The Attorney Client Protection Act Passes The House: But What Does it Protect?

The Attorney Client Privilege Protection Act passed the House of Representatives yesterday. The Act is backed by a broad coalition of business and legal groups. It is designed to end what has become known as the “culture of waiver,” a term used to describe the fact that many corporations and their advisors believe that fundamental rights must be waived as part of any effort to cooperate with the Department of Justice and the Securities and Exchange Commission to avoid prosecution.

The Act is intended, as its preamble notes, to “[p]lace on each agency clear and practical limits designed to preserve the attorney-client privilege and work product protections available to an organization and preserve the constitutional rights and other legal protections available to employees of such an organization.” Accordingly, the legislation would preclude any agency or attorney representing the U.S. from:

1. requesting the disclosure of privileged material; or

2. considering in a charging decision:
a. valid assertions of privilege;
b. indemnification agreements;
c. common interest agreements; or
d. the failure to terminate employees because of an exercise of constitutional rights.

The same bill has also been introduced in the Senate.

The bills were introduced following congressional hearings at which witness after witness testified to the pressure on organizations to waive fundamental rights such as the attorney client privilege and work product protections, as well as employee rights to indemnification and counsel and others in an effort to obtain cooperation credit from DOJ and the SEC and avoid prosecution.

Both DOJ and the SEC have repeatedly denied that rights must be waived in the name of cooperation. Portions of the DOJ cooperation policies in the Thompson memo, however, have been held to violate the Fifth Amendment right to a fair trial and the Sixth Amendment right to counsel in Stein v. U.S., 485 F.2d 330 (S.D.N.Y. 2006). Although those policies have been recast in the McNulty memo, which places limits on the circumstances under which prosecutors can request a waiver, critics contend that DOJ still pressures organizations to surrender rights in the name of cooperation. This fact was confirmed in a letter from E. Norman Veasey, former Chief Justice of the Delaware Supreme Court, to Senators Leahy and Spector, dated September 13, 2007. The letter (available here), was written in connection with the pending legislation, and chronicles instance after instance of prosecutors disregarding the restrictions of the McNulty memo and demanding waivers.

Although the SEC has repeatedly stated that organizations can receive cooperation credit without waiving privilege, the agency has made it clear that to have an opportunity to avoid prosecution, waiver is essential. The example in the Seaboard Release, which contains the SEC’s organizational prosecution and cooperation standards, suggests as much. The example is of a company which is not prosecuted because it cooperated and waived privilege, giving the staff evidence it could not otherwise obtain – that is, privileged material. This point was recently reiterated by Linda Thomsen, Director of the SEC’s Division of Enforcement in a speech which cited two examples of cooperation. In one example the company cooperated, did not waive privilege and was prosecuted. In the second the company cooperated, waived privilege and was not prosecuted. Remarks Before the Mutual Fund Directors Forum 7th Annual Policy Conference, available

While passage of the Attorney Client Protection Act may bar prosecutors and agency enforcement attorneys from requesting waivers or specifically considering certain factors in the charging process, it is doubtful that it will end the culture of waiver. As presently written, the statute would permit issuers to waive privileges and receive cooperation credit. Issuers facing the pressure of a charging position and reaching for any avenue that may score an additional cooperation point, will surely continue to waive any and all rights under these circumstances.

In addition, the legislation does not address one of the key issues in the battle over waivers: witness statements. Both the DOJ in Thompson and McNulty memos and the SEC in the Seaboard Release, encourage issuers to conduct internal investigations when an impropriety is discovered and immediately self-report. In many instances, employees and former employees may wish to cooperate with the investigation of the company, but not that of the government. This is particularly true if there are parallel civil and criminal investigations.

As part of the price of cooperation, DOJ and the SEC typically want the organization to produce the privileged lawyer notes of the witness interviews from the internal investigation. This key cooperation credit bargaining chip gives the DOJ and the SEC witness testimony which is otherwise constitutionally beyond their reach. At the same time, this byproduct of pressurized waivers undermines the constitutional protections of the employee and places that person at risk of criminal false statement and obstruction charges if the government decides the testimony is false, even though the statements were given to private attorneys. See, e.g., U.S. v. Kumar, Case No. 1:04-Cr-00846 (E.D.N.Y. 2006) (charging employees of Computer Associates with false statements in an internal investigation; defendants pled guilty); U.S. V. Singleton, Case No. H-04-314-SS (S.D. Tex. 2006) (Rule 29 motion for acquittal granted re charge of false statement from internal investigation).

The legislation is entitled The Attorney Client Protection Act. Before it is finally passed into law, we would do well to ask if in fact it really protects the fundamental organizational and individual rights which are at stake in the charging and cooperation process.