April 6, 2006
The United States Sentencing Commission voted unanimously on April 5 to eliminate language from the Federal Sentencing Guidelines that requires corporations to waive the attorney-client privilege and work product protections in certain circumstances in order to earn sentencing credit for cooperation with a government investigation. The amendment was prompted by extensive commentary from a wide array of organizations and individuals, including lawyers at Gibson, Dunn & Crutcher, about the chilling effect that a waiver requirement has on communications between employees and counsel for the corporation.
In 2004, the Sentencing Commission modified the Sentencing Guidelines that apply to corporations convicted of federal offenses. These Guidelines determine, among other things, what fine the court should consider imposing. The factors identified in the Guidelines include:
(1) seriousness of the offense;
(2) whether the corporation has an effective compliance program;
(3) whether the corporation has a history of administrative, civil or criminal infractions; and
(4) whether the corporation self-reported the violation and cooperated in the government’s investigation.
One of the revisions in 2004 was a provision stating that to receive credit for cooperating with the government, a corporation is not required to waive the attorney-client privilege or work product protections “unless such waiver is necessary in order to provide timely and thorough disclosure of all pertinent information known to the organization." (Emphasis added). Although the Commission explained at the time it adopted the amendment that it expected such waivers to be required “on a limited basis,” prosecutors soon began routinely citing the language in an effort to press corporation counsel to waive the privilege and reveal confidential communications and attorney work product.
A recent large-scale survey sponsored by over a dozen organizations including the Association of Corporate Counsel, the Business Roundtable and the U.S. Chamber of Commerce found that a majority of the outside counsel who responded had been pressured by federal enforcement officials to waive the privilege in connection with one or more government investigations and that those officials most frequently cited Department of Justice guidelines governing the prosecution of corporations and the Sentencing Guidelines waiver language as the reasons the corporation should disclose confidential attorney-client communications and attorney work product.
The Commission’s decision to remove the privilege waiver language from the Guidelines should enable corporations to earn sentence reductions by cooperating with the government even if they decline to reveal confidential attorney-client discussions or attorney work product. This will ease some of the pressure to waive the privilege.
Government attorneys and agents still may seek these waivers despite the Commission’s action. As noted above, prosecutors frequently invoke the Department of Justice’s “Thompson Memorandum,” which states that in “gauging the extent of the corporation’s cooperation” – a relevant factor in deciding whether to charge the corporation with a federal crime – the prosecutor may consider, among other things, the corporation’s willingness “ to disclose the complete results of its internal investigation” and “to waive attorney-client and work product protection.” As a result, corporations faced with the question whether to waive the privilege will now need to evaluate how they are likely to fare under the other criteria for non-prosecution in the Thompson Memorandum as well as the damage they might suffer by releasing privileged and protected material. That damage includes civil litigation exposure in light of the growing number of court rulings that the privilege has been waived as to all third parties by disclosure to the government, and the negative effect waiver would have on employee willingness to confide in company counsel in the future. As to the latter harm, various organizations commenting on the Sentencing Guidelines provision pointed out that the attorney-client privilege helps corporations learn of small problems before they become large and of potential problems before they become real, because employees are more likely to seek legal advice from counsel and report suspected wrongdoing if they know such discussions will remain confidential.
Thus, despite this positive development at the Sentencing Commission, corporations still face the challenge of resisting what will likely be continuing pressure from prosecutors to waive the privilege in order to avoid prosecution under the Department of Justice’s internal guidelines.
The amendment deleting the waiver language will be published on or before May 1. By statute, the amendment will go into effect on November 1 unless Congress passes legislation rescinding or modifying it. The Commission has made nearly 700 amendments to the Sentencing Guidelines over the last 17 years, and Congress has only prevented two of those changes from taking effect.
Gibson, Dunn & Crutcher lawyers are available to assist clients in addressing any questions they may have about these issues, including the required elements of effective compliance programs and other techniques for minimizing the risk of prosecution. Please contact the Gibson Dunn attorney with whom you work, or
John F. Olson – Washington, DC (202-955-8522, firstname.lastname@example.org)
Ronald O. Mueller – Washington, DC (202-955-8671, email@example.com)
Amy L. Goodman – Washington, DC (202-955-8653,
F. Joseph Warin – Washington, DC (202-887-3609, firstname.lastname@example.org)
Thomas E. Holliday – Los Angeles (213-229-7370, email@example.com)
Orin Snyder – New York (212-351-2400, firstname.lastname@example.org)
Lee G. Dunst – New York (212-351-3824, email@example.com)
Jim Walden – New York (212-351-2300, firstname.lastname@example.org)
Robert C. Blume – Denver (303-298-5758, email@example.com)
David Debold – Washington, DC (202-955-8551, firstname.lastname@example.org)
David P. Burns – Washington, DC (202-887-3786, email@example.com)
© 2006 Gibson, Dunn & Crutcher LLP
The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.