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A proposed amendment to the Federal Rules of Evidence addresses a longstanding problem in the area of corporate internal investigations: the risk of attorney-client privilege and work-product waivers in collateral civil litigation when a company provides otherwise privileged material to the government during or in advance of a criminal investigation. The proposed rule, Fed. R. Evid. 502(c), available at www.uscourts.gov/rules/Reports/EV05-2006.pdf, provides that production of materials to the government may be deemed a “selective” waiver of privilege if done in the context of cooperation with the government. This proposal, made with relatively little fanfare, would change the conduct of internal investigations and alter arguments concerning the U.S. Department of Justice’s Thompson Memorandum, wherein the white-collar bar has resisted governmental efforts to obtain privilege waivers, citing the collateral consequences of such waivers. While questions remain as to whether the proposal will be accepted-similar proposals supported by the U.S. Securities and Exchange Commission (SEC) in both Sarbanes-Oxley Act of 2002 rule-making and in congressional legislation were defeated or set aside during their preliminary stages-the potential implications of such an amendment and its questionable efficacy deserve immediate attention. The Sarbanes-Oxley Act increased civil and criminal penalties for companies’ violations of laws such as the Securities Act of 1933 and for failures to implement and maintain internal control mechanisms, such as those required by the Foreign Corrupt Practices Act. As a result, despite the attendant uncertainty of outcomes, companies are more willing to consider making voluntary disclosures or otherwise cooperating with the government in advance of an official investigation or proceeding. As commentators have observed, such cooperation often involves potential waiver of the attorney-client privilege. Recent developments, most notably Judge Lewis Kaplan’s scathing critique of the Thompson Memorandum in the ongoing prosecution of former KPMG executives, U.S. v. Stein, 435 F. Supp. 2d 330 (S.D.N.Y. 2006), have called into question the memo’s viability. Yet it remains the case that the uncertain consequences attendant to privilege waivers create anxiety for companies considering their cooperation alternatives. Enter the attempt to codify the concept of a “limited waiver” of attorney-client privilege. If enacted, the amendment would, in “a federal or state proceeding,” allow companies to make disclosures of privileged communications “to a federal public office or agency in the exercise of its regulatory, investigative, or enforcement authority” without effecting a waiver “in favor of non-governmental persons or entities.” The SEC has long supported the concept by entering into confidentiality agreements, by writing amicus briefs as it did in support of McKesson Corp. in U.S. v. Bergonzi, 403 F.3d 1048 (9th Cir. 2005), and by making supportive statements regarding waiver in the “Seaboard Report.” See www.sec.gov/litigation/investreport/34-44969.htm. Federal and state courts, however, have generally rejected limited waiver. Given the vast authority on the issue, it is likely that courts will interpret this rule as narrowly as possible. Increased risk for employees Assuming that these difficulties are overcome, the new rule may change companies’ fears regarding the consequences of waiver into employee fear of the consequences of cooperating with the company, particularly if the Thompson Memorandum’s dictates regarding the treatment of employees are not overturned. Currently, one protection the employee has when giving information to company lawyers in an internal investigation is that the company will be loath to provide its privileged communications to the government because of the fear that the information may eventually be used by a third party. If this concern is eliminated, companies have less incentive to hold back information, which increases the exposure individuals face when deciding to cooperate with internal investigators. This increased exposure may hinder companies when they seek cooperation from employees. When the various factors are considered, it appears that the attempt to codify the limited waiver of privilege may exacerbate an already uncertain process, and shift the uncertainty to individual employees even if it manages, to a limited degree, to provide some certainty to companies. Although it is beyond the scope of this piece, what seems to be necessary is an overall assessment of the true goals of a voluntary disclosure scheme that includes the government, companies and individuals. The extent to which some regularity can be incorporated into the process is the extent to which the voluntary enforcement scheme will be made more efficient. Kevin Mosley is an associate at Washington-based Miller & Chevalier whose practice focuses on complex civil litigation and white-collar criminal defense.

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