Today in Washington, the former director of the Justice Department’s Enron Task Force — the team that prosecuted Enron’s Jeffrey Skilling and Ken Lay — will be explaining why Congress should reign in a couple of the Justice Department’s hyper-aggressive tactics for investigating and prosecuting alleged corporate crime. One may well ask why the person charged with punishing those involved in America’s worst corporate scandal would have any interest in tempering the current white-hot atmosphere for white-collar investigations and prosecutions. The answer is the same as the reason that nine former high-ranking Justice Department officials have lined up with the ACLU and the National Association of Criminal Defense Lawyers to support the Attorney-Client Privilege Protection Act. The attorney-client privilege is one of the most fundamental protections enabling innocent Americans to mount an effective defense against unjust criminal punishment, but it is now in danger of being eviscerated by federal law enforcement.
In the current prosecution-friendly environment, corporations and corporate officials under investigation by federal officials often find themselves in a Catch‑22. They can invoke the time-honored privilege protecting the confidentiality of their communications with their attorneys, only to see prosecutors label that exercise of their rights a “lack of cooperation” justifying indictment of the entire company. Or they may waive their attorney-client privilege (knowing all the time that even companies that have waived privilege and cooperated fully have ended up being indicted). This “option” makes it far more difficult for even the innocent to mount an effective defense.
Global-accounting powerhouse Arthur Andersen learned the hard way what can happen when the Justice Department labels a company “uncooperative.” Upon indictment, federal prosecutors dragged the company’s reputation through the mud. The “big five” accounting firm watched helplessly as its client and investor base quickly evaporated, well before the company had a chance to defend itself in court. The Supreme Court reversed Arthur Andersen’s conviction, but by then the firm and its 28,000 employees were no longer around to celebrate.
For centuries, the attorney-client privilege has been considered essential to assuring an adequate defense of the accused. But the Justice Department has been chipping away at it for nine years, albeit not always intentionally.
It began in 1999. That’s when department leadership tried to standardize decision-making as to whether an entire company should be indicted when one or more of its employees was involved in wrongdoing. The implementing memorandum outlined nine factors for assessing a company’s “cooperation,” the level of which often influences such decisions.
At the time, the memo’s factors seemed innocuous. But they introduced new wrinkles into the concept of cooperation — wrinkles destined to lead to abusive law-enforcement tactics. One was a consideration of whether the company paid the legal fees of employees being investigated. The second was whether the company waived its privilege protections.
Four years later, a 2003 DOJ memorandum further ratcheted up pressure on companies to waive privilege and stop paying employees’ legal fees. It required prosecutors to consider all nine factors in every case. Department officials apparently thought then that privilege waivers would not become commonplace. They were wrong.
Together, these two memoranda created a brave new world of law enforcement. Prosecutors in the field increasingly expected, if not demanded, that companies would waive their attorney-client privileges and refuse to pay employees’ legal fees, even when employees had legal rights to such payments.
Enter federal Judge Lewis Kaplan. In mid-2006, Kaplan issued two important opinions in U.S. v. Stein, a high-profile prosecution involving the tax accounting practice of financial services giant KPMG. Without concluding anything about the merits of the government’s charges, the judge ruled that federal prosecutors applying the Department’s policies had violated several former KPMG employees’ Fifth and Sixth Amendment rights. Kaplan wrote that “[j]ustice is not done when the government uses the threat of indictment — a matter of life and death to many companies … — to coerce companies into depriving their present and even former employees of the means of defending themselves.”