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George J. Terwilliger III

� A recent authoritative survey indicated that “over-regulation” was the greatest concern of international business leaders, topping terrorism and several other more sensational worries. This fear appears well founded. Prosecutors and regulators with enforcement powers in the United States and abroad have clearly stepped up the pace and stakes of investigations and enforcement proceedings. This development presents both profound issues of public policy and a real challenge to business leaders, most especially to a company’s legal and compliance officers, and most notably when the attorney-client privilege is imperiled. The array of powerful criminal law enforcement tools, which traditionally were used to protect the means and instrumentalities of commerce from rapacious crooks, are now being used as a blunt-force weapon in business regulation. It is, of course, easy to recognize that dishonest markets characterized by phony financials are not free markets. Nevertheless, making a federal criminal case out of disputes between experts about accounting treatments and the like is not always necessary. But this is precisely what many prosecutors and enforcement officials are doing, egged on by the politically driven imperative to be tough on “crime in the suites.” Yet such prosecutions are not always an easy proposition for prosecutors. A significant problem with broad regulation of business conduct through criminal sanctions is illustrated by the difficulty that prosecutors may have in proving at trial that business conduct falls within a criminal statute’s scope, or in defending the resulting convictions on appeal, when the propriety of the conduct itself is disputed by experts. For example, in United States v. Whiteside, 285 F.3d 1345, 1352 (11th Cir. 2002), in an appeal from convictions for filing false statements with respect to debt classification in Medicare/Medicaid cost reports, the court concluded that “competing interpretations of the applicable law [offered at trial by government and defense experts are] too reasonable to justify these convictions.” When prosecutors expend public resources in investigating and prosecuting business conduct that is debatable among experts only to see the convictions they obtain overturned by appellate courts, one may ask whether criminal law is the appropriate tool for the regulatory purposes in question. Regulatory agencies often define criminal conduct It also bears note that the criminal provisions to which businesses must conform their conduct are now frequently given teeth by regulations promulgated by regulatory agencies, rather than by Congress itself. Congress increasingly appears willing to enact statutes (sometimes hastily drafted) with broad regulatory objectives and agency authority to write regulatory standards and to provide criminal penalties as part of the enforcement mechanisms. The result is that regulators writing regulations are defining crimes, a task that rightfully belongs to a politically accountable legislature. This is not to suggest, of course, that the goals of the criminal laws used to regulate business are not laudable ones. There is widespread support for goals such as clean air and water, safe medicines and food, and the protection of an information infrastructure that is now our newest instrumentality of commerce. The trend to use criminal law as a regulatory tool, however, might be reconsidered. As a practical matter, this trend presents numerous challenges to business leaders. The challenges these circumstances present are never greater than when the relationship between a company and its counsel is involved. Threats to the attorney-client relationship now arise in a number of circumstances during government investigations and prosecution. Such a threat arises, for example, when prosecutors seek information and work product from lawyers as part of an investigation. This is happening with increasing frequency, a trend exacerbated by U.S. Department of Justice policies that prosecutors seem to think encourage them to seek wholesale waivers of attorney-client and work-product privileges from companies that wish to cooperate with government investigations. In January 2003, the Department of Justice, in a memorandum commonly referred to as the “Thompson memo,” issued guidance to prosecutors regarding the bringing of charges against business organizations. The Thompson memo emphasizes the importance of “genuine” corporate cooperation and voluntary disclosure. It encourages prosecutors who are considering charging a corporation to evaluate cooperation by looking to the corporation’s willingness “to disclose the complete results of its internal investigation[,] and to waive attorney-client and work product protection” that would otherwise obtain with respect to relevant communications, reports or other information. As a result, corporations are being pressured to provide otherwise privileged reports, memoranda and records of advice from counsel as the price of trying to avoid prosecution or mitigate penalties. Avoiding indictment or lessening penalties are worthy objectives, but privilege waivers can also implicate other important corporate interests beyond the obtaining of favorable treatment from prosecutors. The scope and impact of such a waiver can be unpredictable. A corporation is likely to be unable to predict whether the waiver will be construed as a subject-matter waiver that will open the corporation to discovery in parallel civil matters of all attorney-client communications or work product related to the subject of the investigation, or whether it will cover only the specific information produced for the government under the initial waiver. The corporation may also be unable to predict whether the privilege and immunity will be construed as waived with respect to potential civil plaintiffs or other parties in addition to the government. The resulting uncertainty leaves the corporation with a difficult choice between providing the cooperation the government seeks and protecting the corporation’s interests in parallel or future proceedings. A corporation will be leery of waiving any privilege if it cannot be certain about what, and to whom, the waiver will extend. A significant part of the risk and the uncertainty today is the result of inconsistency in the case law regarding waivers of the attorney-client privilege and work-product protection. Federal appellate courts have announced significantly varying rules concerning the scope of waivers resulting from disclosure of privileged communications or work product. For corporations that cannot predict where they may be sued, the problem is only exacerbated. A corporation acutely concerned with avoiding federal prosecution may be willing to accept such uncertainties. However, when these uncertainties become unacceptable, opportunities for corporate cooperation with an investigation may be lost. This is a hindrance both to the pursuit of corporate objectives and society’s interest in ferreting out real business crime. An aggressive policy of prosecutorial requests for privilege waivers as a component of cooperation can also be a wedge driven between the organization and its counsel. Such splintering of a relationship long recognized as crucial to the ability of organizations to make informed decisions in their own best interests�and, in the case of publicly traded entities, in the interests of their shareholders�deserves more than a passing nod from prosecutors and policy-makers. One recent tactic is seeking disqualification of counsel Another disturbing and challenging outgrowth of the “investigate through the lawyers” phenomenon is the increased tendency of prosecutors to seek the disqualification of counsel on the basis of an asserted conflict of interest because the lawyer’s role is made part of the investigation. Courts, including the U.S. Supreme Court, have recognized the danger inherent in the opportunity that prosecutors have of obtaining tactical advantage over an adversary by unjustifiably including its counsel in the scope of an investigation. In Wheat v. United States, 486 U.S. 153, 163 (1988), the court noted the danger that the “[g]overnment may seek to ‘manufacture’ a conflict in order to prevent a defendant from having particularly able counsel at his side.” The trend toward including an organization’s counsel in an investigation represents precisely this danger, and the consequences may be more far-reaching than simply the unjustified disqualification of able and knowledgeable counsel. Such trends could have the very deleterious effect of causing lawyers to become overly cautious in the evaluation of a client’s issues and may lead clients to exclude their lawyers from discussion just at the point where counsel’s input is most needed. Combating these trends should proceed on two tracks. First, responsible prosecutors need to think carefully about where the attack on the traditional sanctity of the lawyer-client relationship is taking us. Second, companies and their counsel need to fight the trend toward extending mere lip service to the maintenance of privilege and client confidences. This may require a willingness to go to court and fight the government in the most egregious situations. But lawyers and clients are not without considerable support and precedent for doing so. The recent trend toward increasing the scope, and the stakes, of enforcement and criminal proceedings against business organizations is not merely objectionable on public-policy grounds; it also carries a significant risk for the traditional sanctity of the attorney-client relationship and endangers the benefits that relationship has historically provided to a society founded on the rule of law. Organizations and their counsel should recognize this trend, and should be prepared to defend their rights in negotiations, and when necessary in litigation, with regulators and prosecutors. George J. Terwilliger III is a partner in the Washington office of White & Case. He was deputy attorney general of the United States from 1991 to 1992. John C. Wells, an associate at the firm, assisted in the preparation of this article.

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