Justice Department Alters Its Policies for Prosecuting Business Organizations

In 2003 and 2005 the U.S. Department of Justice issued policy statements outlining how and when it will criminally prosecute business organizations such as corporations. These statements, which were called the “Thompson Memorandum” and the “McCallum Memorandum” (the names of the two high-ranking DOJ authors), have generated considerable controversy and complaints from defense lawyers, scholars and even at least one United States judge. As a result the Justice Department faced (and probably still faces) close scrutiny from the media, Congress and the courts with regard to the controversial components of those memos.

On December 12, 2006, the Justice Department announced that it had revoked these two memos and replaced them with what is now called the “McNulty Memorandum” (named after the author, Deputy Attorney General Paul J. McNulty). In reality, the McNulty Memorandum generally replicates the two memos it replaced. For instance, it leaves largely unchanged DOJ’s “General Principles” for charging business organizations including the factors prosecutors should consider in determining whether to charge a corporation. These factors include its prior history of bad acts, whether and when the government should consider a lesser remedy such as immunity from prosecution, whether the company had an effective compliance program, and whether the government should seek that the corporation pay restitution to injured persons.

However, in at least two key areas the McNulty Memorandum has altered DOJ’s prior policies. First, it had become quite routine for DOJ to “demand” that companies who wish to avoid prosecution, or escape a severe fine when they are prosecuted, must waive the corporation’s attorney-client privilege. Legally, DOJ cannot force a corporation to waive that privilege. However, in the past ten years or so, DOJ has frequently told corporate counsel that their clients are not cooperating if they refuse to waive the corporation’s attorney-client privilege. Because DOJ’s recommendations are a major factor in most judges’ decisions as to the sentence to be imposed when a corporation pleads or is found guilty, many corporations have concluded that when “asked” to waive the attorney-client privilege by DOJ, the corporation has no real choice but to agree. As a result, corporations have been deterred from conducting internal investigations. Corporations have found that their management and employees simply do not know whom they can trust if the company’s upper management may subsequently disclose to a prosecutor everything that an employee has told upper management in the course of an internal investigation. The McNulty Memorandum requires prosecutors who want a corporation to waive the attorney-client privilege to get approval for the waiver “demand” from the United States Attorney and also consult with the DOJ in Washington. In addition, the Memorandum clearly frowns on any effort by a prosecutor to demand non-factual materials such as those containing a lawyer’s mental impressions, conclusions, determinations and recommendations. Although these changes do not constitute a regulation or some other binding change, there should be little doubt that the new Memorandum will discourage many line prosecutors from demanding a privilege waiver.

The second key change to prior policy relates to “indemnification” of corporate employees for legal fees incurred during a DOJ investigation. The earlier memos encouraged prosecutors to tell corporations that are under investigation that the corporation would not be deemed to be cooperating with DOJ if the corporation advances the legal fees of the corporate employees whose actions are the subject of DOJ’s investigation. Now, DOJ is not supposed to take into account that a corporation is advancing fees to employees who are under investigation.

Click here to view the McNulty Memorandum

Additional information available here.