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.”
Kaplan’s rulings sparked congressional hearings which in turn led the then-chairman of the Senate Judiciary Committee, Arlen Specter, to introduce the Senate version of the Attorney-Client Privilege Protection Act.
Five days later, Justice changed its policies again. Touted as a major reform, the Department’s third memorandum essentially formalized the process for “requesting” that a company waive its privileges. The Department makes much of the fact that prosecutors have entered few formal requests. But the new memo did nothing to eliminate existing policies’ inherently coercive effects, effects clearly identified by Judge Kaplan. Many practitioners — including former DOJ officials — report virtually no change to prosecutorial expectations. Companies still regularly conclude that they must divulge confidential attorney-client communications to avoid being deemed “uncooperative” and facing the potentially disastrous business effects of indictment alone.
The department’s policies have emboldened other federal agencies — and even over-zealous state prosecutors — to engage in similar coercive tactics. Since the Justice Department’s 2003 memo, the SEC, EPA, U.S. Sentencing Commission, and others have promoted policies and practices eroding the privilege, thereby fostering a culture of waiver. Eliot Spitzer, when he was still New York’s attorney general, used federal practices to defend his own staff’s right to demand waivers. If DOJ could expect or even demand waivers, Spitzer told the Association of Corporate Counsel’s board of directors in early 2005, he could see no reason why his own staff shouldn’t do the same.
Unfortunately for everyone, the dangers inherent in this situation have implications far beyond Fortune 500 criminal cases. Precedent shapes every aspect of our criminal-justice system: Dismantling privilege protections for one class of suspects inevitably undermines its protections for all Americans.
Concern for these protections has led the U.S. Chamber of Commerce, the Association of Corporate Counsel, and other similar outfits to join with the ACLU and the NACDL in actively supporting the Attorney-Client Privilege Protection Act. Also on board: the American Bar Association, which for years has decried these federal policies and the damage they are doing.
The reform bill also has the full support of nine high-ranking Justice Department officials from previous Republican and Democratic administrations. Clinton appointees Jamie Gorelick, Walter Dellinger, and Seth Waxman are on a letter endorsing the bill. But their support shouldn’t cause conservatives to eye it with any suspicion. The co-signers also include conservative stalwarts Ed Meese, Dick Thornburgh, Ken Starr, and Ted Olson.
This support is remarkable. When was the last time nine former U.S. attorneys general, deputy attorneys general, and solicitors general asked Congress to rein in Justice Department practices for investigating and prosecuting crime?
Fortunately, some federal agencies have begun to reconsider. In May 2006, the U.S. Sentencing Commission rescinded sentencing guidance it had earlier enacted encouraging waivers. During a speech this January, SEC Commissioner Paul Atkins spoke against Commission policies promoting waiver. “Rewarding companies for co-operating by waiving privilege,” Atkins said, “may sound nice, but its effect is the same as punishing them for not waiving privilege — both effectively strip the attorney-client privilege.”
Against this backdrop, it should surprise no one that the reform bill has garnered wide, bipartisan support in both chambers of Congress. Indeed, the House version passed on a unanimous voice vote in November. It was sponsored by the chairmen and ranking members of the House Judiciary Committee and of the House Crime Subcommittee. The effort in the Senate is being led by Judiciary Committee Ranking Member Arlen Specter (R., Pa.) as well as Crime Subcommittee Chairman Joe Biden (D., Del.) and Ranking Member Lindsey Graham (R., S.C.).
The only meaningful opposition to the bill has come from Justice itself. Affording privileged communications the same respect they have always received would, according to Justice, make their work investigating crime more difficult. But making things easy for law enforcement has never been, and never should be, the justice system’s predominant goal. As Attorney General Michael Mukasey said during his confirmation hearings last fall, “Absent privilege, the right to counsel is nearly meaningless.”
Former Enron Task Force Director Andrew Weissmann has given similar testimony before Congress. His comments today will come as part of a major conference on the health and competitiveness of America’s capital markets. This is particularly apt: When law enforcement uses heavy handed, no-holds-barred tactics to secure high-profile corporate convictions, American markets are weakened not strengthened.
The Attorney-Client Privilege Protection Act won’t come close to solving all the problems afflicting federal criminal law and law enforcement. But it would cure one glaring defect, and that’s an excellent start. The Senate should move to fix this serious problem quickly and make the most of the prevailing spirit of comity and bipartisanship. What’s at stake is worth the effort.
– Brian W. Walsh is senior legal research fellow in the Center for Legal and Judicial Studies at the Heritage Foundation.