IN PRINT DOJ CHANGES itS RULES For ASSESSinG CorporATE CoopERAtion R. Christopher Cook and Joseph W. Clark The Department of Justice (DOJ) has amended sig- their legal costs or continue employment while an nificantly its official position regarding the corporate investigation is pending, confident that such equi- attorney-client privilege and the manner in which table treatment will not be seen by DOJ as a sign of it expects organizations to treat employees sus- obstruction. pected of wrongdoing. These changes, announced by Deputy Attorney General Mark Filip on August This new approach by DOJ is welcome news for the 28, 2008, promise to have a profound effect on the health care industry, whose organizations have been manner in which organizations are treated by DOJ the subject of a disproportionate number of criminal when employees are alleged to have violated the investigations in the last decade. As with other orga- law. Under these new guidelines, organizations nizations that have been the target of DOJ investi- should have a greater ability to investigate poten- gations recently, health care companies often have tial wrongdoing without fear that legitimately privi- been the subject of heavy-handed tactics. Pros- leged communications will be subject to a forced ecutors have routinely demanded waivers of the waiver. Likewise, organizations should be free to treat attorney-client privilege as a condition of treating employees fairly when deciding whether to pay for an organization as “cooperative” in an investigation, A version of this article originally appeared in HCCA Compliance Today, February 2009. © 2009 Jones Day. All rights reserved. Printed in the U.S.A. while also insisting that employees accused, but not con- DOJ poLICY For EVALUAtinG CorporATE victed, be cut loose from all financial support. The long-term consequences of such policies are predictable—erosion CoopERAtion of the privilege, an inability of corporations to seek coun- sel for fear of having those communications breached, and It is instructive to examine how DOJ policy for evaluating employees forced to plead guilty rather than face finan- corporate cooperation has evolved over the last decade. cial ruin from defending a complex white collar criminal What follows is a brief history of the memoranda issued by investigation. DOJ regarding waiver of attorney-client privilege and corpo- rate contractual arrangements to advance attorneys’ fees to Coincidentally, the need for these new guidelines was employees under investigation. echoed by a decision issued on the same day by the Sec- ond Circuit Court of Appeals, only blocks away from where The Holder Memorandum Deputy Attorney General Filip was speaking before the New DOJ’s practice of announcing formal guidelines for how it York Stock Exchange. The decision in United States v. Stein1 would handle corporate prosecutions, including assess- (the “KPMG Decision”) held that certain tactics by DOJ in ments of cooperation, began approximately 10 years ago. its investigation of allegedly illegal tax shelters violated the On June 16, 1999, then-Deputy Attorney General Eric Holder rights of the individual defendants, violated the Constitu- issued a memorandum entitled “Federal Prosecution of Cor- tion, and required the dismissal of the charges against them. porations” (the Holder Memo). The Holder Memo established Those tactics are now prohibited under the new DOJ guide- factors that prosecutors should consider when determining lines, including the practice of pressuring an organization whether to charge a corporation. One factor in particular to refuse payment of legal fees in an attempt to squeeze required prosecutors to consider “the corporation’s cooper- employees into cooperating. ation and voluntary disclosure.” Specifically, the Holder Memo explained: The implication of this new policy for counsel and compli- In determining whether to charge a corporation, ance officers is clear: Internal investigations can now be that corporation’s timely and voluntary disclosure structured with greater predictability regarding what is con- of wrongdoing and its willingness to cooperate with fidential and what will be subject to disclosure to the gov- the government’s investigation may be relevant ernment. Generally speaking, organizations can seek the factors. In gauging the extent of the corporation’s advice of counsel with reasonable assurances that those cooperation, the prosecutor may consider the cor- conversations will be protected by privilege. To the extent poration’s willingness to identify the culprits within that the organization conducts an internal investigation— the corporation, including senior executives, to a decision that should itself be informed by confidential make witnesses available, to disclose the complete advice of counsel—it should be aware that the facts uncov- results of its internal investigation, and to waive the ered in that inquiry must be disclosed to the government if attorney-client and work product privileges.2 the organization ever seeks credit from DOJ for cooperat- ing fully in an investigation. Even if the decision is made to This was the first time that official DOJ policy called for cooperate, the issue of whether, when, and how to discipline waiver of the attorney-client privilege as a condition of employees, including whether to pay their legal fees while lenient treatment. an investigation is pending, will remain within the discretion of the organization itself. 1 No. 07-3042-cr, 2008 WL 3982104 (2d Cir. Aug. 28, 2008). 2 Memorandum from Eric H. Holder, Federal Prosecution of Corporations (June 16, 1999), available at http://www.usdoj.gov/criminal/fraud/docs/ reports/1999/chargingcorps.html. (All web sites herein last visited March 30, 2009.) 2 The Holder Memo created a sea change in federal corpo- guilty pleas from three executives based on allegedly mis- rate prosecution. Traditionally, prosecutors would issue leading statements they had made to counsel conducting grand jury subpoenas and investigate corporations from an internal investigation.3 the outside. Cooperative corporations would often assist the government in uncovering wrongdoing, but very seldom The Thompson Memorandum shared privileged communications or the results of internal DOJ continued to refine its policies regarding corporate investigations. If a privilege waiver was requested, it almost cooperation, and in January 2003, then-Deputy Attorney always was limited in scope and came at the end of the General Larry Thompson distributed a memorandum enti- investigation. After the Holder Memo, however, prosecutors tled “Principles of Federal Prosecution of Business Orga- began seeking broad waivers of the attorney-client privi- nizations” (the Thompson Memo). The Thompson Memo lege and work product protection with increasing regularity. reinforced the policy articulated in the Holder Memo and Moreover, these requests were being made at the beginning established a binding model for prosecutors to use in eval- of an investigation. uating corporate conduct and deciding whether to bring charges against a corporation. Under the Thompson Memo, Further, the Holder Memo’s emphasis on a “timely” disclo- corporations perceived as not fully cooperating with a gov- sure created a conundrum for corporations. Although the ernment investigation were more likely to face prosecution.4 government asserted that a corporation was not required Compared to the Holder Memo, however, the Thompson to waive any privilege or work product protection, the pros- Memo advanced deeper into the corporation’s relationship ecutors sometimes viewed the corporation’s failure to with its employees and attorneys. disclose privileged information as an effort to conceal oth- erwise incriminating facts. And, to make a timely disclosure, Among other factors, the Thompson Memo instructed counsel for corporations often felt compelled to waive the prosecutors to weigh the extent and value of a corpora- privilege at the outset of an investigation in order to meet tion’s cooperation by assessing the completeness of the the government’s expectation of timeliness. This practice corporation’s disclosure, “including, if necessary, a waiver threatened to turn counsel for a corporation into agents of the attorney-client and work product protections, both for the government’s investigation. Counsel for corpora- with respect to its internal investigation and with respect tions, whether in-house or outside counsel, would conduct to communications between specific officers, directors an internal investigation, gather documents and notes, and and employees and counsel.” Further, prosecutors were interview witnesses—all the while knowing that the results of directed to consider whether the corporation “appears to the investigation would be turned over to the federal govern- be protecting its culpable employees and agents” through ment so that the corporation could either avoid prosecution “the advancing of attorneys fees.” Effectively, the Thomp- or be charged with a lesser offense. son Memo required corporations to give the government unprecedented access to privileged and potentially incul- In response to the government’s demands for employee patory statements while refusing the advancement of attor- statements, corporate counsel developed the practice of neys’ fees to employees whom the government considered conducting internal investigations, warning employees that to be culpable and noncooperative. their statements might (or would) be provided to the gov- ernment