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WASHINGTON � Formed in 1998 through the union of two Swiss banks, UBS AG is one of the largest wealth-management companies in the world. But the firm’s global prominence and presence in more than 50 countries did little to impress U.S. officials. In May 2004 regulators with the Federal Reserve slapped the financial giant with a $100 million fine for hiding money transfers to countries under U.S. sanctions, including Iran, Libya and Cuba. UBS didn’t stay on the defensive for long. A little more than a month after the fine was disclosed, the bank announced that it had hired David Aufhauser, one of the country’s top experts on international money laundering, to run the legal department of its investment bank. Of more immediate interest, perhaps, was that Aufhauser had served as general counsel of the Department of the Treasury during the time the agency assisted in the investigation into UBS. Aufhauser declined to comment on the investigation but noted that companies like UBS were always concerned with “getting it right” with government regulators. The Swiss bank’s decision to bring in a top government regulator as general counsel is part of an increasingly popular strategy in corporate America. At a time when business lobbyists in Washington have engineered remarkable victories with policy-makers in Congress � such as this year’s class action reform and bankruptcy legislation � corporate interests are also lining up regulatory expertise with D.C. lawyers who know the agencies, the rules and the players. “They recognize that the government is more and more involved in what companies are doing,” says David Leitch, a former deputy White House counsel who joined Ford Motor Co. in April as general counsel. “So a working knowledge of Washington and government are all things that are becoming increasingly more valuable in corporate America.” Hard data on the number of recent moves from government to corporate legal shops is hard to come by. But legal recruiters June Eichbaum and Victoria Reese of Heidrick & Struggles International Inc. have tallied a list of about two dozen former government lawyers who have moved into top corporate legal positions over the past five years. And, they note, the appetite for such hires isn’t likely to go away given the passage of the Sarbanes-Oxley Act in 2003 and the federal sentencing guidelines last year. Both imposed weightier duties on directors and management to prevent corporate malfeasance. Among the most prominent recent hires: David Kornblau, a top Securities and Exchange Commission enforcement attorney, will head Merrill Lynch’s regulatory affairs practice, and James Comey, a former deputy attorney general in the Justice Department, will lead the legal team at Lockheed Martin Corp. Larry Thompson became general counsel for PepsiCo after leaving the deputy AG post in 2002. And Charles James became general counsel for Chevron Corp. in 2002 after serving as U.S. assistant attorney general for the antitrust division. Of course, a revolving door between companies and the lawyers who used to regulate them is not particularly new. As far back as 1969, IBM tapped President Lyndon Johnson’s attorney general, Nicholas Katzenbach, as general counsel when Big Blue was gearing up for the largest antitrust lawsuit in history. And General Electric Co. hired Benjamin Heineman, President Jimmy Carter’s assistant secretary at the Department of Health, Education, and Welfare, to run its legal department in 1987. But these were more the exceptions than the rule. The sudden collapse of corporate giants such as Enron Corp. and WorldCom Inc., and the heightened regulatory environment that followed, have prompted companies to chart a new course. By bringing former regulators on board, these companies are sending a signal to Washington that they take the increased regulation seriously. And it’s not just companies directly under the government’s microscope that are making such hires, lawyers and legal recruiters say. Many companies view hiring lawyers with a prominent government background as insurance in the event of problems down the road � much in the way companies keep top lobbyists on retainer even when there is little immediate work. How much effect such hires actually have on a company’s relationship with Washington regulators is difficult to gauge. Many of the newcomers have yet to weather the storm of an SEC probe. Yet, says Stan Anderson, the chief legal officer at the U.S. Chamber of Commerce, the increasing number of former political officials entering corporate boardrooms is already aiding business lobbying efforts. “These guys are trained to look at issues from a policy standpoint, so it’s often easier to get them to understand the issues at the 30,000-foot level than people who don’t have their background or training,” Anderson says. “These guys are being brought in at very senior levels. They are oftentimes on the board of directors or the management committees. So they are having a lot greater impact than their predecessors.” In 1994, William Barr had recently returned to private practice after a stint as attorney general under President George H.W. Bush when he was tapped by GTE to be its general counsel. He recalls that at the time, few others followed his path from government into the boardroom. Now, when headhunters call to run names by him, they often ask for people with top-level government experience. “Maybe 20 or so years ago people didn’t want to leave firms to go in house,” says Barr, currently general counsel of GTE’s successor, Verizon Inc. “Now most lawyers I know on the outside would come in house for the right job.” That shift is partly due to a transformation of in-house legal departments over the past decade. Once considered a backwater by Washington’s ambitious legal climbers, corporations are bringing in higher-quality legal talent. They often don’t rake in the bucks enjoyed by those who go to top firms (William McLucas, a Wilmer Cutler Pickering Hale and Dorr partner, comes to mind). But they are drawn in by the newfound prestige of the general counsel, who today, unlike the paper pushers of old, often plays a significant role in corporate affairs and sits on the company’s board. Compliance has also emerged as a significant issue in corporate governance. Companies are creating high-level positions dedicated to oversight and are turning to former SEC officials to run the shops. For instance, Bank of America, which has been roiled by an SEC probe, hired Cynthia Fornelli, who served as deputy director of the SEC’s division of investment management. While there, she helped develop the rules that led to greater disclosure for hedge funds. GE also turned to the SEC to fill its new position of chief corporate and securities counsel, hiring Michael McAlevey, who spent two years as director of the SEC’s division of corporate finance. Other companies have looked to former federal prosecutors � particularly veterans of New York state Attorney General Eliot Spitzer’s office � to beef up their legal teams. Nortel Networks Corp., a telecommunications equipment maker that was under investigation for accounting irregularities in 2003, hired Susan Shepard, a former prosecutor and chief counsel to the New York State Commission of Investigation. But the former top cop hasn’t fixed everything at the company, where earlier this year it was disclosed that top officers had cooked financial statements to win bonuses. Such hires have already helped some companies calm the waters during the regulatory tempest. The timing of D. Cameron Findlay’s arrival at Aon Corp. was fortuitous. Just months after the former deputy secretary of the Labor Department arrived at the insurance broker’s Chicago office, the company received a subpoena from AG Spitzer. The inquiry centered on allegations that Aon had churned transactions to generate greater fees from customers. Findlay hadn’t worked with Spitzer’s office before, but because of his background in government � which included stints in the White House and the Department of Transportation during the first Bush administration � he judged it was unwise to fight back. So instead, he devised a plan to work with regulators. Company officials visited with Spitzer’s staff, launched an internal investigation and began turning over relevant documents. In March, Aon agreed to shell out $190 million to settle Spitzer’s claims. Even so, Findlay believes the company came out better because of its cooperative approach. “Had we taken a purely adversarial stance and treated it like a traditional litigation matter, it could have resulted in much more harsh treatment by the attorney general,” says Findlay, who is still handling investigations into Aon by a number of other states. Such strategizing is the crucial advantage ex-government lawyers bring to their posts in private industry, many former regulators say. “It’s like entering into a fight,” GE’s McAlevey says. “It really helps to understand with whom you’re dealing in an agency. It can save an enormous amount of time and can really affect the result a client is going to get.” Though these general counsel say they occasionally pick up the phone to call former colleagues, they try to avoid any appearance of currying favor because of their former position. Government ethics rules bar ex-officials from lobbying their agency for at least one year and ban them from working on any matter they handled directly inside an agency. Still, ex-officials bring a wealth of inside knowledge as well as relationships they can use to advise a company on whom to talk to or how best to finesse an argument in its favor. Indeed, these general counsel are often a critical offstage factor in some of the biggest corporate deals and scandals. For example, Charles James was a key figure behind the scenes when Chevron battled China’s CNOOC for control of Unocal Corp. The biggest stumbling block to gaining antitrust approval involved fees Unocal collected for a patented blend of gas sold in California. Hoping to push the bid over the regulatory hurdles as quickly as possible, James agreed to drop the fees. “He came up with the strategy and focused our organization to bring about the resolution in a matter satisfactory to the FTC,” says Alfred Pepin, a Pillsbury Winthrop Shaw Pittman partner and outside counsel to Chevron. And when the SEC went after GE in 2002 for failing to disclose the lavish retirement package it gave to former CEO Jack Welch, McAlevey advised the company to bring in a few executive compensation specialists from his former division to help smooth over potential conflicts. “In the end we had to settle the matter,” McAlevey says, “but I think that having them understand that it was a closer call than it might have appeared at first blush was constructive.” Emma Schwartz is a reporter with Legal Times, a Recorder affiliate based in Washington, D.C.

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