Where The ‘McNulty Memo’ Goes From Here

Mixed reviews greeted the Department of Justice’s publication of new marching orders for federal prosecutors probing allegations of corporate wrongdoing.

Under the “McNulty Memo,” issued last week, U.S. attorneys are supposed to seek the approval of Deputy Attorney General Paul McNulty before asking corporations to waive the attorney-client privilege or turn over sensitive documents that come under the umbrella of work-product protection. That policy overturns the much-criticized Thompson Memo, a policy established in 2003 that let prosecutors take a more muscular—defense lawyers would say abusive—approach to forcing cooperation.

While companies still can get credit for voluntarily turning over privileged information, their refusal to do so is no longer supposed to be held against them in making a decision about whether to bring criminal charges against the company.

“The department supports the sanctity of attorney-client privilege,” McNulty wrote in his memo. “We encourage full and frank communication between corporate employees and their lawyers. With this new guidance, I will personally approve all future requests for attorney-client communications.”

Still, some of the harshest critics of the Thompson Memo—which was blamed for a “culture of waiver” under which corporations were often strong-armed into waiving privileges—were clapping with one hand after reading the McNulty Memo. A chief criticism: The memo doesn’t address the implied pressure prosecutors place on companies to waive their rights “voluntarily.”

Krebs

“[T]his memo is a day late and a dollar short,” says Frederick Krebs, president of the Association of Corporate Counsel. “Asking prosecutors to get permission before formally requesting that companies waive their attorney-client privilege will not put an end to the ‘culture of waiver’ that exists within the DoJ. Our research shows that more often than not, requests for waiver are not asked for outright, but are coercively inferred.”

Levy

Michael Levy, a partner with the law firm McKee Nelson and a former federal prosecutor, calls the changes “largely cosmetic,” and says that in practice they “may not amount to much of a change in the way the department does business. From the real-life perspective, the fact that the Justice Department will still consider waiver of the privilege favorably means that corporations still have enormous pressure to waive the privilege.”

And Patrick Egan, a defense lawyer with the Fox Rothschild law firm, notes that the McNulty Memo is only guidance; it does not bind prosecutors who have their own ideas about how to conduct investigations. Companies will have little recourse if a U.S. attorney seeks a waiver without first getting McNulty’s approval, and no law says that information can be redacted or suppressed. “If an unscrupulous U.S. attorney is very motivated or eager, the only thing he’s threatened with is an admonition from within the DoJ,” he says.

But William Mateja, a partner with the law firm Fish & Richardson, says such criticisms indicate a misunderstanding about how the DoJ works.

EXCERPT

Below are portions of the executive summary of the McNulty Memo, regarding attorney-client privilege and advancing employees' legal fees.

Requests for Waiver of Attorney Client Privilege

The new guidance adopts a tiered approach on when prosecutors may request that a corporation provide protected materials. When prosecutors wish to seek privileged attorney-client communications, legal advice or non-fact attorney work product – those materials generally considered to be the most sensitive of all protected materials – the United States Attorney must now obtain written approval directly from the Deputy Attorney General before making the request.

The request for approval must set forth law enforcement’s legitimate need for the information and identify the scope of the waiver sought. To establish a legitimate need for the information, federal prosecutors must address:

the likelihood and degree to which the privileged information will benefit the government’s investigation;

whether the information sought can be obtained in a timely and complete fashion by using alternative means that do not require waiver;

the completeness of the voluntary disclosure already provided; and

collateral consequences to a corporation of a waiver.

Such a requirement represents a substantial test. It addresses criticisms, which the Department has disputed, that prosecutors routinely ask companies to provide such information, thereby chilling the offering of legal advice. While the Department does not agree that blanket or unrestricted waivers were routinely sought in the past, this new approval requirements will insure that Department prosecutors only request a waiver of the most sensitive materials after such a request has received approval from the Justice Department’s second-highest ranking official. The guidance cautions prosecutors that attorney-client communications should be sought only in rare circumstances. Because prosecutors are required to establish a legitimate need before seeking the information, they are expected take preliminary investigative steps to determine whether a corporation and its employees have engaged in criminal activity before seeking such materials.

The memorandum also provides new requirements when federal prosecutors are

requesting a waiver of privilege to receive materials that disclose the facts a company has uncovered in a company’s internal investigation of corporate misconduct. Before making a request for such materials, federal prosecutors must seek the approval of their United States Attorney, who must consult with the Assistant Attorney General of the Criminal Division before approving such a request. Examples of factual information of this type might include copies of key documents, witness statements, or purely factual interview memoranda regarding the underlying misconduct

The new approval requirements involving United States Attorney approval also apply to requests for (1) legal advice given contemporaneous to the misconduct being investigated, if the company is relying upon an advice-of-counsel defense to justify the conduct; and (2) legal advice or communications in furtherance of a crime or fraud, coming within the crime-fraud exception to the attorney-client privilege.

The memorandum indicates that federal prosecutors are not required to obtain authorization if the corporation voluntarily offers privileged documents without a request by the government …

Advancement of Attorneys’ Fees

The new guidance also instructs prosecutors that they generally cannot consider a corporation’s advancement of attorneys’ fees to employees when making a decision whether to charge the corporation. A rare exception is created for those extraordinary instances where the advancement of fees, combined with other significant facts, shows that such a step was intended to impede the government’s investigation. In those limited circumstances, fee advancement may be considered only if authorized by the Deputy Attorney General. When seeking this approval, federal prosecutors must follow the same authorization process established for seeking approval to request waiver of attorney-client communications from the Deputy Attorney General.

Source

Department of Justice (Dec. 12, 2006)

Mateja

“They [the critics] want the moon,” says Mateja, who was senior counsel to former Deputy Attorney General Larry Thompson. “They want to have their cake and eat it too. This is substantive stuff. Obtaining the approval of the deputy attorney general, that takes nearly an act of God. Prosecutors will get the message; they know that [McNulty’s approval] is a very high hurdle to get over.”

Handzlik

Jan Handzlik, a partner with the Howrey law firm and a member of an American Bar Association task force that has criticized the DoJ’s posture toward corporate privilege issues, says the McNulty Memo, while “a step in the right direction” still leaves open “a number of areas that are troublesome.” The ABA task force—which is scheduled to meet next in Washington in a few weeks—has not formally taken a view on the McNulty Memo, Handzlik notes.

Attorney Fee Provision Praised

The most warmly greeted aspect of the McNulty Memo was its instruction that prosecutors generally cannot consider a corporation’s advancement of legal fees to employees under investigation when making a decision of whether to charge the corporation itself. That issue came into sharp relief this year, when a federal judge accused prosecutors of pressuring KPMG in precisely that manner while they were putting former KPMG employees on trial for selling bogus tax shelters.

Weissmann

Andrew Weissmann, a partner with the law firm Jenner & Block who formerly headed a DoJ task force investigating the Enron scandal, says this aspect of the McNulty Memo “seems to be a real about-face. I think that basically takes it off the map as a factor.”

Michael Horowitz, a former DoJ attorney and now partner with the Cadwalader, Wickersham & Taft law firm, agrees. “That’s a significant change —I don’t think you’ll see any real complaints about that.”

Horowitz

But Horowitz points out a footnote in the McNulty Memo that states in “extremely rare” cases the advancement of legal fees may be taken into account “when the totality of the circumstances show that it was intended to impede a criminal investigation.” That footnote cites the Justice Department’s appellate brief in the KPMG case, United States v. Stein. The citation in the footnote makes it “unclear,” says Horowitz, whether the Justice Department thinks its position in Stein is an example of that “rare” case where the advancement of lawyer fees can be considered.

Still, Horowitz says, overall the memo should relieve some pressure the Justice Department has felt from Congress. On Dec. 7, Sen. Arlen Specter, Republican of Pennsylvania and departing chairman of the Senate Judiciary Committee, filed a bill called the Attorney-Client Privilege Protection Act, which would prohibit prosecutors from pushing for privilege waivers. The bill has its fans among corporate counsel groups, but its future in a Democratic-controlled Senate is unclear.

Egan

Egan says he sees the McNulty Memo as a “pre-emptive strike” partly intended to take the wind out of the sails of Specter’s bill. “[The DoJ] has done a very good job of producing something that allows them with a straight face to say they’ve solved the problem,” he says. “But I don’t think they have solved the problem.”

And Weissmann expressed disappointment that the McNulty Memo doesn’t require DoJ approval on the most important decision of all: whether to prosecute a corporation.

“It seems odd to me that the ultimate determination isn’t going to be reviewed,” he says. “There are innumerable decisions that the DoJ requires to made by the department. For individuals who face death-eligible criminal offenses, for example, you have to go to the department and it has to be decided by the attorney general. Prosecuting a corporation may not be the death knell for the corporation but it could be. Yet there isn’t the same level of review and insistence on uniformity.”