming in today, Mr. Weissmann, and we look 
forward to your testimony.

 STATEMENT OF ANDREW WEISSMANN, PARTNER, JENNER & BLOCK, LLP, 
                       NEW YORK, NEW YORK

    Mr. Weissmann. Good morning, Chairman Specter and Ranking 
Member Leahy. I would like to make two points regarding the 
Thompson memorandum.
    First, there have been and there still are wide differences 
across the country regarding when and how to seek a waiver of 
the attorney-client privilege in white-collar investigations. 
The Thompson memorandum gives a green light to Federal 
prosecutors to seek waivers of the attorney-client privilege. 
But it offers no guidance about when it is appropriate to do 
so. The considerable variances in implementation of the 
Thompson memorandum often subject corporations, which are 
national in scope, to the vagaries and unreviewed decisions of 
individual prosecutors. Thus, although the theory of the 
Thompson memorandum is a good one--that is, setting forth the 
criteria that should guide all Federal prosecutors in deciding 
when to seek to charge corporations--in practice the 
interpretation and implementation of the factors is left to the 
unguided determinations of individual prosecutors. Even 
assuming, as I do, the good faith and dedication to public 
service of all Federal prosecutors, they are not receiving the 
necessary guidance to diminish the wide variations that 
currently exist.
    Many prosecutors have interpreted the Thompson memorandum 
to mean that it is appropriate at the very outset of the 
criminal investigation--unlike what the Deputy Attorney General 
said previously, these are not determinations that are made 
after criminal--a criminal determination is made that there is 
a corporation that is guilty but, rather, made at the 
beginning--that it is appropriate to seek at that point a 
blanket waiver of all attorney-client communications other than 
the current communications with the corporation about how to 
defend the case. That waiver can include disclosure of all 
reports prepared by counsel of its interviews of company 
employees as part of an internal investigation, as well as 
production of counsel's notes taken at any interview, whether 
of a company employee or a third party. And this request for a 
waiver occurs even though the Government can interview those 
witnesses themselves, or if the Government was present for the 
interviews, and easily could replicate the information by 
rolling up its sleeves and doing the interviews of the 
witnesses on their own.
    On the other hand, other prosecutors take a more surgical 
approach and proceed incrementally, only seeking a full waiver 
where it is truly important to the investigation and other 
interim steps have failed. This latter approach is, of course, 
far more responsible and, in my opinion, the DOJ should 
promulgate guidance strictly cabining prosecutors' discretion 
to seek immediate blanket waivers and curtailing the 
solicitation of waivers that are simply a shortcut for the 
Government to obtain information they could obtain anyway 
directly.
    The second point I would like to make is that I think that 
the issues being addressed here today by the Committee are 
symptoms of a larger problem with the current state of the law 
regarding criminal corporate liability. There are two principal 
forces at work. As has been mentioned, the first is the 
prevailing understanding that a corporate indictment could be 
the equivalent of a death sentence. One of the lessons 
corporate America took away from Arthur Andersen's demise in 
2002 is to avoid an indictment at all costs. A criminal 
indictment carries potentially devastating consequences, 
including the risk that the market will impose a swift death 
sentence, even before the company can go to trial and have its 
day in court. In the post- Enron world, a corporation will, 
thus, rarely risk being indicted by a grand jury at the behest 
of the Department of Justice. The financial risks are simply 
too great.
    The second principle at work is the current standard of 
criminal corporate law under Federal common law. A corporation 
can be held criminally liable as a result of the criminal 
actions of a single, low-level employee if only two conditions 
are met: the employee acted within the scope of her employment, 
and the employee was motivated, at least in part, to benefit 
the corporation. No matter how large the company and no matter 
how many policies a company has instituted in an attempt to 
thwart the criminal conduct at issue, if a low-level employee 
nevertheless commits a crime, the entire company can be 
prosecuted.
    In light of the Draconian consequences of an indictment and 
the fact that the Federal common law criminal standard can be 
so easily triggered, the Thompson memorandum offers prosecutors 
enormous leverage.
    A rethinking of the criminal corporate law is in order. The 
standard for criminal liability should take into account a 
company's attempts to deter the criminal conduct of its 
employees. Holding the Government to the additional burden of 
establishing that a company did not implement reasonably 
effective policies and procedures to prevent misconduct would 
both dull the threat inherent in the Thompson memorandum as 
well as help correct the imbalance in power between the 
Government and the corporation facing possible prosecution for 
the acts of an errant employee. A more stringent criminal 
standard, one that ties criminal liability to a company's lack 
of an effective compliance program, would have the added 
benefit of maximizing the chances that criminality will not 
take root in the first place, since corporations will be 
greatly incentivized to create and monitor strong and effective 
compliance programs. The objectives of a law-abiding society, 
of the criminal law, and even of the Thompson memorandum 
itself, would thus be well served.
    Thank you very much for the opportunity to testify.
    [The prepared statement of Mr. Weissmann appears as a 
submission for the record.]
    Chairman Specter. Thank you, Mr. Weissmann.
    Our final witness is Mr. Mark Sheppard, partner in the law 
firm of Sprague & Sprague. The Committee had asked Mr. Sprague, 
Richard Sprague, to testify, but he could not do so because he 
is on trial. Mr. Sprague had been first assistant district 
attorney during my tenure and is one of America's outstanding 
lawyers and specializes in criminal defense work now.
    Mr. Sheppard was recognized as a Pennsylvania Super Lawyer 
in the area of white-collar criminal defense, a bachelor's 
degree from Lehigh and graduated with honors from Dickinson 
School of Law.
    We appreciate your coming down today, Mr. Sheppard, and the 
floor is yours.

  STATEMENT OF MARK B. SHEPPARD, PARTNER, SPRAGUE & SPRAGUE, 
                   PHILADELPHIA, PENNSYLVANIA

    Mr. Sheppard. Thank you, Mr. Chairman, and Mr. Sprague 
sends his regards and is sorry he could not be here.
    Good morning, Chairman Specter and Ranking Member Leahy. 
Before I get into it--and I thank you for getting into my 
background--I have practiced white-collar criminal defense work 
for the past 19 years, where I have represented both 
corporations and individual directors, officers, and employees 
in Federal grand jury investigations.
    I want to begin my remarks by thanking you for giving me 
the opportunity to be here to discuss my concerns about the 
deleterious effect of the ``cooperation'' provisions of the 
Thompson memorandum and similar Federal enforcement policies, 
including the Securities and Exchange Commission's Seaboard 
Report. These policies have so drastically altered the 
enforcement landscape that they threaten the very foundation of 
our adversarial system of justice.
    This threat is brought about by the confluence of two 
recent trends: increasing governmental scrutiny of even the 
most routine corporate decision making and untoward 
prosecutorial emphasis upon waiver of long-recognized legal 
protections as the yardstick by which corporate cooperation is 
to be measured. These policies and, in particular, those which 
inexorably lead to the waiver of the attorney-client and work 
product privilege upset the constitutional balance envisioned 
by the Framers, impermissibly intrude upon the employer-
employee relationship, and in real life result in the coerced 
waiver of cherished constitutional rights.
    The Thompson memorandum purports to set forth the 
principles to guide Federal prosecutors as they make the 
decision whether to charge a particular business organization. 
As the Chairman pointed out, while the majority of those 
principles are minor revisions of DOJ policy, the memorandum 
makes clear that corporate enforcement policy in the post-Enron 
era will be decidedly different in one very important aspect, 
and as the memo states: The main focus of the revisions in the 
Thompson memorandum is increased emphasis on and scrutiny of 
the authenticity of a corporation's cooperation.
    According to the memorandum, ``authentic'' cooperation 
includes the willingness to provide prosecutors with the work 
product of corporate counsel from an internal investigation 
undertaken after a problem was detected. Authentic cooperation 
also includes providing prosecutors with the privileged notes 
of interviews with corporate employees who may have criminal 
exposure, yet have little or no choice to refuse a request to 
speak with corporate counsel. This means that employees 
effectively give statements to the Government without ever 
having a chance to assert their Fifth Amendment right. 
Incredibly, the Thompson memorandum is explicit in this goal of 
performing an end-run around the Constitution. It states, 
``Such waivers permit the Government to obtain statements of 
possible witnesses, subjects, and targets without having to 
negotiate individual cooperation or immunity agreements.'' 
Further, ``authentic'' cooperation includes disclosure of the 
legal advice provided to corporate executives before or during 
the activity in question. Lastly, and from my perspective as a 
practitioner, I believe the most troubling aspect of the 
Thompson memorandum, is the impact that it has on the ability 
of corporate employees to gain access to separate and competent 
legal counsel. The memorandum specifically denounces these 
longstanding corporate practices such as the advancement of 
legal fees, the use of joint defense agreements, and permitting 
separately represented employees to access the very records and 
information that they need to defend themselves.
    Despite these Draconian outcomes, corporations are 
complying with these demands in ever increasing numbers. And 
while no one of the nine elements of cooperation outlined in 
the memorandum purports to be dispositive, each is, in fact, 
mandatory. In the current climate, few, if any, public 
companies can afford the risk of possible indictment and the 
myriad of collateral consequences, not the least of which is 
the diminution of shareholder value. Indeed, the words from the 
front lines are frightening, as one attorney recently noted: 
The balance of power in America now weighs heavily in the hands 
of Government prosecutors. Honest, good companies are scared to 
challenge Government prosecution for fear of being labeled 
``uncooperative'' and singled out for harsh treatment.
    Even before Sarbanes-Oxley, internal investigations were 
standard operating procedure. The reports generated by these 
investigations, including analysis by the company's counsel and 
statements by their employees who may choose not so speak with 
prosecutors, are a veritable road map. As such, they are simply 
too tempting a source of information for a Federal prosecutor 
to ignore.
    It is my experience that occasionally, although not 
routinely, Federal prosecutors can be convinced to conduct 
their investigations without these privileged road maps. 
Indeed, law enforcement, as the Chairman pointed out, has a 
number of arrows in its quiver and certainly does not need the 
waiver of the attorney-client privilege in order to do its job.
    The Thompson memorandum, however, makes clear that these 
standard elements of cooperation where the facts can be 
provided without legal conclusions or the mental impressions of 
counsel are provided, these are simply not enough. Prosecutors 
are now empowered to expect that corporate counsel act as their 
deputies. Counsel is expected to encourage employees to give 
statements without asserting their Fifth Amendment rights, 
without obtaining independent counsel, all with little regard 
paid to the potential conflict of interest it poses for the 
corporate attorney and the employee. If the employee refuses, 
he may be terminated with no apparent recognition of the 
inherent unfairness of meting out punishment for the invocation 
of a constitutional right.
    Too often, employees must face this Hobson's choice without 
the benefit of separate counsel. That is because employees face 
the prospect that the corporation will refuse to advance legal 
fees. The effectiveness assistance of counsel in the 
investigatory stage is essential, and the Government knows 
this. I fear that under the guise of cooperation, prosecutors 
are seeking to deprive employees of counsel of their choosing 
in the hope that counsel chosen by the corporation will tow the 
party line.
    I can still vividly recall a conversation I had as a young 
associate with one of the recognized deans of the Philadelphia 
Federal criminal defense bar.
    Chairman Specter. Mr. Sheppard, how much more time will you 
need?
    Mr. Sheppard. Ten seconds. I am wrapping up now, Mr. 
Chairman. He told me, much to my dismay at the time, that much 
of white-collar practice is ``done on bended knee.'' That 
statement was a recognition of the awesome power and resources 
of the Federal Government. It was possible, however, to 
effectively represent your client. In today's corporate 
environment, I and my fellow practitioners feel that this may 
no longer be possible.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Sheppard appears as a 
submission for the record.]
    Chairman Specter. Thank you, Mr. Sheppard.
    Senator Leahy is on a tight time schedule, so I will yield 
to him for his questions first.
    Senator Leahy. Thank you, Mr. Chairman. I appreciate the 
usual courtesy.
    Mr. Meese, you and I have known each other for a long time, 
and I am glad to see you here. Can you think of any 
circumstances during your tenure with the Department of Justice 
where the Department requested or required a waiver of the 
attorney-client privilege from a cooperative corporate 
defendant in a criminal case?
    Mr. Meese. To the best of my knowledge and recollection, 
Senator, I cannot remember any such instance. To the best of my 
recollection, the issue never came up during the time that I 
was in the Department, and it was certainly not a part of the 
policy of the Department to require such a waiver.
    Senator Leahy. Would you have been pretty surprised if 
somebody had made such a request to you as Attorney General?
    Mr. Meese. I believe that I would, yes. I have always felt 
that the best way to proceed in any criminal matter is to have 
the best possible lawyers on both sides. This usually resulted 
in a settlement of the case in many instances, but also you had 
the protection of the potential defendant as well as the best 
interests of the prosecution in going forward.
    Senator Leahy. Also, your case is more apt to stand up on 
appeal, too.
    Mr. Meese. That, too.
    Senator Leahy. Lastly, I looked at the letter you and 
several other senior Justice Department officials--you asked 
the Attorney General to stop the practice of requiring 
organizations to waive the attorney-client privilege and work 
product protections, and I read the letter to say because you 
felt the practice discouraged corporate employees from 
consulting with the lawyers about how to comply with the law.
    Aren't there ways for the Government to obtain cooperation 
from a corporation without waiving the attorney-client 
privilege and work product doctrine?
    Mr. Meese. I believe there are, and I think this is 
something where, in certain cases, corporate counsel would 
recommend certain things to be done to cooperate without 
waiving the attorney-client privilege, such as agreements as to 
certain documents that would be turned over with the 
understanding that that did not constitute a waiver of the 
privilege in general.
    Senator Leahy. Notwithstanding the testimony this morning, 
I get the impression talking to U.S. Attorneys around the 
country that they think this is pretty much a black-letter rule 
from the Department of Justice. And if the policy is not 
changed, what impact do you think this is going to have on 
corporate compliance with our laws and regulations?
    Mr. Meese. Well, Senator, I think that it would have a 
positive impact to change the rule because I really do think 
that many companies now are hesitant to involve corporate 
counsel in investigations and in taking positive steps to 
ensure compliance. And so I think that changing the rule would 
be positive rather than negative in terms of the ultimate 
objective, which is not to prosecute corporations. It is to get 
compliance with the law.
    Senator Leahy. Mr. Weissmann, you are the former director 
of the Enron Task Force. Do you recall any case where a 
corporation received leniency when the corporation did not 
waive the attorney-client privilege?
    Mr. Weissmann. Yes, that has happened.
    Senator Leahy. And when is that?
    Mr. Weissmann. I am sorry?
    Senator Leahy. You do recall that happening?
    Mr. Weissmann. Yes.
    Senator Leahy. Okay. So do you believe that there are 
effective ways for the Government to obtain cooperation without 
a corporation waiving the attorney-client privilege?
    Mr. Weissmann. There are. There are a number of steps a 
careful prosecutor can take to obtain information that is 
useful for an investigation that will have no or limited impact 
on either the work product or attorney-client privilege, for 
instance, turning over so-called hot documents, directing the 
Government to particular witnesses who might be useful. But it 
is not necessary for the corporate counsel to turn over their 
own notes of that interview.
    Senator Leahy. So what former Attorney General Meese was 
saying, if you have got good lawyers on both sides, they are 
going to work their way through this labyrinth.
    Let me ask just one last question before time runs out. In 
the case of Garrity v. New Jersey, the Supreme Court held that 
the Government could not force police officers to make 
statements that could be used against them criminally by 
threatening to fire them if they did not testify. This sort of 
follows up on some things that Mr. McNulty said earlier.
    In your mind, are there potential Garrity-like concerns 
with the Department's cooperation policies since employees can 
be required to cooperate with an internal investigation and the 
corporation can be required in turn by the Government to waive 
the attorney-client privilege? Am I pushing this too far, or do 
you see a Garrity problem?
    Mr. Weissmann. I do see a Garrity problem. For many years, 
I know that various Federal prosecutors have always stayed far 
away from the so-called Garrity issue because they were 
concerned about the actions of the private company being 
imputed, being taken as the actions of the State, which would 
then run afoul of Garrity. That is why KPMG was surprising and 
the United States v. Stein decision was surprising, because it 
appeared from that case that the line was crossed where the 
Government had asked the private actor to do something at their 
behest.
    Senator Leahy. Do the others agree? Or anybody disagree, I 
should say. Attorney General Meese, do you agree with what Mr. 
Weissmann said on Garrity?
    Mr. Meese. In general, yes.
    Senator Leahy. Mr. Donohue, I realize you are not a lawyer, 
but do you agree?
    Mr. Donohue. Senator, what I can tell you is that in many 
cases prosecutors in a very careful way have raised the issue 
of protection of privilege. They have raised the issue of 
dismissal of employees. They have raised the issue of not 
protecting employees even when it is contractually agreed on 
legal fees. As many of your witnesses have said today, the 
Department of Justice is a very strong organization.
    Senator Leahy. Ms. Mathis, do you agree with Mr. Weissmann 
on Garrity?
    Ms. Mathis. Yes, the ABA does agree, Senator. And, further, 
we have given you in our written testimony a number of ways in 
which we believe that a diligent prosecutor can get to the 
relevant information.
    Senator Leahy. And, Mr. Sheppard, do you agree with Mr. 
Weissmann on Garrity?
    Mr. Sheppard. Yes, I do, Senator Leahy.
    Senator Leahy. It probably will not surprise you to know I 
also agree.
    [Laughter.]
    Ms. Mathis. Senator, if I may just add for the record, the 
ABA does not as a rule comment on particular cases, and I 
should clarify that we agree with the principle stated by the 
Court.
    Senator Leahy. And I fully understood that, and I have read 
your testimony and fully agree.
    Thank you, Mr. Chairman.
    Chairman Specter. Thank you, Senator Leahy.
    Mr. Meese, I know that you are a zealous protector of 
separation of power, and as this Committee focuses on these 
issues and considers legislation, we have the option of making 
a recommendation to the Department, letting the Department 
exercise its own discretion, which is very broad. We have the 
option of awaiting the outcome of the litigation in the 
Southern District of New York. The Court may make a definitive 
order. It may be upheld on appeal. Or we can legislate.
    With your broad experience, what would your recommendation 
be?
    Mr. Meese. Mr. Chairman, I would hope that this hearing 
itself might have a salutary effect upon the Department to see 
how strongly not only the Committee in terms of both the 
Chairman and Ranking Member, but also what I would consider a 
broad array of the legal and business community feel about this 
particular action. And so I hope that that in itself might be 
helpful. I would hope that that would be the case, including 
perhaps a recommendation from the Committee itself in a more 
formal manner to the Department of Justice.
    Perhaps the Court may have some decision in this matter. I 
would hope that legislation would be the last resort. But I 
think that if there were no other remedy availing, it would be 
appropriate inasmuch as it is a proper function of Congress to 
enforce--or to implement by legislation basic constitutional 
rights, which I believe this is one.
    Chairman Specter. So you would say that the Congress would 
be acting appropriately, but as a last resort, if everything 
else fails?
    Mr. Meese. That would be my position, yes, sir.
    Chairman Specter. Mr. Meese, the Committee is now wrestling 
with another privilege issue. We have not given you notice of 
this question, but I would like to get your view on it, if you 
care to comment. We are considering the reporter's shield 
privilege, and it arises in the context of the investigation on 
the so-called disclosure of the CIA agent Valerie Plame, and 
its emphasis was focused by the incarceration of a reporter, 
Judith Miller, for some 85 days.
    The investigation proceeded after there was no longer the 
national security interest, and we are making a delineation. We 
are going to have a hearing to try to define more fully the 
national security interest to give protection to the Government 
on that issue so that the privilege would not extend that far. 
And it is complicated as to how we do that, but we are working 
on it.
    But absent national security, do you think that it is a 
wise matter for public policy to have a Federal shield law, as 
so many States do?
    Mr. Meese. Well, Senator, Mr. Chairman, it is difficult to 
generalize from that particular case because, from what I know 
about it, this should never have come about. Again, this is 
only my knowledge from reading the news media, which from time 
to time cannot be totally relied upon. But I think from what I 
have learned, this should never have proceeded that far. I 
consider this a flawed investigation and prosecution, because 
it appeared from at least the facts that seemed to be available 
that no crime had been committed, which should have been 
determined by the prosecutor in the first 48 hours simply by 
reading the law and having the facts available. And so had that 
been done, that is when the prosecutor should have folded his 
tent and disappeared. Therefore, this would never have come 
about, the kinds of interrogations as well as the unfortunate--
what I consider the unfortunate subsequent interrogations of 
many witnesses, which led ultimately to charges totally 
unrelated to the original crime under investigation, alleged 
crime under investigation. So it is a little hard to generalize 
from this case.
    I have concerns about a general shield law for the news 
media that may go to the ultimate finding of guilt or 
innocence, and to say that in no case can a news media 
journalist be questioned as to their sources of information can 
be as damaging to defendants by keeping them from having 
sources of information and evidence that would be valuable in 
terms of defending themselves against charges, as well as in 
legitimate prosecutions.
    So I have real concerns about shield laws as a blanket 
prevention of obtaining information. I would rather have 
something a little more flexible, leaving it up to the judge 
under the circumstances to determine whether a shield law would 
be appropriate rather than an absolute blanket shield.
    Chairman Specter. With respect to your statement about the 
investigation went too far, the special prosecutor has been 
quoted as saying that it was important to protect the ability 
of the Government to get honest testimony. We intend to do 
oversight on that matter at the appropriate time. But when you 
talk about the ability of the Government to get honest answers, 
it has a ring of similarity to the justification for the policy 
that we are discussing today, where the Government wants to 
find out the facts. And we agree, everybody agrees the 
Government ought to find out the facts. It is just how you do 
it, and how you do it respecting the traditional balance on the 
criminal justice system.
    But do you think there is any justification, at least as 
reported--and that is all we can go on at the present time--to 
structure a continuing grand jury investigation to uphold the 
integrity of the Government's finding out what the facts are?
    Mr. Meese. Well, the purpose of a grand jury investigation 
should be obviously what the Constitution sets it up for, and 
that is, a protection for both the people, the Government and 
the potential defendant, to make sure there is adequate 
evidence to go forward with a prosecution. And it seems to me 
that that should be the purpose--that that should be in a sense 
the limited purpose or confine the purpose of investigation, 
not simply as a fishing expedition for the Government. And to 
the best of my knowledge, that was the way in which grand jury 
investigations were conducted during the time I was Attorney 
General.
    Chairman Specter. Mr. Donohue, in your experience what has 
been the effect of the policy of the Department of Justice? I 
want to introduce into the record, without objection, the 
testimony of former Attorney General Dick Thornburgh, who was 
supposed to testify here today, but advised that there is an 
emergency session of the Third Circuit. And Mr. Thornburgh's 
essential conclusions are, in a sentence, ``In my view, 
they''--referring to the so-called Thompson memorandum 
policies--''are not necessary for effective law enforcement, 
and they can actually undermine corporate compliance. 
Accordingly, these criteria should be dropped or substantially 
revised.''
    My question to you: Has this policy had a chilling effect 
or discouraged corporations from internal investigations?
    Mr. Donohue. Just one comment first, and then I will answer 
that question directly. The American business community, and 
particularly the Chamber, has no tolerance and no love for 
people that intentionally and maliciously break the law in the 
business context. It is bad for business.
    What has happened since the Thompson memorandum, we have 
emboldened Federal prosecutors--and, by the way, after that, 
State representatives--to a series of behaviors that they say 
are acceptable for two reasons: first of all, they have the 
Thompson memorandum; and, second of all, they have been told by 
the Congress and by the press and by the American people to 
root out all of this behavior that they long thought was going 
on with large companies.
    And I think what it has done is created an atmosphere in 
which the conduct or the management of corporations is becoming 
more and more difficult, because if you look at the regulatory 
process, the antitrust process, all those things we live under, 
we have to deal with our lawyers every day. And as people begin 
to wonder every time they have, you know, a problem that if 
they are visiting with their lawyer and those notes that lawyer 
is taking, where are they going to end up? ``Can I ask you, 
counsel, a really tough question? I got a big problem in my 
mind. I am dealing with my boss. I am dealing with outside 
forces. I am dealing with my investors. I need to talk to 
you.''
    And I believe that we are playing so much defense in the 
corporate boardrooms that we have taken our eye off running the 
companies and we are spending all of our time talking to more 
and more lawyers. This is a lawyers' retirement act, and I am 
glad for them. But we need to take a look here and say what are 
we doing to the fundamental ability to drive this economy to 
employ people and to lead the world's economy, and we are 
making some big mistakes here, sir.
    Chairman Specter. Is it deterring internal corporate 
investigations?
    Mr. Donohue. I believe it is.
    Chairman Specter. Are corporations changing their policy 
about paying attorney's fees for individuals under 
investigation?
    Mr. Donohue. I think there are a lot of corporations, as 
you are, watching the current case. Some of the attorney fee 
payments are guaranteed in employment contracts. Some have been 
the normal practice of sort of keeping company and employee 
together for mutual defense. And some are just thoughtful 
understandings of what it can cost what has been a good 
employee to defend himself for a week or a month or for 3 
years. And people can be easily bankrupt and, therefore, as you 
well indicated, coerced into actions that they otherwise would 
not take.
    Let me just say, Mr. Chairman, the environment in corporate 
boardrooms and in the CEO's office and in the general counsel's 
office has changed fundamentally in this country, and not for 
the better.
    Chairman Specter. Thank you.
    Ms. Mathis, when the ABA submitted a letter to the 
Department of Justice seeking to have some modifications in 
this policy, were you satisfied with the Department's response?
    Ms. Mathis. Respectfully, Senator, we were not. We received 
a response that was very general in its nature, that reflected 
much of what Deputy Attorney General McNulty testified to 
today. It did not deal with the specifics of our letter, nor 
did it deal with the specifics in the attachment to the letter, 
which sets forth a number of manners in which we believe 
prosecutors can obtain the information they need for their 
prosecutions without violating attorney-client privilege, the 
work product doctrine, or even the rights of employees.
    Chairman Specter. May I suggest that the ABA try again in 
light of the testimony here today, perhaps referencing 
executive privilege, which you have heard Mr. McNulty's 
testimony on. Work product, the Department of Justice is a 
staunch defender of work product in the Solicitor General's 
office, withheld all sorts of documents, and I think 
appropriately so in the Roberts confirmation, in the Alito 
confirmation. And those are certainly analogous. Give some 
consideration to trying again.
    Mr. Weissmann, in your task force on Enron, to what extent 
did you utilize the approach of the so-called Thompson 
memorandum?
    Mr. Weissmann. Well, our understanding is it was required, 
so we used it consistently because we had to. There were--
    Chairman Specter. You used it consistently, and did you get 
waivers of the attorney-client privilege?
    Mr. Weissmann. We did, and I would say that we did it, what 
I would hope was strategically and in a limited way in the 
manner that I described earlier, which was it wasn't necessary 
at the outset--
    Chairman Specter. It was not necessary?
    Mr. Weissmann. It was not necessary at the outset to ask 
for blanket waivers, and we did not.
    Chairman Specter. You did?
    Mr. Weissmann. No, we did not ask for blanket waivers up 
front.
    Chairman Specter. Was it necessary to ask for the waivers 
which you did ask for?
    Mr. Weissmann. I think that there is one area where it was, 
and that is when you are investigating an underlying 
transaction. To take one example, in Enron there was a 
transaction involving moving the losses from one business 
segment to a winning business segment. And knowing what people 
at the time said to their lawyers within Enron was very useful 
information.
    I would point out in that situation, most companies are 
more than happy to turn that over because they are usually 
going to rely on an attorney-client defense, having an advice-
of-counsel defense.
    Chairman Specter. Taking the situation as a whole, do you 
think that it was a fair practice to do what you did in Enron 
with respect to the Thompson memo?
    Mr. Weissmann. I do, but I do think that there should be 
greater guidance, because I know that the practices that we 
used were ones that we devised on our own, and it did not come 
from any guidance from the Department to require prosecutors 
across the country to be so surgical.
    Chairman Specter. So you did not need the greater guidance, 
but you think that as a matter of policy, the DOJ practice 
needs more guidance for the attorneys in the field?
    Mr. Weissmann. Yes.
    Chairman Specter. Mr. Sheppard, tell us a little bit more 
about the ``bend your knees'' concept. Is it really that bad? 
And do you only have to go so far as bending your knees?
    Mr. Sheppard. There are times when I have been flat on my 
back, Senator, on behalf of my clients.
    Chairman Specter. A powerhouse lawyer like Richard Sprague 
bending his knees, that does not comport with the Richard 
Sprague I know--not that he has arthritis, but I don't think he 
bends at the knees before anybody.
    Mr. Sheppard. He does not, Mr. Chairman. He sends me to do 
those things.
    [Laughter.]
    Chairman Specter. Well, that certainly should earn you a 
raise, which Mr. Sprague can afford to give you.
    Mr. Sheppard. In answer to your question, Mr. Chairman, I 
think the concern that I have the most here is that the 
decision by the corporation needs to be the decision of the 
corporation. It really cannot be at the very outset and at the 
earliest parts of the investigation a decision that is made by, 
in essence, the prosecutor. Deputy Attorney General McNulty's 
comments about when these factors come into play do not comport 
at all with my experience.
    From the very minute that a problem arises in the corporate 
context, these considerations, and particularly the cooperation 
considerations in the Thompson memorandum, figure prominently 
in every decision that corporate counsel makes and in every 
decision that the individuals who may be represented by 
separate counsel need to make.
    For me, I think the answer is it should be the employee's 
decision, it should be the corporation's decision on whether 
they want to cooperate and how they should do so. It is not the 
decision that should be made by the prosecutor on pain of a 
corporate death sentence.
    Chairman Specter. Well, thank you all very much. The 
Committee is going to pursue this issue. It is true that we 
have had a large, large number of complaints about it, just a 
tremendous number of complaints. And we have members of this 
Committee who have had considerable experience in the criminal 
justice system, and the criminal justice system has evolved 
over centuries, common law practice, and then the formulation 
of the Constitution and the Bill of Rights and many, many, many 
decisions and a lot of experience. And the attorney-client 
privilege is rockbed in the judicial system. And the practice 
of paying attorney's fees is also a very common practice and 
relied upon, and there is no doubt that it would weigh heavily 
on a judgment any individual would do when faced with an 
investigation as to whether he or she could afford the cost of 
defending himself or herself.
    So we have to be very cautious on significant changes in 
that structure, and I think that these factors do constitute 
significant changes. And perhaps former Attorney General Ed 
Meese has given us the right formula. Let's see if we can solve 
the problem without legislation, but as a last resort, it is up 
to the Congress of the United States to determine what is 
appropriate in the administration of criminal justice in this 
country.
    Thank you all very much. That concludes our hearing.
    [Whereupon, at 11:33 a.m., the Committee was adjourned.]
    Questions and answers and submissions for the record 
follow.]

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