“What is astonishing is that the attorney-client privilege, one of the foundational rights on which rests Anglo-American legal culture . should now be under siege. The two federal agencies that have been most SPECIAL REPORT: vigorous in seeking waiver of the attorney-client privilege have been the Department of Federal Erosion Justice and — unfortunately, I of Business must say — the Securities and Exchange Commission.” Civil Liberties Paul S. Atkins SEC Commissioner January 18, 2008 WLF Washington Legal Foundation “The message should be clear Advocate for freedom and justice© 2009 Massachusetts Avenue, NW that prosecutions will go as high Washington, DC 20036 up the corporate hierarchy as www.wlf.org the evidence permits and we will hold senior managers of corporations accountable, as well as the corporation itself.” Granta Y. Nakayama EPA Assistant Administrator for Enforcement and Compliance June 12, 2006 SPECIAL REPORT: Federal Erosion of Business Civil Liberties This Report, along with WLF’s Timeline: Federal Erosion of Business Civil Liberties, is a part of our ongoing CRIMINALIZATION OF FREE ENTERPRISE—BUSINESS CIVIL LIBERTIES PROGRAM. For more information on this program or to receive additional copies of this Report or the Timeline, please contact WLF at (202) 588-0302 or visit us online at www.wlf.org. Copyright © 2008 Washington Legal Foundation Table of Contents Introduction: The Honorable Dick Thornburgh .........................ii Chapter One: Mens Rea, Public Welfare Offenses, and the Responsible Corporate Officer Doctrine ............................ 1-1 Chapter Two: Environmental Protection Agency Criminal Enforcement Policies ............................................. 2-1 Chapter Three: Department of Justice Criminal Prosecution Policies ....... 3-1 Chapter Four: Parallel Civil and Criminal Prosecutions ................. 4-1 Chapter Five: Attorney-Client and Work Product Privileges ............ 5-1 Chapter Six: Deferred Prosecution and Non-Prosecution Agreements .... 6-1 Chapter Seven: U.S. Sentencing Guidelines ............................ 7-1 Appendix: Reference Resources: Washington Legal Foundation Legal Studies Publications and Programs ................A-1 i INTRODUCTION by The Honorable Dick Thornburgh The Washington Legal Foundation's SPECIAL REPORT: FEDERAL EROSION OF BUSINESS CIVIL LIBERTIES provides the legal community with an excellent summary, analysis, and critique of the key legal, judicial, and regulatory developments in the growing trend to criminalize normal business activities. Ideal for reference by corporate counsel, white-collar defense attorneys, and the general legal and public policy community, WLF's up-to-date REPORT traces the controversial development of the following legal topics in seven chapters, each followed by a timeline, with an emphasis on environmental criminal enforcement by the Environmental Protection Agency (EPA) and the Department of Justice (DOJ): 1) Mens Rea, Public Welfare Offenses, and the Responsible Corporate Officer Doctrine; 2) EPA Criminal Enforcement Policies; 3) DOJ Criminal Prosecution Policies; 4) Parallel Civil and Criminal Prosecutions; 5) Attorney-Client and Work Product Privileges; 6) Deferred Prosecution and Non-Prosecution Agreements; and 7) U.S. Sentencing Guidelines. An important theme of the REPORT is that the EPA and DOJ have often resorted to criminal prosecution of minor regulatory offenses when administrative and civil remedies would be more appropriate. In that regard, the REPORT presents several case studies that call into question the case selection criteria used by EPA and DOJ, and which reminds the reader of former Attorney General Robert Jackson's admonition to all U.S. Attorneys that "the prosecutor has more control over life, liberty, and reputation than any other person in America." Of particular interest is Chapter Five on the Attorney-Client Privilege, which discusses the assault by DOJ, the SEC, and other agencies on the venerable privilege, but also notes the successes that are being made to counter its erosion. I heartily commend the Washington Legal Foundation for producing this useful REPORT, which should be required reading for private and government lawyers alike, as well as for publishing a companion TIMELINE fold-out chart that chronicles and highlights the key events and cases described herein. The Honorable Dick Thornburgh has served as Governor of Pennsylvania, Attorney General of the United States, and Under-Secretary-General of the United Nations during a public career that has spanned over 30 years. Mr. Thornburgh is currently counsel to the national law firm of Kirkpatrick & Lockhart Preston Gates Ellis LLP in its Washington, D.C. office, and is Chairman of Washington Legal Foundation's Legal Policy Advisory Board. ii Chapter One Mens Rea, Public Welfare Offenses, and the Responsible Corporate Officer Doctrine Chapter One MENS REA, PUBLIC WELFARE OFFENSES, AND THE RESPONSIBLE CORPORATE OFFICER DOCTRINE “You cannot punish corporations. If you dissolve the offending corporation. .[y]ou merely drive what you are seeking to check into other forms or temporarily disorganize some important business altogether, to the infinite loss of thousands of entirely innocent persons, and to the great inconvenience of society as a whole." Woodrow Wilson Address to the Annual ABA Meeting (1910) ens Rea. Historically, Anglo- that were otherwise not considered criminal — MAmerican jurisprudence has required and indeed, were socially useful because they the government to prove that a defendant produced needed goods and services — were charged with a crime has performed a wrongful made subject to a vast array of complex laws act ("actus rea") with a wrongful intent ("mens and regulations. By 1900, there were only rea"), that is, "an evil-doing hand" and "an evil- approximately 165 federal criminal laws on the meaning mind." See Morissette v. United books. By 1970, the number increased more States, 342 U.S. 246, 251 (1952). The Supreme than ten-fold to approximately 2,000. In 1998, Court has described this principle as being "as an American Bar Association task force chaired universal and persistent in mature systems of by former Attorney General Edwin Meese III, law as belief in freedom of the human will." Id. issued a report, The Federalization of Criminal at 250. Generally speaking, prosecutors are Law, which estimated the number of federal required to prove that a defendant had the criminal statutes to be 3,300. By 2004, there specific intent or purpose to commit a crime were more than 4,000 separate criminal that is inherently evil or wrongful, or malum in offenses scattered throughout 27,000 pages of se, such as robbery or assault. Society has the U.S. Code. JOHN S. BAKER, JR., THE traditionally dealt with these common law or FEDERALIST SOC'Y FOR L. & PUB. POL., mala in se crimes by criminal prosecution and MEASURING EXPLOSIVE GROWTH OF FED. appropriate punishment, including CRIME LEGISLATION (2004). As one incarceration, to serve the purposes of commentator aptly described it, the "federal retribution and deterrence. criminal code" is "simply an 'incomprehensible,' random and incoherent, However, with the dramatic growth of the 'duplicative, incomplete, and organizationally administrative and regulatory state in the last nonsensical' mass of federal legislation that several decades, many commercial activities carries criminal penalties." Julie R. O'Sullivan, 1-1 The Federal Criminal "Code" is a Disgrace: White, 766 F. Supp. 873, 882 (E.D. Wash. Obstruction Statutes as Case Study 1991). See also Inland Steel Co. v. EPA, 901 (SYMPOSIUM 2006: THE CHANGING FACE OF F.2d 1419, 1421 (7th Cir. 1990) (describing WHITE-COLLAR CRIME), 96 J. CRIM. L. & RCRA as a "statutory Cloud Cuckoo Land"). CRIMINOLOGY 643 (2006) (citations omitted). Environmental regulations are so vast and complex that most corporate officials candidly In addition to the plethora of federal admit that it is simply impossible to comply criminal laws, the number of regulations in the with all of them. For example, if certain Code of Federal Regulations (CFR), many of solvents are poured onto a surface to be them criminally enforceable, far exceeds the cleaned, the rag used to wipe the surface statutes, with estimates ranging up to 300,000. becomes a hazardous waste, which is then See John C. Coffee, Jr., Does Unlawful Mean subject to strict storage and disposal rules. Criminal?: Reflections on the Disappearing However, if the solvent is first poured onto the Tort/Crime Distinction in American Law, 71 rag, then the rag is not a hazardous waste. B.U.L. REV. 193, 216 (1991). Regulations Businesses and individuals are faced with a issued by the Environmental Protection Agency "regulatory hydra" and regulatory terms (EPA) alone fill 30 volumes of the CFR, which suggestive of "Alice In Wonderland," as one is 50 percent more than the dense Internal court put it. United States v. Mills, 817 F. Revenue Service (IRS) regulations. Indeed, the Supp. 1546, 1548 (N.D. Fla. 1993). regulations just for three of the more than dozen environmental statutes — the Clean Air For the most part, sanctions available for Act (CAA), Clean Water Act (CWA), and the violating these so-called mala prohibita Resource Conservation and Recovery Act offenses — conduct that is deemed wrongful (RCRA) — number 9,000 pages. Violations of only because a law or regulation prohibits or any one of these may lead to criminal regulates it — range from administrative prosecution. Some members of Congress penalties