DOJ Pressure to Cut Loose Employees Under Investigation

Advancement of Legal Fees

Beyond the interests of organizations and individuals, advancement of legal fees serves important societal interests in the proper performance of the criminal justice system. Failure of an organization to advance legal fees is likely to result in most employees having no lawyer during an investigation. Although a counseled individual may be less likely to cooperate with prosecutors, an uncounseled individual who cooperates is more likely to make innocent factual mistakes, to lie to or shade the truth, or to commit obstruction (by destroying or altering documents or by coordinating recollections with other individuals).

Lawyers can also further the interest of both organizations and prosecutors in the development, efficient sifting and assessment, and orderly presentation of information. Where a represented individual other than an ultimate target (e.g., a CEO) refuses to give prosecutors information he or she uniquely has, the prosecutors almost always can obtain that information by granting immunity, without thereby defeating the purposes of their investigation. Thus, not merely the personal interests of represented individuals, but also the criminal justice system's interest in discovery of the truth, is served by the active presence of counsel.

There is also some irony in the government's seeking to deny private individuals advancement of legal fees by their current or former employers when the government, itself, subsidizes for CIA counterterrorism officers insurance that would pay for future legal fees in criminal as well as civil proceedings (and also for civil judgments), Smith R.J.: Worried CIA Officers Buy Legal Insurance. Wash. Post, Sept. 11, 2006 at A1.

Joint-Defense Agreements.

Joint-defense agreements exist for only one purpose: to prevent the involuntary waiver of the attorney-client privilege as a consequence of the sharing of privileged information among defendants (or potential defendants). Prosecutors dislike joint-defense agreements because they don't want people under investigation to share information, whether privileged or not.

In most cases, the company doesn't need to enter a joint-defense agreement at all. Ordinarily, the vast majority of organizational documents relevant to a criminal investigation are unprivileged and so can be shared with individuals without any agreement. If counsel for Individual A wants information that the corporation has obtained in a privileged interview by the organization's counsel with Individual B, A's counsel presumably can obtain that information from B's counsel pursuant to a joint-defense agreement between A and B, to which the company is not a party. If the organization needs information from A, the organization's counsel can obtain it directly from A (with the approval of A's counsel) without any compromise of A's attorney-client privilege.

In addition, an organization's lawyer and lawyers for individuals can exchange information about the progress of the investigation and can discuss strategy without disclosing privileged information, and without any likelihood of having to reveal such discussions to prosecutors.

Finally, a public company may face a painful dilemma if, pursuant to a joint-defense agreement with an individual, it learns from an individual's lawyer information that is subject to the individual's attorney-client privilege and that also triggers a disclosure obligation under the securities laws.

In sum, skepticism is warranted as to whether an organization really needs and will benefit from a joint defense-agreement with individuals in connection with a criminal investigation. Before entering into such an agreement, an organization should look hard to see whether the objectives of the agreement can be achieved without it.

Sharing Records and Other Information

Except where they have good cause to believe that access by present or former employees to records or other information from an organization may well lead to a future crime, prosecutors have no legitimate interest in inducing organizations to refuse to share records or other information with such individuals. Employees' access to records facilitates not only the preparation of a defense but also the providing of correct answers to prosecutors' questions if an individual agrees to participate in an interview or to testify before a grand jury. Employees' access to records may also facilitate an organization's own investigation of its past conduct. Thereby, such access furthers important societal interests in fair and effective investigations ' much as pre-trial discovery furthers the societal interest in fair and effective trials. It also furthers the societal interest in effective and prompt internal investigations leading to corrective action. If an individual is refusing prosecutors' request for an interview or has asserted the Fifth Amendment privilege in a grand jury, the prosecutors are not prejudiced by the individual's access to organizational records and information. If prosecutors have reason for concern that providing organizational records or information to an uncooperative individual will lead to flight, they can seek an arrest warrant.

If an individual is willing to answer prosecutors' questions, access does not prejudice the prosecutors unless there is good cause to believe that the individual is likely to use the records to prepare materially false answers, the intentional giving of which is a felony. If the prosecutors' concern is that access to organizational documents and/or information may lead an individual to decline to answer questions when, if access had been denied, the individual would have agreed to answer, the concern is illegitimate. Prosecutors have no legitimate interest in pressuring organizations to prevent individuals from acquiring information they need to make an intelligent decision as to whether to waive their Fifth Amendment privilege. Such a tactic is fundamentally unfair.

Refusal to Punish

Prosecutorial pressure on organizations to punish individuals who have not been convicted, or even formally accused, of any crime is a denial of due process and the associated principles of fairness. Discharges induced by prosecutorial pressure are a form of serious punishment without indictment, trial, or appellate review. Pressure to dismiss employees who are under criminal investigation is especially unfair because such employees are severely hampered in defending against a proposed discharge by their lawyers' ordinary efforts to preserve the confidentiality of available factual defenses until the prosecutors are actually making charging decisions or until trial. Once an employee has been discharged, his or her chances of mounting an effective defense against criminal charges may be greatly diminished. An individual discharged under pressure from prosecutors is likely to be unemployable, and discharge may mean devastating loss of income. A newly impoverished former employee, who cannot look to the company for advancement of legal fees, will have few resources to pay for a defense.

Prosecutors have no calling to protect a company from its own employees during a criminal investigation. To the extent that society has an interest in the discharge (or suspension) of organizational employees suspected but not yet formally charged with or convicted of wrongdoing, market forces may well bring about such actions without pressure from prosecutors. An organizational employer may suffer in various marketplaces (e.g., capital markets, markets for its products or services, and employment markets) from harboring employees who it has reason to believe are likely to be indicted. Self-interest may well lead organizations to separate themselves from such employees spontaneously and relatively promptly. Therefore, prosecutors have no justification for pressuring organizations to rid themselves of employees prosecutors regard as 'culpable.'

The Department of Justice should revise its principles of federal prosecution of business organizations as recommended by the ABA.

Richard M. Cooper, Williams & Connolly LLP, Washington, DC, is Chairman of this newsletter's Board of Editors.

Two months ago, the American Bar Association House of Delegates adopted a 'recommendation' stating opposition to prosecutors' and other enforcement officials' taking into consideration 'any of the following factors in making a determination of whether an organization has been cooperative in the context of a government investigation: 1) that the organization provided counsel to, or advanced, reimbursed or indemnified the legal fees and expenses of, an Employee; 2) that the organization entered into or continues to operate under a joint defense, information sharing and common interest agreement with an Employee or other represented party with whom the organization believes it has a common interest in defending against the investigation; 3) that the organization shared its records or other historical information relating to the matter under investigation with an Employee; or 4) that the organization chose to retain or otherwise declined to sanction an Employee who exercised his or her Fifth Amendment right against self-incrimination in response to a government request for an interview, testimony, or other information.' The resolution is available at www.abanet.org/leadership/2006/annual/dailyjournal/threehundredtwob.doc.

The recommendation is accompanied by a 'report' presenting reasons in support of the recommendation. Most of the reasons are couched in terms of the rights and legitimate interests of organizations and their employees. This article provides additional discussion of the four factors.

In our society, the presumption of innocence is not merely a rule that allocates the burden of proof at a criminal trial. It is also a rule about social status. With limited exceptions (e.g., a pre-indictment arrest or search warrant), the government is not to treat a person as a criminal unless and until he or she has formally been adjudicated guilty. What is especially offensive about the Justice Department's Thompson Memorandum, against which the ABA recommendation is particularly directed, is that it guides prosecutors to violate the presumption of innocence. It does so by telling them to use the power they have over organizations they are investigating to induce those organizations to cut off unconvicted and, indeed, uncharged individuals whom the prosecutors believe are 'culpable' from the customary assistance they otherwise would receive from their present or former organizational employers. The Memorandum thereby not only leads to violation of certain constitutional rights relating to the criminal process, as held by Judge Kaplan in United States v. Stein , 440 F. Supp.2d 315 (S.D.N.Y. 2006) and 435 F. Supp. 2d 330 (S.D.N.Y. 2006), but also ' because the presumption of innocence applies and no present or future crime is intended ' arguably violates the First Amendment freedom of organizations and their present or former employees to associate in various ways for the purpose of dealing with the government.

Advancement of Legal Fees

Beyond the interests of organizations and individuals, advancement of legal fees serves important societal interests in the proper performance of the criminal justice system. Failure of an organization to advance legal fees is likely to result in most employees having no lawyer during an investigation. Although a counseled individual may be less likely to cooperate with prosecutors, an uncounseled individual who cooperates is more likely to make innocent factual mistakes, to lie to or shade the truth, or to commit obstruction (by destroying or altering documents or by coordinating recollections with other individuals).

Lawyers can also further the interest of both organizations and prosecutors in the development, efficient sifting and assessment, and orderly presentation of information. Where a represented individual other than an ultimate target (e.g., a CEO) refuses to give prosecutors information he or she uniquely has, the prosecutors almost always can obtain that information by granting immunity, without thereby defeating the purposes of their investigation. Thus, not merely the personal interests of represented individuals, but also the criminal justice system's interest in discovery of the truth, is served by the active presence of counsel.

There is also some irony in the government's seeking to deny private individuals advancement of legal fees by their current or former employers when the government, itself, subsidizes for CIA counterterrorism officers insurance that would pay for future legal fees in criminal as well as civil proceedings (and also for civil judgments), Smith R.J.: Worried CIA Officers Buy Legal Insurance. Wash. Post, Sept. 11, 2006 at A1.

Joint-Defense Agreements.

Joint-defense agreements exist for only one purpose: to prevent the involuntary waiver of the attorney-client privilege as a consequence of the sharing of privileged information among defendants (or potential defendants). Prosecutors dislike joint-defense agreements because they don't want people under investigation to share information, whether privileged or not.

In most cases, the company doesn't need to enter a joint-defense agreement at all. Ordinarily, the vast majority of organizational documents relevant to a criminal investigation are unprivileged and so can be shared with individuals without any agreement. If counsel for Individual A wants information that the corporation has obtained in a privileged interview by the organization's counsel with Individual B, A's counsel presumably can obtain that information from B's counsel pursuant to a joint-defense agreement between A and B, to which the company is not a party. If the organization needs information from A, the organization's counsel can obtain it directly from A (with the approval of A's counsel) without any compromise of A's attorney-client privilege.

In addition, an organization's lawyer and lawyers for individuals can exchange information about the progress of the investigation and can discuss strategy without disclosing privileged information, and without any likelihood of having to reveal such discussions to prosecutors.

Finally, a public company may face a painful dilemma if, pursuant to a joint-defense agreement with an individual, it learns from an individual's lawyer information that is subject to the individual's attorney-client privilege and that also triggers a disclosure obligation under the securities laws.

In sum, skepticism is warranted as to whether an organization really needs and will benefit from a joint defense-agreement with individuals in connection with a criminal investigation. Before entering into such an agreement, an organization should look hard to see whether the objectives of the agreement can be achieved without it.

Sharing Records and Other Information

Except where they have good cause to believe that access by present or former employees to records or other information from an organization may well lead to a future crime, prosecutors have no legitimate interest in inducing organizations to refuse to share records or other information with such individuals. Employees' access to records facilitates not only the preparation of a defense but also the providing of correct answers to prosecutors' questions if an individual agrees to participate in an interview or to testify before a grand jury. Employees' access to records may also facilitate an organization's own investigation of its past conduct. Thereby, such access furthers important societal interests in fair and effective investigations ' much as pre-trial discovery furthers the societal interest in fair and effective trials. It also furthers the societal interest in effective and prompt internal investigations leading to corrective action. If an individual is refusing prosecutors' request for an interview or has asserted the Fifth Amendment privilege in a grand jury, the prosecutors are not prejudiced by the individual's access to organizational records and information. If prosecutors have reason for concern that providing organizational records or information to an uncooperative individual will lead to flight, they can seek an arrest warrant.

If an individual is willing to answer prosecutors' questions, access does not prejudice the prosecutors unless there is good cause to believe that the individual is likely to use the records to prepare materially false answers, the intentional giving of which is a felony. If the prosecutors' concern is that access to organizational documents and/or information may lead an individual to decline to answer questions when, if access had been denied, the individual would have agreed to answer, the concern is illegitimate. Prosecutors have no legitimate interest in pressuring organizations to prevent individuals from acquiring information they need to make an intelligent decision as to whether to waive their Fifth Amendment privilege. Such a tactic is fundamentally unfair.

Refusal to Punish

Prosecutorial pressure on organizations to punish individuals who have not been convicted, or even formally accused, of any crime is a denial of due process and the associated principles of fairness. Discharges induced by prosecutorial pressure are a form of serious punishment without indictment, trial, or appellate review. Pressure to dismiss employees who are under criminal investigation is especially unfair because such employees are severely hampered in defending against a proposed discharge by their lawyers' ordinary efforts to preserve the confidentiality of available factual defenses until the prosecutors are actually making charging decisions or until trial. Once an employee has been discharged, his or her chances of mounting an effective defense against criminal charges may be greatly diminished. An individual discharged under pressure from prosecutors is likely to be unemployable, and discharge may mean devastating loss of income. A newly impoverished former employee, who cannot look to the company for advancement of legal fees, will have few resources to pay for a defense.

Prosecutors have no calling to protect a company from its own employees during a criminal investigation. To the extent that society has an interest in the discharge (or suspension) of organizational employees suspected but not yet formally charged with or convicted of wrongdoing, market forces may well bring about such actions without pressure from prosecutors. An organizational employer may suffer in various marketplaces (e.g., capital markets, markets for its products or services, and employment markets) from harboring employees who it has reason to believe are likely to be indicted. Self-interest may well lead organizations to separate themselves from such employees spontaneously and relatively promptly. Therefore, prosecutors have no justification for pressuring organizations to rid themselves of employees prosecutors regard as 'culpable.'

The Department of Justice should revise its principles of federal prosecution of business organizations as recommended by the ABA.

Richard M. Cooper, Williams & Connolly LLP, Washington, DC, is Chairman of this newsletter's Board of Editors.