In my not-so-humble opinion as a former federal prosecutor and current defense attorney, there hasn’t been much to like about the Department of Justice’s policies during this administration. But today there is some good news — DoJ has announced a change to some controversial and inappropriate practices related to prosecuting corporate misconduct.

Both of these policy changes have to do with corporations that, in the face of DoJ accusations of misconduct, are attempting to cooperate and come clean. That’s what most companies do when DoJ launches an investigation. A mere indictment — let alone a conviction — can be a death sentence for all but the biggest corporation, and often the only practical way to manage the risk posed by a federal grand jury investigation is to roll over and negotiate the best pre-indictment deal possible, even when corporate liability is questionable.

But over the years DoJ has become extremely aggressive in what it demands as part of the cost of cooperation. One of the most obnoxious and questionable things DoJ has done in recent years is to demand that cooperating companies cease paying the legal defense bills of their officers and employees. The federal judge in the high-profile KPMG case found that policy was unconstitutional. Whether or not it is constitutional, it is vile. The point of the policy is clearly to deprive defendants of a vigorous and well-funded defense to make it easier to prosecute them. Tying the corporation’s fate to its agreement to throw its employees and officers to the wolves — possibly violating contractual and fiduciary duties to them in the process — is an illegitimate exercise of raw power. Today’s DoJ policy change forbids federal prosecutors from considering a corporation’s indemnification of its agents in evaluating the corporation’s cooperativeness.

The policy also changes DoJ’s policy towards the attorney-client privilege. When corporations face federal investigations — or even when they detect internal misconduct before the feds do — they routinely conduct an internal investigation to determine the scope of the misconduct, how it occurred, and how it may be prevented from happening again. Lawyers typically conduct these investigations, because (a) we gotta eat, and (b) the lawyers’ findings can be shielded from disclosure by the attorney-client privilege and work product doctrine. In recent years DoJ has demanded that corporations waive all claims of privilege in connection with these investigations as a price of cooperating.

Note that this is substantially different than the cooperation that DoJ expects from individuals. When one of my clients pleads guilty and cooperates, DoJ demands that he answer questions truthfully about what he did. However, they do NOT demand that he disclose all of his conversations with me, or demand that I disclose my investigation of the case. That’s what DoJ has demanded that corporations do. It has grave consequences — the disclosure usually means that all privilege over the investigation is lost, and that therefore the securities class action plaintiffs’ attorneys that inevitably come sniffing after such situations can get the entire record of the internal investigation. This deters effective internal investigators and deters corporate insiders from cooperating with them.

Fortunately, in today’s policy change, DoJ made it clear that cooperating corporations need only disclose facts — in other words, what happened — and not communications with their attorneys or their attorneys’ work-product. That’s the right result, and comes later than it should.

This sounds terribly dry, I’m sure. But to white collar defense attorneys, this is like a new Star Wars trilogy. A GOOD one.

Last 5 posts by Ken

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