Justice Department Amends Thompson Memorandum on Waiver, Attorney’s Fees

December 12, 2006

FEI Summary

On Dec. 12, 2006, the U. S. Department of Justice (DOJ) issued new guidance, the “McNulty Memorandum,” revising and superseding the Thompson Memorandum, which defines nine factors of corporate “cooperation” to be considered by prosecutors in determining whether to charge - and the level of charges to be filed - against corporations accused of criminal offenses.    

The Thompson Memorandum, issued in 2003 by then-Deputy Attorney General Larry Thompson, has been heavily criticized by the American Bar Association (ABA), the Association of Corporate Counsel (ACC), and others for encouraging companies to waive attorney-client privilege and renege on advancing legal fees for employees accused of crimes, in order to avoid indictment or lessen criminal penalties.

“The new memorandum clarifies the intent of the Thompson Memorandum,” Deputy Attorney General Paul J. McNulty said in a December 12 speech before Lawyers for Civil Justice.

Approval Required to Request Waiver, but Waiver Still Considered “Cooperation”

As outlined in a related DOJ press release, the McNulty Memorandum “creates new approval requirements that federal prosecutors must comply with before they can request waivers of attorney-client privilege and work product protections from corporations in criminal investigations.” Additionally, the new guidance “instructs prosecutors that they cannot consider a corporation’s advancement of attorneys’ fees to employees when making a charging decision.”

Although the McNulty Memorandum clarifies a company’s refusal to waive privilege “must not [be] consider[ed] in making a charging decision,” it still encourages waiver as a factor of cooperation, by stating, “Prosecutors may always favorably consider a corporation's acquiescence to the government's waiver request in determining whether a corporation has cooperated in the government's investigation.”

Withholding Legal Fees Not a Factor of Cooperation, but Payment May Show Conflict of Interest

Similarly, although the new guidance specifies, “Prosecutors generally should not take into account whether a corporation is advancing attorneys' fees to employees or agents under investigation and indictment,” it continues to expressly permit “routine questions regarding the representation status of a corporation and its employees, including how and by whom attorneys' fees are paid,” which, according to the guidance, “may be necessary to assess other issues, such as conflict-of-interest.”

Reactions Mixed; Specter’s Legislation

Senator Arlen Specter (R-PA), Chair of the Senate Judiciary Committee, provided impetus for DOJ to act by introducing legislation December 7 called the Attorney Client Privilege Protection Act of 2006. Specter has said he will reintroduce the legislation when the new Congress convenes in January (under incoming Senate Judiciary Chair Sen. Patrick Leahy (D-VT) if DOJ fails to adequately address his concerns. Specter’s bill follows hearings by the Senate Judiciary Committee earlier this year, and recommendations of the American Bar Association last August.

Reaction to the McNulty Memorandum so far has been mixed; it appears the “jury is still out,” as companies and professional associations review the new guidance. Some associations (like ABA and ACC) have questioned whether the new guidance goes far enough in counteracting the “culture of waiver” some say was produced (in part) by the Thompson Memorandum. It also remains to be seen whether DOJ’s new guidance will impact other factors some say drove the “culture of waiver,” including the U.S. Securities and Exchange Commission’s (SEC) “Seaboard” decision outlining factors of cooperation considered by the SEC, and the American Institute of Certified Public Accountants’ (AICPA) guidance contained in AU 9326 regarding turning over privileged tax opinions to auditors, discussed further in this article in the September, 2006 issue of Financial Executive magazine published by Financial Executives International (FEI).

A summary of the McNulty Memorandum and initial reactions issued by various organizations is attached here . Included at the end of that summary are McNulty’s comments on DOJ’s “expectations” of corporate counsel.

Prepared Dec. 13, 2006 by Edith Orenstein, eorenstein@FinancialExecutives.org, Director, Technical Policy Analysis, Financial Executives International (FEI). This summary does not represent FEI opinion unless specifically stated above.