Justice Department Pressured to Ease Corporate Scandal Tactics

By | December 13, 2006

The Justice Department this week agreed to ease its tough legal tactics against scandal-tainted corporations, requiring prosecutors to get approval from Washington before seeking confidential information between firms and their lawyers.

Moreover, under the new policy the government no longer can penalize corporations that pay attorneys’ fees for their employees —which some prosecutors have viewed as a sign of not cooperating with their investigation.

In a New York speech to the Lawyers for Civil Justice, Deputy Attorney General Paul McNulty vowed to “safeguard every tool prosecutors need to fight fraud and continue our aggressive efforts in rooting out corruption in our financial markets to protect the interests of the investing public.”

Still, McNulty said, the Justice Department “supports the sanctity of attorney-client privilege. We encourage full and frank communication between corporate employees and their lawyers.”

The shift in the Enron-era policy comes after complaints — led by a coalition of conservative and liberal legal experts alike — that the Justice Department was unfairly pressuring companies and employees to cooperate in investigations.

The outgoing Senate Judiciary Committee chairman last week tried to increase pressure on the Justice Department to drop what he described as the coercive and unconstitutional tactics used against companies in criminal investigations.

Hours before Congress was to leave for the year, Sen. Arlen Specter, R-Pa., filed legislation that would prohibit prosecutors from unduly pressuring companies to cooperate in such cases.

The tactics were written in the wake of white-collar crime cases at major corporations that cost investors and employees billions of dollars. Companies that do not cooperate face possible indictment.
Asked if the legislation would make it harder to prosecute companies and protect shareholders, Specter said, “I don’t think so. I think it’ll require (prosecutors) to do a little more work.”

“That’s a small price to pay for preserving constitutional rights,” he said.

Even with the end of the congressional session and Democrats taking power, Specter said he would push to change the law next year and will refile his bill in January. He wants to:

• Prohibit the department from pressuring corporations to waive their rights to preserve conversations and other information shared between lawyers and their clients as confidential.

• Allow corporations to continue paying lawyers’ fees for their employees without fear of seeming uncooperative with investigators.

• Bar the department from considering how cooperative a corporation has been with the investigation when determining possible charges.
McNulty is reviewing the memo — written in 2003 by Larry Thompson, who was then deputy attorney general.

But Specter said it is not likely that the department will meet all of his demands.

“It may be that the first draft they give us will be satisfactory,” said Specter, flanked at a news conference last week by former Attorney General Richard Thornburgh and officials from the U.S. Chamber of Commerce and the American Civil Liberties Union. “Or it may be that it will require a fair amount of negotiation. That’s the more likely consequence.”

The committee’s incoming chairman, Sen. Patrick Leahy, D-Vt., “has serious concerns about the current, coercive policy,” a spokeswoman said, but is waiting to see what the department proposes before considering legislation.

In June, a federal judge in New York said the policy violated employees’ rights to fair trials after accounting firm KPMG cut off their legal aid in trying to cooperate with prosecutors.

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