Penance But No Absolution

Recent concerns about the overreaching of prosecutors who extract corporate privilege waivers and pressure companies to cut off employees' legal fees ' issues that surfaced prominently in the KPMG case ' led to Senate Judiciary Committee hearings and proposed legislation by Senator Arlen Specter (R-PA) that would prohibit the government from demanding, or 'conditioning treatment' on, corporate privilege waivers, or conditioning a civil or criminal corporate charging decision on whether a company advances legal fees to its employees. Perhaps to preempt Senator Specter's proposal, on Dec. 12, 2006, the Department of Justice (DOJ) issued a memorandum from Deputy Attorney General Paul McNulty revising the Thompson Memorandum. The pertinent changes include requiring requests for corporate privilege waivers to be approved by senior DOJ officials, and instructing prosecutors that they are not to consider whether a company is advancing fees in charging decisions unless advancement is intended to 'impede' a criminal investigation.

These changes are a step in the right direction, but the Judiciary Committee testimony regarding the Thompson Memorandum's effect on the right to counsel in corporate investigations highlighted problems that cannot be resolved simply by revising the Memorandum's privilege waiver and fee-advancement provisions. Instead, the current standard determining when a corporation has committed a crime must itself be revised. As the Committee on Capital Markets Regulation'known as the 'Paulson Committee' because Treasury Secretary Henry Paulson is expected to endorse its conclusions'noted in its November 30, 2006 report, with rare exceptions, 'there is no independent benefit to be gained from indicting what is in fact an artificial entity' because of the harm an indictment causes innocent employees and shareholders. See Paulson Committee's Interim Report at 84-85, www.prismpublicaffairs.com/Committee_Interim_Report.pdf.