Department of Justice’s New Policy on the Investigation of Companies Warrants Reassessment of Corporate Responses to Criminal Investigations

September 2, 2008

In a speech delivered by Deputy Attorney General Mark Filip to the New York Stock Exchange on August 28, 2008, the Department of Justice announced sweeping changes to the factors federal prosecutors may consider in determining whether to bring criminal charges against business organizations. These changes, which were first previewed in a July 9, 2008 letter sent by Filip to the Senate Judiciary Committee leadership and are now in full effect, should have an immediate impact on the way in which corporations and other businesses deal with ongoing and future investigations by United States Attorneys Offices and other DOJ components.

As explained in a recent Gibson Dunn client update, DOJ has been faced with increased Congressional pressure to ensure that corporations are not forced to forfeit the protections of both the attorney-client privilege and work product doctrine in order to receive full cooperation credit in a DOJ investigation. On June 26, 2008, Senator Arlen Specter re-introduced the Attorney-Client Privilege Protection Act of 2008, which was designed as a legislative solution to a DOJ internal policy many critics had argued placed businesses at an unfair disadvantage by allowing prosecutors to ask that businesses waive privilege during an investigation.

Consistent with his July 9 letter, Filip described the following changes to DOJ policy, which for the first time have been promulgated in the United States Attorneys’ Manual, rather than in memorandum form:

• Cooperation will be measured the same as it is for individual defendants: to receive cooperation credit, businesses need only disclose pertinent facts; it is irrelevant whether the business produces privileged materials. Businesses will receive the same credit for disclosing facts that are contained in unprotected materials as they would for disclosing identical facts contained in privileged documents.
• Under the new policy, prosecutors may not request–or even consider the failure to provide–non-factual, or “Category II,” privileged information. Such information includes legal advice, which Filip noted “lies at the core of the attorney-client privilege.” There are only two narrow exceptions to this general edict: first, prosecutors may ask for disclosures of communications that bear on a proffered advice-of-counsel defense. This would be appropriate, for example, when a corporation asserts that it relied on the advice of counsel in engaging in the conduct under investigation. Second, DOJ may request communications between a corporation and counsel that were made in furtherance of criminal activity–the so-called crime fraud exception–as such communications fall outside of the attorney-client privilege.
• Further, in evaluating cooperation credit, it is now irrelevant (1) whether a corporation advanced legal fees to any of its employees, (2) whether a corporation has entered into a joint defense agreement, or (3) whether a corporation has terminated or otherwise disciplined any of its employees. Although the DOJ may consider company action against employees in assessing the strength of the corporation’s compliance program, or the sufficiency of its internal controls, it no longer may do so when assessing the corporation’s cooperation.

While these reforms broaden the protection of attorney-client privilege within internal DOJ policy, and allow corporations to receive full credit for cooperating without having to waive important privileges, careful analysis of the new language reveals potential risks that businesses will face in trying to cooperate with DOJ investigations. 

First, the new language in the U.S. Attorneys’ Manual makes clear that a corporation may be required to disclose facts unearthed during an internal investigation, even when that investigation was conducted by counsel. Although prosecutors may no longer ask for attorney notes or other work product resulting from an internal investigation, disclosure of relevant facts learned in an attorney-led investigation could result in a judicial finding of waiver of privilege in future civil litigation. Plaintiffs in such suits likely would argue that by disclosing facts learned during interviews of employees by the corporation’s lawyers–interviews that are traditionally protected as attorney-client communications–the corporation has waived privilege or work-product protection for any other aspect of those interviews or for the same subject matters covered by the witness statements. This risk should be carefully evaluated before such information is released for the sake of earning cooperation credit.

Second, it should be noted that although entering into a joint-defense agreement is not per se uncooperative conduct, some acts by the corporation as part of a joint defense may count against its credit for cooperation. For example, DOJ may penalize a corporation for sharing with third parties information it acquired from the government. Also, joint-defense agreements may hinder the ability of a corporation to disclose otherwise relevant facts–the critical factor for whether the business has been cooperative. As the new policy explains, corporations seeking full credit for cooperation should fashion joint-defense agreements that are flexible enough to account for such requirements.

Finally, it is important to remember that these new internal policies do not have the force of law. Traditionally, even the placement of a policy in the U.S. Attorneys’ Manual does not create enforceable rights, and those aggrieved may only appeal to higher levels within DOJ. The new policy also is subject to further changes by future administrations.

Both Filip’s remarks and the new language in the U.S. Attorneys’ Manual stress the basic but important point that cooperation with DOJ is not legally required, and lack of cooperation may not be considered as evidence of wrongdoing, nor will it necessarily make a difference in the government’s decision whether to indict. It remains to be seen whether these changes will mollify Congressional concern over the use of privileged information, or whether a legislative response will be pursued despite DOJ’s unilateral reforms.

The new policy, as it appears in the U.S. Attorneys’ Manual, can be found at: http://www.usdoj.gov/opa/documents/corp-charging-guidelines.pdf

San Francisco
Gary R. Spratling (415-393-8222, [email protected])

© 2008 Gibson, Dunn & Crutcher LLP

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