Fear that federal prosecutors will continue to pressure corporations under investigation to waive attorney-client privilege and work-product protections hampers corporate compliance efforts, say two surveys of corporate lawyers released this month.
Putting the squeeze on corporations to waive these rights in exchange for leniency has had unintended effects on corporations trying to comply with the Sarbanes-Oxley Act and other regulations, said Susan Hackett, senior vice president and general counsel of the Association of Corporate Counsel (ACC).
“Prosecutors’ efforts are having the perverse opposite effect on our efforts to promote accountability and transparency,” Hackett said. “The message they’re sending is to shut up and go for deep cover. They’re not going to seek out their lawyer anymore when their lawyer could well become Exhibit A for the prosecution.”
The U.S. Department of Justice did not return calls seeking comment.
ACC found that 30 percent of the clients of the 363 in-house lawyers who responded to its survey had “personally experienced” an erosion in protections afforded by attorney-client privilege and the work-product doctrine since Enron collapsed about four years ago.
That percentage leapt to 47.6 percent of the clients of the 356 outside counsel who responded to the White Collar Crime Project of the National Association of Criminal Defense Lawyers (NACDL).
Project director Stephanie Martz asserted that the risk of losing the privilege makes for less candor, and a fear to put things in writing.
“Our efforts are made particularly difficult when lawyers have to begin interviews with employees with Miranda warnings,” said Martz. “That’s no way to seriously probe for problems and try to solve them.”
Commentary to Federal Sentencing Guidelines that took effect last November say that failure to waive attorney-client privilege and work-product protections won’t be held against an entity or official in scoring points for sentence reductions based on cooperation “unless such waiver is necessary in order to provide timely and thorough disclosure of all pertinent information known to the organization.”
That’s a giant “unless,” said Andrew Good of Boston’s Good & Cormier, who often represents corporate officers in criminal matters.
“The practical reality is that the [Department of Justice] policy is to penalize corporate defendants who do not waive attorney-client privilege,” asserted Good. “You get a more lenient deal if you do and a less favorable deal if you don’t. The exception swallows the rule.”
Corporations can avoid being charged at all or can lessen their potential culpability by waiving their attorney-client privilege and work-product protections, according to a January 2003 memo written by then-Deputy Attorney General Larry Thompson to department heads.
Thompson, who is now senior vice president, government affairs; general counsel; and secretary of Purchase, N.Y.-based PepsiCo, was not available for comment.
An issue of trust
The surveys, designed by ACC, reflect that in-house and outside counsel see pretty much the same landscape. About 96 percent of those surveyed agreed that the privilege improves a lawyer’s ability to monitor, enforce and/or improve a company’s compliance initiatives. The crux of any attorney-client relationship is trust, said Laura Stein, general counsel of Oakland-based cleaning products maker The Clorox Co., and chairwoman of ACC’s advocacy committee. And that’s not diminished by the fact that a client is a corporation.
“It is crucial to encourage employees of the client to feel comfortable discussing even the most sensitive matters,” said Stein. “Which will lead to greater compliance.”
Ninety-three percent of in-house counsel believe that their senior-level corporate clients rely on the privilege. Barry Nagler, general counsel of Pawtucket, R.I.-based toy maker Hasbro Inc. and ACC’s treasurer, explained why.
“In-house counsel are uniquely engaged in the front end of decision-making and can prevent bad things from happening,” said Nagler. “But you can’t stop what you don’t know.”
NACDL and ACC filed separate amicus curiae briefs in the appeal by the Arthur Andersen accounting firm from its criminal conviction for obstruction of justice. That conviction — which was effectively a death sentence for the company — was based on advice the firm got from an in-house counsel. Andersen v. U.S., 04-368 (5th Cir.). Oral arguments are set for April 27.
Leonard Post is a reporter with The National Law Journal, a Recorder affiliate based in New York City.