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In an attempt to pressure the Justice Department to alter the way it investigates corporate fraud, a key member of the Senate Judiciary Committee formally introduced legislation aimed at preventing prosecutors from forcing companies to waive the attorney-client privilege in order to avoid indictment. Sen. Arlen Specter (R-Penn.), the outgoing chairman of the committee, said on the Senate floor that the DOJ had not moved quickly enough to change policies that he said encroached on corporate defendants’ constitutional right to counsel. “I see no need for the Justice Department to publicly express a policy that encourages waiver of attorney-client privilege,” Specter said. “Especially where the policy is backed by the heavy hammer of possible criminal charges.” Specter was joined by former Attorney General Richard Thornburgh and lobbyists from a number of business and legal groups, who said that forcing a change in the DOJ’s policy could lead the Securities and Exchange Commission, the Internal Revenue Service, and other government agencies to review their policies on privilege waivers. “I have no doubt, if DOJ changed policies, it would lead to backtracking by agencies that have followed suit,” Thornburgh says. Specter’s move comes as Deputy Attorney General Paul McNulty is leading an internal review of the government’s corporate-fraud prosecution policies in the wake of a concerted lobbying effort by business groups and a court decision in New York that found one of the policies to be unconstitutional. Given that companies would still be granted credit for “voluntarily” waiving their privilege, however, it’s unclear whether Specter’s bill would have any real effect, says Andrew Hruska, a former DOJ lawyer who helped draft the current controversial policies. And with the Senate set to adjourn on Dec. 8, the bill appears to be aimed squarely at pressuring McNulty. “How far they’ll go, I don’t know,” Specter said of the DOJ’s review. In a statement, a spokesman for the Justice Department said it would examine Specter’s bill. “We have met with a number of individuals and organizations who have raised concerns or suggestions about our current guidance,” said the statement, issued by DOJ spokesman Brian Roehrkasse. “Currently, we have not made any final decisions.” At issue is the way federal prosecutors have interpreted provisions of the so-called Thompson memo, issued in 2003 by then-Deputy Attorney General Larry Thompson. In the memo, Thompson lists a number of factors prosecutors should consider when deciding whether to indict a company for corporate fraud. Among them: whether the company has waived the attorney-client or work-product privilege and granted prosecutors access to internal investigations prepared by the company’s lawyers. (Thompson is now general counsel of PepsiCo.) Given that companies under criminal indictment are often driven to bankruptcy — most notably exemplified in the case of accounting firm Arthur Andersen — the DOJ’s critics say corporate defendants are left with little choice but to waive their privilege and turn over documents relating to internal investigations. Those documents often become public through court proceedings and provide fodder for shareholder class actions. Critics of the Thompson memo, including Thornburgh, say it has led to a “culture of waiver” in which prosecutors frequently demand companies waive their attorney-client privilege and cut off legal fees to culpable executives at the beginning of an investigation. But Justice Department officials involved in promulgating the original Thompson memo say its principles are sound and have helped prosecutors win more than 1,100 corporate-fraud convictions since 2002. Although individual prosecutors may have overreached in certain circumstances, they argue, the document’s guidelines are an accurate way to assess whether a company is truly cooperating with a criminal fraud investigation. “I do think a lot of prosecutors are doing the right thing,” says William Mateja, a former Justice Department official involved in drawing up the memo. “First and foremost, they’re trying to get to the truth, and if they can get to it without asking companies to waive, they do.” Both Specter’s bill and the Justice Department’s internal review represent a success for the business and legal groups that have criticized the DOJ’s corporate-fraud tactics. Calling themselves the Coalition to Preserve the Attorney-Client Privilege, a range of groups — including the National Association of Manufacturers, the U.S. Chamber of Commerce, the American Civil Liberties Union, and the Association of Corporate Counsel — have pushed Congress to roll back the DOJ’s most aggressive anti-fraud tactics.
Jason McLure can be contacted at [email protected].

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