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U.S. Deputy Attorney General Paul J. McNulty today announced revisions by the Department of Justice ("DOJ") to its guidelines for deciding when to seek an indictment of a corporation.  The new guidelines revise and supersede what is known as the Thompson Memorandum (formally entitled "Principles of Federal Prosecution of Business Organizations"), which was issued in January 2003 by then-Deputy Attorney General Larry D. Thompson.  The Thompson Memorandum sets forth nine factors for determining whether to charge a corporation with criminal offenses.  Besides repeating the nine factors, the DOJ's new guidelines address the circumstances under which prosecutors may seek waiver of the attorney-client and work-product protections and how prosecutors should view a corporation’s advancement of attorneys' fees to individuals.

Attorney-Client Privilege and Work-Product Protection

The McNulty Memorandum establishes a formal procedure for prosecutors seeking waiver of the attorney-client and work-product protections.  Recognizing that "[t]he attorney-client and work product protections serve an extremely important function in the U.S. legal system," the new guidelines require that before asking corporations for a waiver of privilege, prosecutors must first determine that there is a "legitimate need" for the information based on the following factors: (1) the likelihood and degree to which the privileged information will benefit the government’s investigation; (2) whether the information sought can be obtained in a timely and complete fashion by using alternative means that do not require waiver; (3) the completeness of the voluntary disclosure already provided; and (4) the collateral consequences to a corporation of a waiver. 

If  a "legitimate need" exists for disclosure of protected information, the McNulty Memorandum requires the prosecutor to seek the least intrusive waiver necessary to conduct a complete and thorough investigation.  Also, before requesting a privilege waiver from the corporation, the prosecutor must first obtain formal written approval to make the request.  (Formal approval is not needed if the corporation voluntarily offers privileged documents without a government request.) 

The specific procedure for obtaining approval differs depending on the type of information sought, which the McNulty Memorandum segregates into two categories.  "Category I" information is factual information relating to the underlying misconduct and includes, for example, "copies of key documents, witness statements, or purely factual interview memoranda . . . [and] factual summaries, or reports (or portions thereof)" documenting facts uncovered during an internal investigation by counsel.  To request a corporation’s waiver of privilege for Category I information, prosecutors must obtain written authorization from their United States Attorney.  The request to the United States Attorney must set forth the “legitimate need” for the information and the scope of the waiver sought.  The United States Attorney in turn must consult with the Assistant Attorney General for the Criminal Division.  After receiving approval, the United States Attorney must communicate the waiver request to the corporation in writing.

In "rare circumstances" and "[o]nly if the purely factual information provides an incomplete basis to conduct a thorough investigation," prosecutors may seek a further disclosure of "Category II" privileged information.  Category II information consists of attorney-client communications or non-factual work-product, and includes legal advice given to the corporation "before, during, and after the underlying misconduct occurred."  To request a waiver of privilege for Category II information, the United States Attorney must obtain written authorization from the Deputy Attorney General.  The United States Attorney's request must set forth the "legitimate need" for the information and the scope of the waiver sought.  As with Category I information, the United States Attorney must communicate the request for a waiver to the corporation in writing.

Excluded from Category II information are certain communications between counsel and the corporation where a privilege would not apply or may have been waived:  (1) legal advice contemporaneous to the underlying misconduct when the corporation or an employee relies upon an advice-of-counsel defense; and (2) legal advice/communications furthering a crime or fraud.  In these two instances, a request for disclosure would be subject to the procedure for Category I information.

The McNulty Memorandum still allows prosecutors to consider a corporation's response to the government's request for waiver of privilege regarding Category I information in determining whether a corporation has cooperated in the government's investigation.  Prosecutors "must not," however, count against a corporation its refusal to provide a waiver for privileged Category II information.  Nevertheless, "[p]rosecutors may always favorably consider a corporation's acquiescence to the government's waiver request in determining whether a corporation has cooperated in the government's investigation."

Advancement of Attorneys' Fees

The McNulty Memorandum also addresses the subject of advancement of attorneys' fees to corporate employees.  Prosecutors generally are not permitted to consider a corporation’s advancement of attorneys' fees when deciding whether to charge the corporation.  The McNulty Memorandum acknowledges that state laws and contractual obligations may require corporations to advance legal fees and states that compliance with those laws and contracts "cannot be considered a failure to cooperate."  In rare instances, however, the McNulty Memorandum states that the totality of the circumstances may show that advancement of fees was intended to impede a criminal investigation.  In those circumstances, advancement of fees may be considered by prosecutors as a factor in their charging decisions, but only if approval to do so is first obtained from the Deputy Attorney General.

Link to December 12, 2006 press release: http://www.mofo.com/docs/PDF/DOJPressRelease_061212.pdf (PDF, 28 KB)

Link to the McNulty Memorandum:  http://www.mofo.com/docs/PDF/McNultyMemorandum.pdf (PDF, 9 MB)