Indemnification Revisited

If simple economics were not enough to motivate corporate counsel to take a fresh look at what their company's corporate documents say about indemnification, a recent pronouncement from the DOJ should. On January 20, 2003, the Deputy Attorney General issued a memorandum to all U.S. Attorney's offices entitled 'Principles of Federal Prosecution of Business Organizations.' In large measure, the memorandum restates a June 16, 1999 DOJ memorandum entitled 'Bringing Criminal Charges Against Corpor- ations.' Each of these memos sets forth guidelines and factors to be used by prosecutors in determining whether to charge a corporation or other business entity in a particular case.

Both versions of the memorandum include a number of factors such as the nature and seriousness of the offense, the pervasiveness of wrongdoing, the company's history of problems, and its timely and voluntary disclosure of wrongdoing. On this last point, both memos direct prosecutors to consider 'whether the corporation appears to be protecting its culpable employees and agents ' through the advancing of legal fees ' ' The 2003 version, however, drawing from the experiences of the DOJ's Corporate Fraud Task Force (the teams prosecuting the Enron and Arthur Andersen matters, among others), goes several steps further: 'Another factor to be weighed by the prosecutor is whether the corporation, while purporting to cooperate, has engaged in conduct that impedes the investigation (whether or not rising to the level of criminal obstruction). Examples of such conduct include: overly broad assertions of corporate representation of employees or former employees ' ' In light of the DOJ's heightened focus on this factor, corporations are well-advised to reconsider exactly what their indemnification provisions say and mean.