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On Dec. 12, 2006, the U.S. Department of Justice (DOJ) announced, in the McNulty Memorandum, new policies and procedures aimed at reining in the reported practice of federal prosecutors demanding waiver of attorney-client privilege and work-product protections as a condition of “authentic” cooperation with government investigations. The new policies and procedures aim to ensure that privilege waiver requests by prosecutors will be the exception, not the rule. The McNulty memo also altered DOJ policy concerning the consideration of a company’s payment of attorney fees for employees involved in an investigation. With respect to waiver, the McNulty memo prescribes review procedures involving senior DOJ officials when prosecutors seek authority to request waiver of several types of privilege protections, including a requirement that the deputy attorney general, the No. 2 DOJ official, personally approve any demand for waiver of attorney-client privileged communications or nonfactual attorney work product. Some critics, however, are not satisfied. Some, including the American Bar Association, want Congress to ban any request by a prosecutor for a waiver. The privilege has never been absolute, and it is, of course, lawful to waive it. Thus, this proposal seems somewhat extreme; it seems illogical to permit waiver but to render any request for such a waiver unlawful. Some critics also disapprove of the policy that a company electing to waive privilege in connection with a government investigation may get some “credit” from prosecutors for doing so. This objection also seems counterintuitive, since the very reason for a corporation to consider waiver is to provide information that can mitigate criminal liability. When privileged information that may have this effect is available, waiver must be given due consideration, because officers and directors have a fiduciary duty to shareholders to take lawful steps to limit liability and damages arising from corporate conduct. Both consideration of waiver and decisions on fees deserve attention in the context of investigations. This article outlines strategies that can be utilized in addressing both issues effectively. Developing strategies on the waiver issue Prosecutors have never been forbidden to ask a company to waive privilege. Until relatively recently, however, such requests were infrequent. This restraint was the result of respect for the value of the privileges, rather than the dictates of a federal enforcement policy. During the last decade, however, a series of DOJ policy directives brought the waiver issue to the fore. Whether a company agreed to waive privilege was an express consideration in determining whether it had provided “authentic cooperation.” The cooperation issue, in turn, became a matter of more widespread impact as a result of more aggressive use of federal criminal provisions to regulate business conduct. It is important to consider this background when managing waiver issues for a company. In general, when a business learns of possible internal wrongdoing, it wants to get all the facts, end any errant conduct and determine how to deal with potential criminal liability under federal law. The first two steps involve undertaking an internal investigation. The third often involves disclosing the results of the inquiry to the authorities to mitigate adverse consequences. In each of these tasks, work subject to attorney-client and work-product privileges will be undertaken. Considering whether to waive at the outset can help direct how that work might best be performed. Business managers and general counsel must consider not only how best to position the company to do the “right thing” in responding to indications of internal wrongdoing, but also how to be credited by enforcement officials for doing so and yet still protect the company’s interests in potential related litigation. Facts disclosed to authori- ties may be pow- erful ammunition to civil plaintiffs. Further, there is a risk that a privilege waiver may be deemed complete as to a given subject matter, and a disclosure of some facts deemed to destroy protection as to all facts obtained in an internal investigation. Under existing jurisprudence, and depending on particular facts, such a waiver may also lead to the loss of protection for analytic work product. One way to try to avoid such catastrophic consequences is to separate the fact gathering and analysis. These tasks may be undertaken as separate projects, involve production of separate work product or even be conducted by separate lawyers and/or firms so as to maximize the basis for a separate waiver analysis as to each. Another potential method is to designate the fact-gathering process as unprivileged from the outset, and to separate its product from any analytic legal work based on those facts. This procedure may have the added benefit of creating an aura of transparency around the company’s investigation that could be beneficial in dealings with the media, the public, shareholders and regulatory officials not directly involved in criminal proceedings. Such transparency may be particularly valuable when there is considerable public interest in the subject matter due to health or safety concerns. It is also possible in many instances to cooperate with an investigation without affirmatively waiving privilege. When the government is conducting its own investigation and the company’s fact gathering has yielded pertinent information, for example, the company may “steer” federal investigators toward information or avenues of inquiry most relevant to their tasks. This process typically involves providing nonprivileged summaries of documents reviewed, suggestions of individuals whom investigators may wish to interview and similar guidance to save investigators time and effort. Such initiatives can sidestep waiver issues, but still earn credit for cooperation. Similarly, implementation of systemic compliance initiatives can earn cooperation credit without waiver. The operation of hotlines, use of internal ethics ombudsman services and periodic reviews of compliance practices using internal and external resources can not only earn credit as effective compliance procedures, but also yield information relevant to investigations that may be useful to authorities. On a more technical level, evidentiary protections accorded information provided in the context of settlement discussions or plea negotiations may provide another method to shield privileged information from review or use by third parties. See, e.g., Fed. R. Crim. P. 11(e); Fed. R. Evid. 410. The protection given to such discussions can provide a measure of protection against their discovery and use in related litigation. There is risk to this method, though, since courts may consider any disclosure of otherwise privileged material to be a waiver, regardless of the context in which it is disclosed. Similarly, and in conjunction with Rule 11 and Rule 410 protections, a limited-waiver agreement may be of some help in protecting against exploitation of the waiver by third parties in other litigation. At the least, these agreements demonstrate intent to limit the scope of material to which the waiver applies. One must be cautious, however, because experience has shown that some courts will not recognize limited waivers when assessing the effect of such arrangements. In sum, the intent of the McNulty memo is to significantly decrease demands by prosecutors for privilege waiver. Time and experience will demonstrate its actual effect. In the interim, lawyers must balance competing considerations when addressing difficult waiver issues in the context of responding to indications of corporate malfeasance. The fee issue is more straightforward The issue of how prosecutors should assess corporate cooperation when a company pays fees for employees involved in a government investigation is less complex and more directly resolved in the McNulty memo. The new policy is that prosecutors are not to consider the payment of fees negatively unless there is evidence that the payments are meant to interfere with, or obstruct, an investigation. Nonetheless, when to pay fees may be a difficult management choice. In some jurisdictions, state law generally requires paying such fees, at least as long as an individual has not been charged with a crime. Other state laws and related corporate bylaws make payment of fees optional or permit advancement of fees, subject to reimbursement if a charge or conviction results. Given that inferences from fee payments will be drawn by prosecutors (despite the policy change), the media, the public, shareholders and others, companies may want to structure their rights and obligations to maximize flexibility in this regard. Companies in most instances want to avoid paying fees for those engaged in obvious wrongdoing. Conversely, when a company believes that an employee did not engage in wrongdoing, it is in its interest to ensure that the employee is effectively represented, as a deficiency in such representation may lead to unnecessary investigation of and/or unjustified allegations against the company itself. There may also be instances when payment of fees is useful both to internal and government investigations. In many cases, it is in an employee’s best interests to cooperate with such investigations. Yet, because of the legal risks that may be inherent in cooperation, it is both appropriate and effective for such individuals to have the benefit of separate counsel. A company thus can facilitate effective cooperation by paying fees. Whatever law or policy governs this issue, however, the new DOJ policy must be tempered by the common-sense notion that companies should in no circumstances take action that could be construed as an effort to affect a witness’s substantive testimony or to hinder cooperation with investigative authorities. George J. Terwilliger III is a partner at White & Case in Washington and the global head of the firm’s white-collar practice group. He served as a federal prosecutor for 15 years, including as a U.S. attorney and deputy attorney general of the United States.

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