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WASHINGTON-In the wake of newly revised guidelines for federal prosecutors investigating and prosecuting corporations, the key question, according to white-collar criminal defense lawyers, is: Are the guidelines meaningful change or strategic retreat? William McGuinness, chairman of the New York litigation department at Fried, Frank, Harris, Shriver & Jacobson, believes the answer is clear: “I regard it as strategic retreat-when you’re going to lose a battle, you back up to the point you think you can defend,” he said. The McNulty Memorandum, issued by Deputy U.S. Attorney General Paul McNulty last week, revises the controversial Thompson Memorandum, which was widely criticized as creating a culture in which prosecutors routinely demanded waiver of the attorney-client and work-product privileges as evidence of cooperation with an investigation. But, McGuinness said, “The fact is it continues to embrace the notion that under certain circumstances the Justice Department can consider waiver of the privilege in making its charging determinations. I think that’s wrong.” Many defense lawyers, legal scholars, and members of a broad coalition of business and civil liberties groups that had lobbied intensely for changes in the Thompson Memorandum echoed McGuinness’ skepticism. As they digested the 21-page McNulty Memorandum, they saw the following “flaws” or problems in the government’s new approach: The guidelines are internal policy, unenforceable at law, and there is no remedy per se if a prosecutor fails to follow them. The guidelines create two new categories of information sought by prosecutors; both contain privileged materials but they require different standards for department approval of waiver requests by prosecutors. Those categories are unlikely to be recognized by courts or accepted by third parties seeking the waived materials. The pressure to waive privilege is unabated under the guidelines because although they prohibit prosecutors making charging decisions from considering a corporation’s refusal to provide “the most sensitive” attorney-client information, they do allow favorable consideration when a company agrees. Prosecutors in making a decision to bring charges may not consider a corporation’s advancement of attorney fees to employees, except when it was done to impede the government’s investigation-a standard that may be too easy to meet. The guidelines continue to allow prosecutors weighing a corporation’s cooperation to consider joint defense agreements, information-sharing between a corporation and employees about a government investigation, or a corporation’s retention or failure to sanction employees who assert Fifth Amendment rights. “I think the Department of Justice is somewhat on probation here,” said Craig D. Margolis, partner in the Washington office of Houston’s Vinson & Elkins. If the guidelines are not implemented according to their terms and the department simply becomes a rubber stamp for prosecutors’ waiver requests, he said, “I think there will be a hue and cry out of corporate America, and we’ll see Congress stepping in.” New process The revised guidelines basically create a two-tiered approach for prosecutors’ requests for protected materials. For Category 1 materials-factual information such as key documents, witness statements or purely factual interview memoranda-the prosecutor first must seek approval from the U.S. attorney, who must consult with the assistant attorney general of the Justice Department Criminal Division before approving the waiver request. For Category 2 materials-attorney-client communications, legal advice or nonfact attorney work product-the U.S. attorney must obtain written approval from the deputy attorney general. Prosecutors also must establish a legitimate need by addressing four factors, such as whether alternatives to waiver are available. Prosecutors may not consider in their charging decisions a corporation’s refusal to provide Category 2 materials, but they can consider favorably a corporation’s compliance with the request. And they can consider a corporation’s decision to refuse to provide Category 1 factual information. Stephanie Martz, director of the white-collar crime project at the National Association of Criminal Defense Lawyers, called the two new categories of protected materials “very deceiving.” Category 1, she explained, is described as purely factual materials, but includes witness statements and interview notes. “They apparently are supposed to be just devoid of opinion work product, but that’s pretty close to the line,” said Martz. “Courts are all over the place on what kind of waiver it is when you turn over witness statements. The notion that it is just factual has not been universally accepted.” But former federal prosecutor Jonathan Rosen, a white-collar criminal defense attorney in the Washington office of Boston-based Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, said the McNulty memo is a “significant departure” from prior practice. Removing the waiver decision from the line prosecutor and requiring an objective showing of need, he said, should eliminate the often wildly varying and arbitrary enforcement of waiver requests in certain jurisdictions. Ronald C. Minkoff, a litigation partner and attorney ethics specialist at New York’s Frankfurt Kurnit Klein & Selz, countered, “Even for the most core attorney-client privileged information, the prosecutor could pass that test without any major problem. If the issue is the need for the information, there’s almost always the need. On the other hand, if enforced strictly, it can be useful in curbing whatever abuses there have been.” Also significant, said Rosen, is that the memo changes the department’s practice to conform with U.S. District Judge Lewis Kaplan’s ruling on legal fees in the government’s litigation against KPMG. Kaplan found that prosecutors effectively coerced the accounting firm into cutting off all payments of fees and expenses of indicted employees-a violation of their Fifth and Sixth amendment rights. The guidelines prohibit prosecutors from considering the advancement of attorney fees in their charging decision, except where the fees and other facts show an intent to impede the investigation. Rosen said that fees combined with, for example, joint defense agreements or failure to terminate employees who refuse to cooperate, could be sufficient for prosecutors to use the exception.

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