[Senate Hearing 110-280]
[From the U.S. Government Publishing Office]
S. Hrg. 110-280
EXAMINING APPROACHES TO CORPORATE FRAUD PROSECUTIONS AND THE ATTORNEY-
CLIENT PRIVILEGE UNDER THE MCNULTY MEMORANDUM
=======================================================================
HEARING
before the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 18, 2007
__________
Serial No. J-110-55
__________
Printed for the use of the Committee on the Judiciary
U.S. GOVERNMENT PRINTING OFFICE
40-629 WASHINGTON : 2008
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
Fax: (202) 512�092104 Mail: Stop IDCC, Washington, DC 20402�090001
COMMITTEE ON THE JUDICIARY
PATRICK J. LEAHY, Vermont, Chairman
EDWARD M. KENNEDY, Massachusetts ARLEN SPECTER, Pennsylvania
JOSEPH R. BIDEN, Jr., Delaware ORRIN G. HATCH, Utah
HERB KOHL, Wisconsin CHARLES E. GRASSLEY, Iowa
DIANNE FEINSTEIN, California JON KYL, Arizona
RUSSELL D. FEINGOLD, Wisconsin JEFF SESSIONS, Alabama
CHARLES E. SCHUMER, New York LINDSEY O. GRAHAM, South Carolina
RICHARD J. DURBIN, Illinois JOHN CORNYN, Texas
BENJAMIN L. CARDIN, Maryland SAM BROWNBACK, Kansas
SHELDON WHITEHOUSE, Rhode Island TOM COBURN, Oklahoma
Bruce A. Cohen, Chief Counsel and Staff Director
Michael O'Neill, Republican Chief Counsel and Staff Director
C O N T E N T S
----------
STATEMENTS OF COMMITTEE MEMBERS
Page
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont. 1
prepared statement........................................... 96
Sessions, Hon. Jeff, a U.S. Senator from the State of Alabama.... 4
Specter, Hon. Arlen, a U.S. Senator from the State of
Pennsylvania................................................... 3
WITNESSES
Immergut, Karin, United States Attorney, District of Oregon,
Department of Justice, and Chair, White Collar Subcommittee for
the Attorney General's Advisory Committee, Portland, Oregon.... 4
Richman, Daniel, Professor, Columbia Law School, New York, New
York........................................................... 12
Seigel, Michael, Professor, University of Florida Fredric G.
Levin College of Law, Gainesville, Florida..................... 14
Thornburgh, Dick, former Attorney General of the United States
and Of Counsel, K&L Gates, Washington, D.C..................... 10
Weissmann, Andrew, Partner, Jenner & Block, New York, New York... 16
QUESTIONS AND ANSWERS
Responses of Karin Immergut to questions submitted by Senator
Sessions....................................................... 25
Responses of Daniel Richman to questions submitted by Senators
Leahy and Sessions............................................. 30
Responses of Michael Seigel to questions submitted by Senators
Sessions and Leahy............................................. 34
SUBMISSIONS FOR THE RECORD
American Bar Association, Governmental Affairs, Washington, D.C.,
statement and attachments...................................... 38
Coalition to Preserve the Attorney-Client Privilege, statement... 71
Immergut, Karin, United States Attorney, District of Oregon,
Department of Justice, and Chair, White Collar Subcommittee for
the Attorney General's Advisory Committee, Portland, Oregon,
prepared statement............................................. 76
Richman, Daniel, Professor, Columbia Law School, New York, New
York, prepared statement....................................... 99
Seigel, Michael, Professor, University of Florida Fredric G.
Levin College of Law, Gainesville, Florida, prepared statement. 103
Thornburgh, Dick, former Attorney General of the United States
and Of Counsel, K&L Gates, Washington, D.C., prepared statement 110
Veasey, E. Norman, Senior Partner, Weil, Gotshal & Manges, LLP,
Wilmington, Delaware, report................................... 115
Weissmann, Andrew, Partner, Jenner & Block, New York, New York,
prepared statement............................................. 128
EXAMINING APPROACHES TO CORPORATE FRAUD PROSECUTIONS AND THE ATTORNEY-
CLIENT PRIVILEGE UNDER THE MCNULTY MEMORANDUM
----------
TUESDAY, SEPTEMBER 18, 2007
U.S. Senate,
Committee on the Judiciary,
Washington, D.C.
The Committee met, pursuant to notice, at 10:35 a.m., in
room SD-226, Dirksen Senate Office Building, Hon. Patrick J.
Leahy, Chairman of the Committee, presiding.
Present: Senators Leahy, Specter, and Sessions.
OPENING STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM
THE STATE OF VERMONT
Chairman Leahy. Today, the Judiciary Committee considers
whether the Department of Justice has struck the right balance
between robust prosecution of corporate fraud and the bedrock
legal principle of fairness protected by the attorney-client
privilege. I thank Senator Specter for his leadership on this
issue, and I thank the distinguished panel of witnesses for
being with us today.
I am deeply concerned about the lawlessness that has
affected this Administration's leadership at the Department of
Justice. They have shown arrogance and asserted an
unprecedented prerogative to rewrite the rules, often in ways
that undermine the rule of law and disregard the finest
traditions of impartial law enforcement and our justice system.
They have literally sought to rewrite the rules on the
prosecution of politically sensitive cases and on the retention
and firing of United States Attorneys in ways that
impermissibly and dangerously injected politics into our
justice system. They have undermined the role of law
enforcement by using partisanship in the hiring of career
prosecutors, judges and other Justice employees. They have
secretly rewritten the rules governing torture and the
treatment of detainees in ways that call into question this
Nation's commitment to basic human rights and American values.
And they have secretly rewritten the rules for government
surveillance of Americans, threatening our privacy and basic
legal protections.
It is long past time for the Department of Justice to
recommit itself to the rule of law and to the principles of our
justice system. This Committee has through its oversight begun
to seek accountability that I hope will lead to the restoration
of law and order within the Justice Department and throughout
the Executive branch.
In the area of corporate fraud prosecutions, this
Administration has rewritten the rules. In 2003, the Department
of Justice made it easier for prosecutors to pressure
corporations to waive the attorney-client privilege, the
bedrock of our whole legal system. One judge went so far as to
dismiss charges in a prosecution of fraud at the accounting
firm KPMG based on Government overreaching and misconduct. Now,
it is embarrassing for the Government to lose cases, not
because the evidence is insufficient, but because they have
pushed beyond the law. And it is unacceptable to steamroll
principles that protect fairness.
Senator Specter and I made our concerns clear about Justice
Department overreaching in this area in a hearing last fall.
And soon after, the Justice Department rewrote the rules again,
this time spearheaded by then-Deputy Attorney General Paul
McNulty in what has come to be known as the ``McNulty
Memorandum.'' And the memo added new safeguards and
restrictions, including some that had been called for at this
Committee's hearing, on prosecutors' ability to request the
waiver of the attorney-client privilege.
I said at the time that it was a step in the right
direction. With this hearing we continue our consideration
whether or not the Department has, in fact, found and is
implementing the proper balance. The McNulty Memorandum has
been in place for less than a year. We want to know whether it
is working and whether it has reached the right balance between
aggressive enforcement of the corporate fraud statute, which
all of us want, but also the proper respect for the attorney-
client privilege, which we all also want.
With nominations being made to the top positions at the
Department of Justice of people who will be responsible for
implementing it, we want to make sure it is being done right.
We do not know where Judge Mukasey, who the President just
announced as his nominee to be Attorney General, stands on this
issue. I suspect between Senator Specter and me, we will be
asking that question when he is up for confirmation, but we
will ask it of other nominees.
We want to make sure the Department strikes the right
balance. We do not want to cripple our enforcement efforts to
eradicate corporate fraud. We saw that the epidemic of greed,
like Enron and Worldcom and many others, left a lot of
employees without jobs but also bereft of their life savings,
and it devastated the shareholders, the people to whom they owe
a fiduciary responsibility.
At the same time, I do not want to overreact to the
Department's overreaching. The administration sought to
immunize too much misconduct. Corporate misconduct should not
be given a safe haven or immunized from accountability. Nor
should the corporate bar, and its representatives in the
American Bar Association, be allowed to use the legitimate
concerns of overreaching we have identified to create favored
status for corporate fraud defendants. We do not want to go
back to the dark days before Sarbanes-Oxley when we were
subject to corporate greed and actions taken in the dark.
So we have to get it right. We demand that corporate fraud
be pursued aggressively, but prosecutors have to do it mindful
of fairness principles. I hope the Department will work with us
to get it right.
Before we go to Karin Immergut, who is the U.S. Attorney
for the District of Oregon and also the Chair of the White-
Collar Subcommittee for the Attorney General's Advisory
Committee, I want to yield to Senator Specter, and I am going
to turn the gavel over to Senator Specter, who requested this
hearing. I think it is an important one, and, again, as I have
many, many other times in many, many other areas, I compliment
the senior Senator from Pennsylvania for what he has done in
this area.
STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM THE STATE
OF PENNSYLVANIA
Senator Specter. [Presiding.] Well, thank you very much. I
am not sure whether I should call you ``Mr. Chairman'' or
``Senator Leahy'' now that the gavel has been turned over to
me.
Chairman Leahy. You know what to do.
Senator Specter. And there was no restriction on the
turnover of the gavel, so I will still call you ``Mr.
Chairman.'' And thank you for scheduling this hearing. I think
it is a very important hearing, and I would like to see us deal
with the relevant issues so that our Committee would be in a
position to come to a judgment and to mark up a bill and to
move forward, to either vote it up or vote it down, but to have
it considered by the Senate and ultimately by the House as
well.
I start on my thinking on this subject with two very basic
propositions: First, that there is a right to counsel in the
Constitution, a very fundamental right, and an indispensable
part of right to counsel is the privilege to talk to your
lawyer about confidential matters without concern that they
will be disclosed. And the second very basic proposition is the
burden of proof, which is on the Government. And my view, with
some experience in the field, has been that you do not prove
the case out of the mouth of the defendant. You just do not do
that.
Now, when you get involved in the complex standards as to
when it is implied, whether the privileged information will
benefit the investigation, of course, it is going to benefit
the investigation. Whether it can be obtained quickly and
completely from other sources, well, what does ``quickly''
mean? What does ``completely'' mean? Whether there is a
legitimate need, it seems to me that that is totally extraneous
to the underlying values that we are dealing with here. And
when we have the modifications which Deputy Attorney General
McNulty added to the Thompson Memorandum about who gives the
approval, if it is a fact matter, the U.S. Attorney asks the
Assistant Attorney General, unclear as to whether the
consultation means the Assistant Attorney General can overrule
the request. I think it probably does mean that. Or if it is a
matter of advice, then it goes to the Deputy Attorney General.
It is hard for me to conceive of any situation where it is
justifiable to ask the lawyer what advice he has given the
client. That is just really beyond my comprehension--again,
with some experience in the field. So I hope we can flush out
the issues and present them to the Committee and come to a
decision.
We have been joined by the distinguished former prosecutor
who, I suspect, may have a view somewhat different than mine.
He occasionally does. Senator Sessions, I will not ask you if
you would like to make an opening statement because I know the
answer to that. So I will just call on you.
STATEMENT OF HON. JEFF SESSIONS, A U.S. SENATOR FROM THE STATE
OF ALABAMA
Senator Sessions. Thank you. I look forward to the
witnesses, and if there are problems in the process of
obtaining client-attorney investigative materials, I would be
willing to listen to that; if there are abuses, I would be. But
I am not inclined to believe that a corporation--that a
prosecutor cannot discuss with a corporation whether or not
they want to waive their right and provide information. I do
not want to be in a position in which a board, a corporate
board finds out there is wrongdoing in the corporation,
conducts an investigation, and cannot be--a discussion cannot
be entertained as to whether or not they might benefit from
turning that over, that the crooks in the corporation be sent
to jail, where they ought to be sent, and the corporation
perhaps survive the prosecution. Those are things that to me
are pretty realistic and deal with the way the real world is.
But if there is a problem here, we need to find out. And if the
Department of Justice is not handling this procedure right,
perhaps we can make it better.
Thank you, Mr. Chairman. I like you there as Chairman. I
enjoyed serving under you, and I am glad to serve under you
again.
Senator Specter. Well, we will try to make that agreement
come true as soon as we can, although not this morning.
[Laughter.]
Senator Specter. Our first witness representing the
Department of Justice is Ms. Karin Immergut, U.S. Attorney for
the District of Oregon, a distinguished academic career from
Amherst, her law degree from Boalt School of Law at the
University of California, and we will put into the record a
very extensive, impressive resume.
I am going to ask you, Ms. Immergut, to stick to the 5-
minute time limit, as I will everybody. This is an unusually
heavy day. We have Judge Mukasey, whom I have a meeting with
later this morning, and we have the D.C. voting rights bill on
the floor. So that if the witnesses can limit it to the
stipulated time of 5 minutes, that will give us the maximum
time for dialog.
Thank you for joining us, and the floor is yours.
STATEMENT OF KARIN IMMERGUT, U.S. ATTORNEY, DISTRICT OF OREGON,
U.S. DEPARTMENT OF JUSTICE, AND CHAIR, WHITE COLLAR
SUBCOMMITTEE FOR THE ATTORNEY GENERAL'S ADVISORY COMMITTEE,
PORTLAND, OREGON
Ms. Immergut. Thank you, Senator. I do not know if I should
call you ``Mr. Chair'' right now, but, Senator Specter, members
of the Committee, thank you for the opportunity to appear here
today to talk about the McNulty Memorandum and the corporate
criminal charging policy at the Department of Justice. Today I
hope to give you a career prosecutor's view about three issues:
first, how prosecutors use waivers of-attorney-client privilege
and work product protections out in the field; second, how the
McNulty Memorandum is working in practice; and, third, how
current policies protect victims and the investing public and
could be significantly impeded by legislative efforts to
further restrict corporate waivers.
First, waivers generally arise when a corporation faced
with criminal liability comes to a Federal prosecutor and says
it wants to cooperate; and, further, in exchange for that
cooperation, the corporation seeks leniency. At that point, the
prosecutor would ordinarily say: Tell us what happened, who did
it, and how did they do it. If a corporation can provide that
factual information without waiving a privilege, that should
typically be enough. However, because corporations generally
gather facts through their attorneys, sometimes a corporation
must waive its work product or attorney-client privileges in
order to cooperate and fully disclose those facts.
Seeking waivers of important rights is not uncommon as part
of our work with cooperators. We routinely ask individual
cooperators to waive their Fourth and Fifth Amendment rights.
Privilege waivers impose no greater burden on a corporation
than we ask of individuals every day.
When prosecutors seek waivers, they want the facts. They
are not typically seeking legal advice or opinion work product
unless there is a claim that the corporation or its employees
acted in good-faith reliance on advice of counsel, or that an
attorney participated, even unwittingly, in the fraud.
Since 2001, the Department has obtained more than 1,200
corporate fraud convictions and recovered billions of dollars
for investors and shareholders. These prosecutions have been
governed by a set of principles first established in the 1999
Holder Memorandum, which was then amended by the Thompson and
the McNulty Memoranda. Those memoranda established a nine-
factor test which requires a prosecutor to evaluate the
culpability of a corporation and to distinguish between those
corporations which present an ongoing danger to the public and
those which are reliable corporate citizens.
Criticism of these principles has focused on one sub-
category of those principles: corporate waivers of attorney-
client privilege and work product protections. The McNulty
Memorandum was issued in December of 2006 in response to
concerns about such waivers raised by the business community,
defense lawyers, and members of this Committee, among others.
For the first time, the McNulty Memorandum imposed express
restrictions on when a prosecutor may request corporate waivers
and what they might ask for. It also established new and
rigorous authorization requirements.
The McNulty Memo creates a clear and simple distinction
between requests for factual information, which may be sought
upon a showing of need, and requests for legal advice. A
request for legal advice is permissible only in extraordinary
circumstances, and then only with the permission of the Deputy
Attorney General. And even then, if a corporation refuses to
provide that legal advice, that refusal may not be held against
them.
Since its adoption, the robust client safeguards contained
in the McNulty Memorandum have resulted in only four approvals
of waiver of privilege for factual information and no approvals
of waiver privilege for attorney-client communications from the
Deputy Attorney General. We believe that these results show
that a sound policy is in place and should be allowed to work.
Our ability to obtain waivers in certain cases has helped
victims because it allows cases to proceed more quickly and
allows us to preserve assets to help victims recover some of
their losses. In addition, the investing public deserves the
quickest possible answer to allegations of fraud in the
marketplace.
In contrast, we are concerned that efforts to further
restrict corporate waivers, such as Senate bill 186, will
diminish our efforts to police a broad range of corporate crime
and protect victims and the investing public by limiting the
information available to us. Furthermore, Senate bill 186 would
establish rules for the investigation of corporate suspects
which are different from those applicable to every other type
of suspect. That simply is not fair.
Mr. Chairman, Senator Specter, over the last several years,
the Department of Justice has made huge strides in combating
corporate corruption. With the tools Congress has provided, we
have made tremendous progress in restoring public confidence in
the integrity of American corporate governance and protected
shareholders and victims. But there is still work to be done.
The rigorous safeguards contained in the McNulty Memorandum
have worked and deserve a chance to continue. Our future
efforts would be compromised if Congress enacted legislation
such as Senate bill 186.
I thank you for this opportunity to appear before this
Committee on this important subject, and I would be pleased to
answer questions.
[The prepared statement of Ms. Immergut appears as a
submission for the record.]
Senator Specter. We will now proceed with our customary 5-
minute round.
Ms. Immergut, you say that if a corporation seeks leniency,
then the issue arises as to the waiver of the privilege. It
seems to me that the reality is just the reverse. The
prosecutor is using the charging discretion to impose a more
difficult prosecution, and that what the prosecution is really
looking for is leverage, a blackjack to get the information.
If the issue is waiver, a suspect has a right to waive. No
problem about that. The difficulty arises in the context of the
prosecutor seeking leverage to extract the attorney-client
privilege waiver with using a more severe charge. Isn't that
the practicality reality that is involved here?
Ms. Immergut. Senator, if I understand your question, it is
whether or not our ability to provide leniency is somehow
forcing somebody to waive when they otherwise would not.
Senator Specter. The question is: Doesn't the process
really focus where the prosecutor has the discretion on
charging and the prosecutor initiates the matter and says the
charge will be X if you waive your privilege and it will be X
plus Y if you do not waive your privilege, as opposed to the
suspect coming and saying let me waive the privilege for
leniency?
Ms. Immergut. Frankly, the former, in my experience,
typically is not how it works, and it is not the required
analysis under the McNulty Memo. There are nine factors to
consider in our corporate charging decision. Our only point,
though, is when a corporation wants leniency, and the other
eight factors do not necessarily inure to the corporation's
benefit with respect to whether or not they should be charged,
certainly then corporations would typically say, ``We want to
cooperate. How can we cooperate?'' And, you know, ``What do we
need to do in order for you not to charge us?'' But, again, the
charging decision is really based on evidence and as well as
the other eight McNulty Memorandum factors.
Senator Specter. Ms. Immergut, you say in your opening
statement that you are not ``seeking advice from counsel.''
Then you later go into a situation where you are doing
precisely that--seeking advice.
It seems to me just totally antithetical, contrary to the
basic right to counsel, to under any circumstance ask a lawyer
what advice he has given to a client.
Ms. Immergut. Again, the McNulty Memo makes that
distinction. The situation you have described is very much of a
rarity, and, indeed, since McNulty has been implemented, no
single approval for that sort of advice--
Senator Specter. Is it really relevant that it is a rarity
if you are undercutting the value, the sacrosanct nature of a
lawyer's advice?
Ms. Immergut. Senator, if I could give you an example of a
time where one might imagine that sort of advice would be
pertinent is if there was information that corporate officers
had indeed sought advice from general counsel, been advised not
to do the conduct that they engaged in, and nevertheless went
ahead and did it. That might be a circumstance in which we
would ask corporate counsel, if a corporation is cooperating,
``Can we get a copy of the memo that you provided to the CEO
who committed misconduct?'' so that we can show they were on
notice that this was illegal conduct--it is evidence of their
intent.
Senator Specter. I have one final question for you. We have
a letter from the former Chief Justice of Delaware, E. Norman
Veasey. We will make the full letter a part of the record. But
he cites a case that, ``When the process required by the
McNulty Memorandum was raised by company counsel, the
prosecutor's response was, `I don't give a flying--' about the
policy, and further said the burden was on the company to
appeal the waiver request up the chain of command to the
Department of Justice.''
Which raises the concern that, notwithstanding all of the
protections which, handily, may not amount to much as I see
them, as long as you have this waiver policy in effect, there
is a high risk it is going to be disregarded at the operating
level. What do you think about that?
Ms. Immergut. I personally in my office have spoken to my
Assistant U.S. Attorneys about this issue. They are very well
aware of the importance of adhering strictly to the McNulty
Memo. I have also been involved in training all of the U.S.
Attorneys from around the country. I have spoken with all of
them about the issue. And certainly if there is one perhaps
overzealous prosecutor who is not adhering, there are,
obviously, personnel policies that are implicated. But I know
that the U.S. Attorneys have made this very clear to their
Assistant U.S. Attorneys how important it is to follow the
McNulty Memorandum.
I believe that what you are suggesting is really a
management and accountability issue, and I think that the
McNulty Memo really reaches the right balance on that and has
brought your concerns to the forefront of the Department of
Justice, and we are making every effort now to make sure that
we recognize the sacrosanct nature of the attorney-client
privilege. We take that very seriously, and I can assure you
that all of my fellow U.S. Attorneys have made that very clear
to individual prosecutors in their offices.
Senator Specter. Senator Sessions?
Senator Sessions. Corporate fraud is an important thing,
and millions of people have lost their whole life savings as a
result of fraud by corporate officers. It is the investors and
stockholders as well as the general public that suffers when
fraud occurs. But it is not easy to prosecute or investigate.
They have the best lawyers that you can find, and they utilize
all the legitimate tools that they have. And so you get to some
difficult circumstances, and you have to be strong, wouldn't
you say, Ms. Immergut, that a prosecutor cannot be a weak-kneed
person going up against a major corporation in a fraud case.
So I do not think that the phrase you used, ``a blackjack
against them,'' is quite a fair thing. Every drug defendant
that can be charged with eight different drug offenses and you
tell them they will be able to get a reduced sentence and you
will only charge them with four if they plead guilty, it could
be said they were blackjacked. But you cannot credibly convey
to a corporation that you are providing leniency unless they
know you know they have committed a crime for which they can be
convicted. Isn't that right?
Ms. Immergut. That is correct, Senator, that it is in the
context of a corporation facing criminal liability that it
wants to cooperate. So just as with an ordinary defendant when
we ask them for information or they choose to waive very, very
important constitutional rights, they expect some benefit from
the Government, and whether that is charging or sentencing--
Senator Sessions. Right, the point of which is in every
criminal investigation context, particularly complex cases,
there are circumstances in which the corporate lawyers know
that the corporation has certain vulnerabilities when they have
committed certain crimes, and they know, and they know there is
proof, or they think maybe there is not proof to establish
that. So the first point is that it is just nothing unusual in
my view that a prosecutor who has in her hand evidence of
corporate guilt on a number of different matters would use that
as leverage to find out the full scope of all the criminal
activity by providing some sort of leniency of a form in
exchange for cooperation by the defendant. Is that correct?
Ms. Immergut. That is absolutely correct. And if I might
just add to that, Senator, there have been cases where
corporations have come in and said that they should not be
charged and they are innocent and explain how something
occurred, and we say, ``Well, can you show us some documents to
prove that?'' and it has indeed exonerated a corporation very,
very quickly. And that is good for shareholders and good for
the investing public.
Senator Sessions. Well, the big losers--and I have seen a
time or two in which you realize the people that are going to
suffer most here are stockholders, who have no idea criminal
activity was going on--and the board represents those, the
corporate board. Evidence is brought to a corporate board that
criminal wrongdoing is ongoing. They order an investigation.
Now, we are not talking about attorney-client advice to the
corporation for the most part. What the trend is--and it is
perfectly reasonable--a corporation does not ask a private
investigation to do the investigation. A corporation asks its
counsel to do it. Right? And the reason they do that is because
then they control the information that is attorney-client
information. And they do not have to give it up unless they
choose to give it up. Is that right?
Ms. Immergut. That is absolutely correct.
Senator Sessions. So the lawyer goes out and does the
investigation, comes back and tells the board, ``We have got a
real problem.'' And the Board says, ``What is this?'' ``Well,
some of the corporate officers misbehaved.'' And the board,
acting on behalf of the stockholders, says, ``Let's throw them
overboard. They violated the law. We did not know they were
violating the law. Our duty is to our stockholders to try to
minimize the damage to this perfectly good corporation. Let's
send these guys to the slammer.'' Right?
Ms. Immergut. That is correct.
Senator Sessions. And so what I am curious about, I just do
not know how that is different than dealing with a drug
defendant or anybody else that you deal with. What I was
curious about, it does appear, though, that you have heard
complaints about how this plays out in practice, and the
Department did, last December, issue a policy that has been
complained about, but it really is designed to provide more
protection than has ever been given to corporate attorney-
client relationships of this kind than ever before. Isn't that
right?
Ms. Immergut. That is correct. We have always been able to
request waivers, and corporations have always been able to
choose whether or not to waive. The Holder Memo in 1999 was the
first memo to actually just put that in as one of the guiding
principles for charging corporations which provided
transparency to the process. But one was always--it did not
limit prosecutorial discretion or provide new prosecutorial
powers.
Senator Sessions. But they do not have to give it up.
Ms. Immergut. Absolutely. It is a choice by the
corporation, and also it is the corporation's privilege with
the advice of counsel. It is not the individual employees. So
that is, as you point out, if the shareholders want to provide
information about individual CEOs, for example, other corporate
officers, that is their privilege and right to waive it if they
so choose.
Senator Sessions. My time is up.
Senator Specter. Thank you--have you concluded, Senator
Sessions?
Senator Sessions. Yes. My time is up.
Senator Specter. Thank you very much.
Thank you very much, Ms. Immergut, for coming in to
testify. Besides being U.S. Attorney for Oregon, you have a
position within the Department which has supervision over any
U.S. Attorneys or do you have some special status in appearing
for the Department today?
Ms. Immergut. I serve as Chair of the Attorney General's
Advisory Committee's Subcommittee on White Collar Crime, and in
that capacity, I was asked to help draft the McNulty Memo
provisions, as well as engage in training with the other U.S.
Attorneys, as well as talk to other U.S. Attorneys about cases
in their districts.
Senator Specter. Well, thank you for coming in. One of the
reasons many of us are so anxious to have Judge Mukasey
processed through the confirmation procedures is that there are
so few ranking confirmed members of the Department of Justice
in the upper echelon.
Thank you very much.
Ms. Immergut. Thank you very much.
Senator Specter. We will now turn to our panel of Governor
Thornburgh, Professor Richman, Professor Seigel, and Mr.
Weissmann.
I could refer to Governor Thornburgh as ``Attorney General
Thornburgh.'' He has a unique, really spectacular record of
public service: a two-term Governor, U.S. Attorney for the
Western District of Pennsylvania, Assistant Attorney General in
the Criminal Division, Attorney General under two Presidents.
He worked in the United Nations. Undergraduate degree from
Yale, law degree from the University of Pittsburgh, and became
U.S. Attorney in 1969 when I was district attorney of
Philadelphia, and we used to chase the criminals into central
Pennsylvania because they did not want to be within his
jurisdiction or mine. So it was a different world then.
Thank you very much for joining us, Governor, and I look
forward to your testimony.
STATEMENT OF DICK THORNBURGH, FORMER ATTORNEY GENERAL OF THE
UNITED STATES AND OF COUNSEL, K&L GATES, WASHINGTON, D.C.
Mr. Thornburgh. Thank you, Senator Specter, and thanks to
Chairman Leahy; my former colleague in the Department of
Justice, Senator Sessions.
Senator Sessions. You were my boss, I think is the right
phrase, and I was honored to serve with you.
Mr. Thornburgh. Well, why quibble?
[Laughter.]
Mr. Thornburgh. I appreciate the opportunity to speak to
you today about the ominous dangers that the Justice
Department's McNulty Memorandum poses to the attorney-client
privilege, the work product doctrine, and the rights of
individuals.
Let me state at the outset that, in my view, the McNulty
Memorandum is so inherently problematic that there is nothing
to be gained by continuing to wait and see how it may be
implemented. To the contrary, Congress should enact legislation
such as S. 186 promptly to restore the attorney-client
privilege, the work product doctrine, and the constitutional
rights of individuals to their proper places in our system of
justice.
A year ago, almost to the day, this Committee received
extensive oral and written testimony from Mr. Weissmann--who is
on this panel with me--former Attorney General Edwin Meese, and
myself, among others, on the issues at stake today. We
emphasized then the fundamental importance of the attorney-
client privilege to our legal system generally and to corporate
compliance programs in particular. We also explained the
corrosive dynamic engendered by Federal cooperation policies
that provide credit to organizations when they waive the
privilege or work product protection. No matter what its
procedural requirements or how reasonably the Department of
Justice may promise to implement it, a waiver policy poses
overwhelming temptations to target organizations, often
desperate to save their very existence. Prosecutors do not need
to issue express requests for privileged documents to receive
them. The same insidious result arises from policies that offer
credit to organizations if they take adverse actions against
employees that prosecutors deem culpable.
I do not question then-Deputy Attorney General Paul
McNulty's good faith in attempting to remedy the widely
recognized flaws of the Thompson Memorandum and its
predecessor, the Holder Memorandum. Unfortunately, the McNulty
Memorandum is only an incremental improvement and retains most
of the basic flaws of its predecessors. I have set forth in
detail the particulars of these flaws in my written statement
to which I would refer you.
There is no point in ``giving the Department a chance'' to
implement the McNulty Memorandum, as some would suggest.
Companies know what actions might win them a reprieve from
indictment and, thus, prosecutors do not need to issue any
express requests. The fact that companies can get cooperation
credit for these actions is the fundamental flaw in the McNulty
Memorandum.
S. 186 would forbid Government lawyers from seeking waivers
of privilege or work product, and from coercing organizations
to take specified adverse actions against their employees.
Importantly, S. 186 would also forbid Government lawyers from
``condition[ing] treatment'' of an organization on whether the
organization waived the privilege or penalized its employees,
and from otherwise ``us[ing such actions] as a factor in
determining whether [the] organization...is cooperating with
the Government.'' S. 186 thus addresses the fundamental flaw in
the McNulty Memorandum.
Before I close, let me briefly respond to those who argue
that legislation like S. 186 improperly or unwisely impinges on
the discretion of Federal prosecutors.
As you know, for a large part of my professional career, I
either served as a Federal prosecutor myself or supervised
other Federal prosecutors. S. 186 does not in any way impair
Federal prosecutors from doing their proper jobs. They would
remain free to prosecute--or refrain from prosecuting--as
warranted by the evidence and the law. In support of such
determinations, they could seek any communication or material
they reasonably believe is not privileged, and they could
accept voluntary submissions by companies of the results of
internal investigations. They could also continue to seek other
information through grand jury subpoenas, immunity agreements,
and all the other tools that prosecutors have historically
used. They simply could not seek, directly or indirectly,
waivers of privileged information.
In all the years that I served as a U.S. Attorney, as
Assistant Attorney General in charge of the Criminal Division,
and as Attorney General, requests to organizations we were
investigating to hand over privileged information never came to
my attention--and I would have rejected such a request if it
had. Clearly, in order to be deemed cooperative, an
organization under investigation must provide the Government
with all relevant factual information and documents in its
possession, and it should assist the Government by explaining
the relevant facts and identifying individuals with knowledge
of them. But in doing so, it should not have to reveal
privileged communications or attorney work product. This
balance is one I found workable in my years of Federal service,
and it should be restored.
The attorney-client privilege dates from Elizabethan times.
In defining the privilege in the corporate context, the U.S.
Supreme Court in the Upjohn case concluded that, and I am
quoting, ``an uncertain privilege...is little better than no
privilege at all.'' Just such uncertainty has been created by
the Department of Justice, and the destruction of the privilege
is only compounded by the McNulty Memorandum.
Thank you for the opportunity to be here today, and I look
forward to your questions.
[The prepared statement of Mr. Thornburgh appears as a
submission for the record.]
Senator Specter. Thank you very much, Governor.
We now turn to Professor Daniel Richman: clerk to Justice
Marshall, previous to that clerk to Chief Judge Weinberg of the
Second Circuit; graduate of Harvard, a degree from the Yale Law
School, and we will put into the record his distinguished
curriculum vitae.
Thank you for joining us, and we look forward to your
testimony, Professor.
STATEMENT OF DANIEL RICHMAN, PROFESSOR, COLUMBIA LAW SCHOOL,
NEW YORK, NEW YORK
Mr. Richman. Thank you, Senator Specter, and I would also
like to thank Chairman Leahy for inviting me, and Senator
Sessions as well.
Thank you for this chance to speak to the Committee about
the role that Congress should play in limiting negotiations
between prosecutors and corporate counsel with respect to the
attorney-client privilege. I would first like to highlight what
the legislation proposed or what any of the legislation
proposed on the table would not do. I really do not think in a
broad range of cases it would change very much. The fact is
that in a broad range of cases corporate counsel wants to get
the Government inquiry off itself as soon as possible, and they
will come in and they will speak to the Government, and they
will turn over large amounts of information if requested, or
perhaps not even if requested, because the quicker this moves
on, the better for shareholders, the better for corporate
counsel.
I would also like to point out that any of the proposed
legislative proposals do nothing in any explicit or, I think,
practical way to protect officers and employees who regularly
will speak to corporate counsel, will not have the protection
of the attorney-client privilege for themselves, and will be
subject to whatever corporate counsel wants to do to advance
the corporate interests. And in many cases, as I have said,
corporate counsel will waive the privilege. This might well be
a problem in significant ways for individual employees. That is
something that needs to be considered. That is something that I
think courts are beginning to focus on, and appropriately so.
As for cases where counsel will not come in and make the
waiver, we should look at those. First, there will be the cases
that the Government does pursue. Those will be a lot more
expensive and intrusive to pursue. One thing that we really
need to consider is what can the Government do if it wants to
investigate alleged corporate misconduct. Perhaps it can go
through counsel. It would be nice if they could have a textured
discussion with counsel. That would involve counsel turning
over documents. In the absence of that, should counsel not go
forward and cooperate, I guess there will be search warrants,
there will be grand jury subpoenas, at some point electronic
surveillance. There is a whole range of spectacularly
expensive, intrusive measures that can be done, but that the
Government generally avoids doing in the corporate context. I
would like to say that should this legislation pass Congress,
or even without it, frankly, I think Congress should be putting
a lot more money into white-collar enforcement.
As I have noted in my written testimony, I am not qualified
to really assess the reports coming out about underfunding of
white-collar enforcement, but it is of grave concern to a
number of people, and to me in particular.
With respect to cases that do go forward, I have got to say
that if this legislation passes, this will be really
interesting. A pre-trial hearing has got to go into
prosecutorial motivation. Every time a corporation is charged,
no matter what happened in the U.S. Attorney's Office,
corporate counsel will claim that the decision was made, in
whole or in part, by improper consideration of their failure to
waive. So we will have some interesting hearings. We will get
prosecutors on the stand. I have no idea what will happen. I do
know that it will be messy. I also know that it will deter
prosecutors from moving forward on these cases.
Then we have the classic cases that the legislation will
affect and will not be prosecuted. What is that classic like? I
do not know, and I really do not think anyone knows. The fact
is what we are doing is essentially guessing as to how zealous,
how committed, and with what integrity defense attorneys for
corporations pursue their job. I know many who have just those
qualities. I suspect there are a number who do not.
Then we get to the question of is there a culture of
waiver. Well, yes, I suppose there might be a culture of
waiver. The Federal criminal justice system is based on a
culture of waiver. No one from the Department can say that as
clearly at some point as a professor can, but the fact is that
is what happens. Defendants waive their rights under threat of
severe sanctions. They waive their constitutional rights. They
waive privileges. And there is nothing special about the
Elizabethan origins of this or the constitutional origins of
the Fifth Amendment. Rights get waived regularly to suit the
Government's purposes, to suit defense counsel's purposes.
Moving past the rhetoric, the question becomes: Is there a
risk of abuse here? Well, yes, there is risk on both sides. I
think there are times when U.S. Attorneys will be far too quick
to ask for a waiver. One thing I think we can be confident
about, though, is where they are, where there is an overly
zealous loose cannon that starts being too quick to demand, we
will hear corporate counsel arguing up the chain of command and
being heard. This Committee and the Justice Department will not
hear people from the other side where information was not
turned over to the Government and shareholders' or workers'
interests were hurt.
So, in closing, I would just--oh, my time is up. I am
sorry. I will rely on the rest of my written statement, and I
would be happy to answer any questions.
Senator Specter. Unlike the Supreme Court, Professor
Richman, you may finish your sentence.
Mr. Richman. Oh, this is quite a thrill.
[Laughter.]
Senator Specter. As long as it is not too complex-compound.
Mr. Richman. I will keep it very short. I really do think
that the fact that you have two professors here as the only
people speaking up for the white-collar enforcement side speaks
volumes of the odd political economy here. I do think
shareholder interests and worker interests are very much
affected by this. They do not have the mobilization that white-
collar counsel do, and I think this Committee should think that
through as well.
Thank you.
[The prepared statement of Mr. Richman appears as a
submission for the record.]
Senator Specter. Well, I do not want to unduly challenge
your impartiality, but I did not note that you served as chief
appellate attorney and Assistant U.S. Attorney for the Southern
District of New York, notwithstanding your lofty professorial
status.
[Laughter.]
Mr. Richman. I am honored by the addition, Senator.
Senator Specter. But you did go to the Yale Law School, so
that is a countervailing mark.
And Mr. Seigel, who is also a professor at the university
of Florida, was the special attorney for the Department of
Justice's Organized Crime and Racketeering Section of the
Philadelphia Strike Force, and believe me, they had and have a
lot of work to do since my days as DA. The professorial status
has some counterbalancing factor in you two men who have had
prosecution experience, which is really to your credit as
experts.
Professor Seigel had the distinction of serving to Chief
Judge Becker of the Third Circuit, one of America's greatest
jurists; magna cum laude from Princeton and magna cum laude
from Harvard School.
The floor is yours, Professor Seigel.
STATEMENT OF MICHAEL L. SEIGEL, PROFESSOR, UNIVERSITY OF
FLORIDA FREDRIC G. LEVIN COLLEGE OF LAW, GAINESVILLE, FLORIDA
Mr. Seigel. Thank you very much, Senator Specter, Senator
Sessions. Governor Thornburgh, I was special attorney
prosecuting organized crime under your administration, among
others, so I have worked for you as well.
It is my privilege to testify here today. There can be no
doubt--nobody here doubts--that the attorney-client privilege
is a central feature in the proper functioning of our system of
justice. One of the things I want to point out is that nothing
we are talking about here today has any impact on the attorney-
client privilege of an individual person. That remains
sacrosanct. We are only considering today the privilege of
corporations that was created by the Supreme Court in the
Upjohn case.
Moreover, privilege, even though it may go back to
Elizabethan times, is actually the exception. The rule is that
the Government, standing in the shoes of the people, is
entitled to every man's evidence when attempting to uncover the
truth. The question today, then, is whether S. 186, with its
categorical prohibition of corporate privilege waiver, strikes
the right balance between the protection of client confidences
and the need for effective law enforcement. It does not.
Although waiver of privilege should be sought by the
Government only as a last resort, sometimes waiver is the only
means by which Federal investigators and prosecutors can cut to
the heart of the alleged corporate criminality in an efficient
and timely manner.
Moreover, the arguments against waiver do not withstand
scrutiny. An examination of the issue starts with corporate
criminal liability. Such liability provides prosecutors with
leverage to encourage corporations to cooperate in
administrative and criminal investigations. This is of critical
importance.
As a former first assistant overseeing the investigation of
the Columbia Health Care case, one of the largest health care
fraud cases in the United States, I can personally attest that
the prosecution of white-collar crime is slow and resource-
intensive. The crime is itself complex. It is characterized
often by accounting tricks, fraudulent transactions, and
deleted records. Investigators face millions of pages of
documents. Now currently many of them are online. And there are
sophisticated criminal defense attorneys who are hired by
white-collar criminals and corporations to frustrate the
prosecution at every turn. As a result, a typical case might
take a matter of years to bring to fruition. Corporate
cooperation reverses this dramatically. No longer foes, the
corporation and the prosecution can team up to unmask the
individuals who were at the center of the criminal activity.
With corporate cooperation, the successful completion of a
complex case can be reduced from a matter of years to a matter
of months. This huge efficiency gain represents a significant
public good.
One argument against privilege waiver is that it will
discourage companies suspecting internal criminality from
conducting an investigation in the first place. This is
unlikely because of the risks of regulatory and third-party
liability. Inaction is simply not an option.
Corporate officials also have a very personal reason to
investigate allegations of criminal activity amongst their
subordinates. If they do not, they could be open to personal
criminal liability and time in jail.
A related argument against waiver is that it causes in-
house counsel to generate less paper in the course of an
internal investigation. In complicated cases, of course,
counsel has no real choice but to retain sufficient records to
support her findings. More important, this situation was
created by Upjohn because corporate counsel can never predict,
after Upjohn, whether otherwise privileged documents will be
released in the future. Thus, if she is prudent, counsel will
always attempt to minimize records generated by an internal
investigation, regardless of DOJ waiver policy.
The most troubling argument against privilege stems from
the impact it is said to have on corporate employees who face
questioning. If they are potentially guilty, they have a dismal
set of options: silence, and likely termination; cooperation,
and likely sanctions; and lying, avoiding potential liability
in the short term, but having worse outcome in the future.
Caught in this situation, the employee definitely needs
good legal advice. If she is unsophisticated, she may think she
is going to get that advice and that her communication with
corporate counsel is privileged. Of course, that is not the
case. To the extent that the law is lacking here, the culprit
is not DOJ waiver policy. Instead, it is with the rules and
regulations regarding when and how corporate counsel must
advise an employee of her Upjohn rights. In my opinion, that is
where the rules need to be examined and the protection
strengthened.
The bottom line is this: The attorney-client privilege
waiver should be a last resort. I would prefer to see the
McNulty Memorandum specifically state that. It comes close. I
think it should specifically state that it is effectively a
last resort. But it has taken a significant step in that
direction, and I think it should be given a chance to work.
Thank you.
[The prepared statement of Mr. Seigel appears as a
submission for the record.]
Senator Specter. Thank you, Professor Seigel.
Mr. Andrew Weissmann is a partner in the law firm of Jenner
& Block. He was the Enron Task Force Director overseeing the
prosecution of more than 30 individuals, selected by the
Director of the FBI to be his special counsel; bachelor's
degree from Princeton and law degree from Columbia.
Thank you very much for joining us today, Mr. Weissmann,
and we look forward to your testimony.
STATEMENT OF ANDREW WEISSMANN, PARTNER, JENNER & BLOCK, NEW
YORK, NEW YORK
Mr. Weissmann. Good morning, Senators Specter and Sessions,
members of the Committee, and staff.
The advisability of a statutory solution to the
infringement of the attorney-client privilege by DOJ must be
examined in the context of the unique nature of corporate
criminal law.
First, the mere indictment of a company risks a death
sentence as well as severe consequences to hundreds or even
thousands of innocent people. Indeed, a criminal indictment
carries the risk that the market will impose a death sentence--
even before the company can go to trial and have its day in
court. One of the lessons corporate America took from the
Arthur Andersen case, where I served as the lead trial
attorney, is to avoid an indictment at all costs.
Second, a corporation of any significant size will
inevitably be subject to criminal investigation at some point
during its existence. This is so because under the current
standard of corporate criminal liability, a company can be
found liable based on the actions of a single, low-level
employee where only two conditions are met: the employee acted
within the scope of her employment, and the employee was
motivated, at least in part, to benefit the corporation. If an
employee commits such a crime, then no matter how many policies
the company has to thwart the criminal conduct, the company can
be prosecuted. This standard I note of vicarious liability is
not the creation of congressional statute, nor, indeed, of a
Supreme Court ruling, which has never addressed this issue. It
is the product of a series of appellate rulings that have
defined the scope of corporate criminal law.
In light of these precepts, prosecutors have enormous
leverage. To avoid indictment, corporations will go to great
lengths to be deemed ``cooperative'' with a Government
investigation. KPMG is a prime example, as Judge Kaplan found.
The Bristol Myers case is another example. There, the company
agreed, among other things, to endow a chair at the
prosecutor's alma mater in order to resolve an investigation
short of indictment.
The pressures on a company are, accordingly, not analogous
to those on an individual in our criminal justice system. An
individual is subject to liability for conduct that she
controls absolutely; not so, a corporation. A company can face
indictment based on the conduct of any one of thousands of
employees, and regardless of its efforts to detect and deter
the conduct at issue. An individual also does not risk a death
sentence before she ever stands trial. And the potential
collateral consequences to an individual, although they can be
severe, can pale in comparison to the scope of such
consequences in a corporate setting.
Let me turn to some of the DOJ policies that I believe have
been wanting and how the Senate bill will fix those.
The McNulty Memorandum does not require the decision to
charge a corporation to be viewed at Main Justice. Such a lack
of national oversight is bewildering given the wide array of
relatively minor decisions that are overseen by Main Justice
and the enormity of the potential consequences of charging a
company. It is ironic that one of the key innovations in the
McNulty Memorandum was oversight of the decisions regarding
requests for waiver. Yet, the ultimate decision regarding
whether to charge a company receives no such scrutiny.
Moreover, although the theory of the McNulty Memorandum is
a good one, in practice individual prosecutors interpret its
factors markedly differently. There is reason to believe that
little has been done to train prosecutors on the McNulty
Memorandum's dictates and to measure diligently compliance with
its provisions. My own experience suggests as much. In one
case, I was told that a company would be deemed cooperative by
waiving the privilege and disclosing the material without
making the prosecutor jump through the McNulty Memorandum
hoops.
Further, the McNulty Memorandum leaves intact the
Government's ability to penalize a company that does not take
punitive action against employees who are invoking the right to
remain silent. By contrast, the Senate bill would prohibit the
government from considering an employee's assertion of the
Fifth Amendment.
Ironically, then, the Government can encourage employers to
take the more Draconian corporate measure against its
employees--namely, firing them--but not to weigh in on the
decision whether to advance legal fees.
Finally, the McNulty Memorandum continues to exert undue
pressure on companies to waive the privilege because
prosecutors can still penalize a company for refusing to waive.
Although refusal to disclose legal advice cannot account
against a company, the same does not hold true with respect to
``purely factual information.'' But the McNulty Memorandum's
examples of purely factual information illustrates the problem.
The memorandum defines as ``purely factual'' witness
statements, interview memoranda, and factual summaries and
reports documented by counsel. But those specific matters have
been found by numerous courts to be precisely what is protected
by the attorney-client and work product doctrines.
My own experience prosecuting corporate crime belies the
notion that a prosecutor must have such waivers in order to
prosecute successfully such cases. There are myriad ways for a
company that seeks to cooperate to provide the Government with
valuable information without waiving the privilege. A company
can direct the Government to documents and witnesses who will
further its investigation. It can also give the Government an
attorney proffer of salient facts. None of that requires the
company to waive the attorney-client privilege.
Thank you.
[The prepared statement of Mr. Weissmann appears as a
submission for the record.]
Senator Specter. Thank you very much, Mr. Weissmann.
We will admit, without objection, three statements in
support of S. 186 from the American Bar Association, former
Delaware Chief Justice Veasey, and from the Coalition to
Preserve Attorney-Client Privilege.
Governor Thornburgh, it has been a long time since I was a
prosecutor, but you served as Attorney General through 1991.
What is the origin, the genesis of all of this activity by the
Department of Justice to extract waivers of the privilege?
Mr. Thornburgh. I do not know. I have been curious about
that myself. I would doubt that any of my distinguished
colleagues with experience in the Department of Justice,
including Senator Sessions, ever had occasion to request waiver
of the attorney-client privilege in the course of white-collar
crime investigations. As I said, that was not an item on the
checklist of prosecutors when I served in the Department of
Justice. But somehow or other, during the 1990s and resulting
in the Holder and Thompson Memorandums, it became a practice
that was frequently indulged in. And to a certain extent, I
suppose, regardless of what legislative remedies might be
undertaken, the genie is already out of the bottle, and it will
be difficult to constrain the far-flung apparatus of Federal
prosecutions totally from sneaking in a request of this kind or
making a threat of the type that has been envisioned as time
goes on.
As I said, I think that the attorney-client privilege has
been upheld for corporations in these types of investigations
in very express language in the Supreme Court in the Upjohn
case, with a notation that it must be clearly understood that
that privilege exists, and that if it is rendered uncertain, it
vitiates its usefulness.
Senator Specter. I think you are right on the genie being
out of the bottle. Once it is in use, the tremendous power of
the prosecutor arises largely from his charging authority.
Mr. Thornburgh. Yes.
Senator Specter. A judge cannot add charges.
Professor Seigel, you comment about exceptions. The
Government is entitled to everyone's evidence. We are all
familiar with that. But there are many limitations on that
besides the attorney-client privilege, husband-wife privilege,
coerced confessions since Brown v. Mississippi in 1938, Miranda
we all know about, privilege against self-incrimination. A
defendant does not have to testify. No comment about it.
I think that what the Committee may be most interested in,
and the Senators, is how tough it would be on the prosecution
to convict the guilty without this waiver approach.
Mr. Weissmann prosecuted 30 individuals in the Enron case.
Were you able to do that without extracting waivers, Mr.
Weissmann?
Mr. Weissman. Well, there were some waivers in connection
with the Enron case, but that was under the Thompson Memorandum
where it was actually affirmatively encouraged to exact such
waivers. But I think the result in those cases would have been
exactly the same.
Senator Specter. Could you have had the same success? Well,
that is the question. Maybe you have already answered. I guess
you have already answered. Could you have gotten the success
without the waiver?
Mr. Weissman. I believe so.
Senator Specter. Professor Richman, you have been very
candid in saying that the enactment of S. 186, as you put it,
would not change much, that there would be invasive procedures,
and you listed search warrants and subpoenas and surveillance.
Well, that is all part of the existing process. But what leads
you to the conclusion so that I can quote you more elaborately
when we have the markup on the bill that, as you put it, the
passage of 186 would not change very much?
Mr. Richman. Senator Specter, I think there is a very large
range of cases where the Government either comes calling to
defense counsel or defense counsel comes to the Government,
assuming that there eventually will be Government action, and
wants to get this matter moving as soon as possible. There has
been--
Senator Specter. Well, if the corporation comes or the
individuals come and they say, ``We want to waive it,'' that is
fine.
Mr. Richman. Yes. That is what I was--the only point I was
making is I think that class of cases is very large, and what
is more, the class of cases not included, the ones where
corporations do not waive for their own reasons, I am worried
about those. I think that is a considerable group of cases. I
think those are precisely the ones where defense counsel may
either have conducted no investigation or be not very candid
with the Government.
I would not want the Government to be very quick to take
his word for it, and the problem that this proposal will create
is there will be this choice that the Government has of
investing massive resources into the investigation or taking
his word for it.
Senator Specter. There is no duty to be candid with the
Government.
Mr. Richman. No, there is not, but there also is exposure
to criminal liability. One of the odd things about the Federal
system or any criminal justice system, as you know better than
anyone, is the threat of prosecution goes far.
Senator Specter. Well, you let the chips fall where they
may. Our focus is very narrow on the attorney-client privilege.
How about it, Professor Seigel? You have heard Prosecutor
Thornburgh testify. You have heard Prosecutor Weissmann
testify, Prosecutor Richman testify. Are you going to file a
dissent that this bill's enactment would not impede convicting
the guilty?
Mr. Seigel. Yes, I do disagree with that, for a couple of
reasons. First, I think that although right now under the
existing dynamic with McNulty, a lot of corporations do come
in, and because there has been criminality in their midst at
relatively high levels, and they look at the other McNulty
factors, they are likely to be charged, and so they have a
large incentive to cooperate. And if the only way they can
provide the information necessary to cooperate is to waive
privilege, that is what they do.
What I think--and I think maybe I disagree here with
Professor Richman a little bit--is that the proposed
legislation would change that dynamic and that a fair number of
those companies would realize that an alternative potentially
successful strategy would be to stonewall because without the
ability of the Government to say give me more or we need more
before we can give you credit for cooperation, the company is
going to say we will give you everything that is not
privileged, which might be very little, and now that we have
fully cooperated you cannot charge us. And when the prosecution
goes forward--and I think Professor Richman was referring to
this in his testimony. If the prosecutor decides to charge a
company--
Senator Specter. There is no basis for their saying the
prosecutor cannot charge them because they view their
cooperation as full.
Mr. Seigel. But if they get charged, Senator, they will
presumably, if there is any teeth in the legislation, be able
to file a motion to dismiss based upon their view that the
prosecutor charged them because they refused to turn over
attorney-client privilege.
Senator Specter. They can say whatever they like, but they
cannot necessarily prove it.
Senator Sessions?
Senator Sessions. I do not understand what we are doing
here. Mr. Seigel, I will ask you, we have got a lot of laws,
and maybe this is just one too many. I think Mr. Richman
suggested it is going to cause more litigation and hearings and
appeals than we can imagine for not much benefit. But I will
ask maybe the two of you here. Whose rights are we talking
about being violated?
As you raised, Mr. Seigel, the only question that comes to
my mind is that perhaps a corporate employee being interviewed
by corporate counsel might not assert privileges that he would
otherwise assert if he were being interviewed by the FBI and
somehow give up information that incriminates him-or herself.
But I do not see this problem with the corporation. It seems to
me that the gist of this legislation is to say that if the
corporation wants to go to the prosecutor and offer to give up
all their material as a good-faith statement that they are
determined to eliminate fraud and corruption and the chips fall
where they may, which is what we want corporations--
Mr. Seigel. All of which is a public good.
Senator Sessions. I mean, I do not see how--but this
legislation would simply say the prosecutor could not initiate
it. The prosecutor could not say let me tell you what you
really need to do, because we are heading toward charges
against you, is come on forward and tell us--you have done an
internal investigation, you give us all that, and we will take
that as a good-faith effort and try to consider that as we go
forward.
Isn't that the only difference in--do they--
Mr. Seigel. The prosecutor could not initiate it, and as I
understand the bill, the prosecutor could not take into account
the failure of the company not to do that when weighing their
cooperation, which is odd because the way--the cooperation is
information. So whether they have parted with information, the
information the corporation has is likely privileged because
the corporation chose to have lawyers do their investigation.
So by saying that you cannot weigh whether or not they have
given over privileged information I do think shifts the balance
of power back to corporations to hold that information and
still claim cooperation.
Senator Sessions. What if the prosecutor just looked at
them with steely eyes and said, I know you have done an
investigation, we have got 150 subpoenas ready to issue, we
have got a grand jury that is ready to hear that, and that is
what our plans are right now?
Mr. Seigel. Yes, right. And I think--
Senator Sessions. And then you end up with a--this is a
threat.
Mr. Seigel. Well, I think it could be--
Senator Sessions. This was a request for the documents.
Mr. Seigel. That is right. It could--
Senator Sessions. We could have hearings and appeals of all
of that. Is that possible?
Mr. Seigel. That is possible. Or either the corporation
will get the message and hand this stuff over, anyway, in which
case this was all pretty much a waste. Or it will hold tight,
and if it gets indicted, we will have to have hearings over the
motivation of the prosecution, which seems to be something that
we always try to avoid if we can.
Going back to the individual employees, my point is there
ought to be--the ABA Rules of Responsibility are not very well
written in this area, and there ought to be--if we are worried
about the little guy--which is, frankly, who I am worried
about, the taxpayer, the shareholder. If we are worried about
the little guy, then we need to look at the rules regarding
when corporate counsel advises the individual employee, look, I
do not represent you, what you say to me is not held in
confidence vis-a-vis you, it is not your choice, it is the
corporation's choice; and if you have anything that is going to
incriminate yourself, go get yourself a lawyer. That to me is
where the rules potentially--
Senator Sessions. And that is not required by lawyer ethics
clearly at this point in--
Mr. Seigel. Not clearly. I think most--
Senator Sessions. Mr. Weissmann, I will just give you a
chance to respond to any of that, and also the question: In
most corporate counsel investigations, do they give those kind
of warnings to the employees, that I am not your lawyer, that
what you tell me, if the corporation decides, could be given to
the authorities?
Mr. Weissman. Yes, that is standard. Those are so-called
Upjohn warnings and every employee is told that.
I think the issue, though, here is that the Senate bill
certainly leaves a company free to voluntarily turn over
whatever it wants to the Government on its own. The problem
here is that the current status is that even without a
request--and certainly there are requests, but even without
one, companies read what was the Thompson Memo and now the
McNulty Memo, and they know exactly what they have to do. That
is precisely what Judge Kaplan, a distinguished jurist, found
in the KPMG case, which was that KPMG, although it was clearly
on notice from the Southern District of New York prosecutor as
to what it needs to do, it did not, in fact, need to even be
told because it could read the memo and realize that its only
way out of the situation, before the Government even said it
had a case, was to turn over everything it could.
And so what happened there is Judge Kaplan equated the
actions of the company with the actions of Government because
it found that the company was merely an amanuensis of the
Government and was just doing its bidding.
So what I would say here is that while there has been a lot
of talk about the damage to shareholders and to the little guy,
that equally weighs in on the other side, which is that there
is nothing worse for shareholders and the low-level employee
than a baseless civil suit and an unwarranted criminal
investigation.
So I think if you are looking out for the small player in
this, you can equally view this as a very bad thing that is
going on right now.
Senator Sessions. Well, I would agree that an
overaggressive prosecutor could perhaps utilize an intimidation
factor, a threat of an indictment or publication of wrongdoing
when there is not sufficient proof of it. That could hurt a
corporation. It could hurt stockholders unfairly and unjustly.
But my impression is that the McNulty Memo is really designed
to deal with that in a real way, requiring approval all the way
up the chain of command before anything like this could be
done, and it certainly tightened up the procedure. But to
deny--to create a statutory right in the middle of a corporate
investigation that could cause all kinds of problems for not
much benefit I am uneasy about.
Thank you.
Senator Specter. Thank you very much, Senator Sessions, and
thank you, Governor Thornburgh and Professor Richman and
Professor Seigel and Mr. Weissmann. I think the testimony has
been very helpful.
Mr. Thornburgh. Could I add just one comment? I am somewhat
puzzled that if the concerns are for all the trouble we are
putting the prosecutors to, to make their case, the expense
that is involved, the concern for the little guy, why is the
Department so timid? Why don't they just come forward with a
proposal that would abolish the attorney-client privilege for
corporations and get that result?
It seems to me that is really what you are talking about
here, is a kind of incremental process of nibbling away at a
time-honored and sacrosanct privilege when the real desire is
to expedite investigations, make the prosecutor's job easier,
and protect in so-called fashion the rights of the little guy,
as they have been styled by this panel. I think that is
something worth asking Judge Mukasey about when he appears
before you.
Senator Specter. I am meeting with him in a few minutes.
Mr. Thornburgh. Maybe he favors the abolishment of the
attorney-client privilege for corporations.
Mr. Seigel. I would go on the record not favoring that. I
think it is in the hands of defense counsel, and that is where
it should be.
Senator Specter. It would not enhance his chances for
confirmation if he adopted the bold Thornburgh approach.
[Laughter.]
Senator Specter. If he agreed to rescind the practice, I
think it would enhance it.
Mr. Thornburgh. I quite agree. That is what I was getting
at.
[Laughter.]
Mr. Richman. Senator Specter, one note on that. Judge
Mukasey is a man of extraordinary judgment, and I really think
there are good reasons to wait and see how he runs this
Department. It is a long-awaited arrival--at least for those of
us hoping for his confirmation.
Senator Specter. Well, I am not prepared to wait and see.
We have been considering this matter at some length. There was
a suggestion made that we defer this hearing until we had a new
Attorney General, and that is going to take a long time, and it
may not be a question of when but if, where you have a lot of
demands made for production of a lot of records on the
Terrorist Surveillance Program and the production of White
House witnesses and all the records about the U.S. Attorneys.
My experience, limited as it is, is not to wait but to try to
make an analysis and come to a conclusion and to move ahead.
But I think this hearing today provides us with a
sufficient basis to make a judgment. We have had very
distinguished witnesses on both sides of this issue. And I
understand what Professor Seigel has said, but when Professor
Richman testifies as he did and you have Mr. Weissmann's
experience on Enron and, candidly, most of all, what a
prosecutor like Dick Thornburgh has had to say, with experience
at all levels and a sense of wonderment, I have been in the
Senate all during the period this program apparently was
developed and had not heard about it until the outcry has come
up recently. And I think this is a matter for congressional
judgment, and I intend to press it.
Thank you very much--
Mr. Richman. Senator, can I add one thing? I just want to
clarify my testimony. I do not think that this measure will
have no effect whatsoever. The point is that those who will
avail itself of its protection are the guilty ones.
Senator Specter. I do not consider your last statement
recanting your earlier testimony.
[Laughter.]
Senator Specter. Thank you very much.
[Whereupon, at 11:55 a.m., the Committee was adjourned.]
[Questions and answers and submissions for the record
follow.]
[GRAPHIC] [TIFF OMITTED] T0629.001
[GRAPHIC] [TIFF OMITTED] T0629.002
[GRAPHIC] [TIFF OMITTED] T0629.003
[GRAPHIC] [TIFF OMITTED] T0629.004
[GRAPHIC] [TIFF OMITTED] T0629.005
[GRAPHIC] [TIFF OMITTED] T0629.006
[GRAPHIC] [TIFF OMITTED] T0629.007
[GRAPHIC] [TIFF OMITTED] T0629.008
[GRAPHIC] [TIFF OMITTED] T0629.009
[GRAPHIC] [TIFF OMITTED] T0629.010
[GRAPHIC] [TIFF OMITTED] T0629.011
[GRAPHIC] [TIFF OMITTED] T0629.012
[GRAPHIC] [TIFF OMITTED] T0629.013
[GRAPHIC] [TIFF OMITTED] T0629.014
[GRAPHIC] [TIFF OMITTED] T0629.015
[GRAPHIC] [TIFF OMITTED] T0629.016
[GRAPHIC] [TIFF OMITTED] T0629.017
[GRAPHIC] [TIFF OMITTED] T0629.018
[GRAPHIC] [TIFF OMITTED] T0629.019
[GRAPHIC] [TIFF OMITTED] T0629.020
[GRAPHIC] [TIFF OMITTED] T0629.021
[GRAPHIC] [TIFF OMITTED] T0629.022
[GRAPHIC] [TIFF OMITTED] T0629.023
[GRAPHIC] [TIFF OMITTED] T0629.024
[GRAPHIC] [TIFF OMITTED] T0629.025
[GRAPHIC] [TIFF OMITTED] T0629.026
[GRAPHIC] [TIFF OMITTED] T0629.027
[GRAPHIC] [TIFF OMITTED] T0629.028
[GRAPHIC] [TIFF OMITTED] T0629.029
[GRAPHIC] [TIFF OMITTED] T0629.030
[GRAPHIC] [TIFF OMITTED] T0629.031
[GRAPHIC] [TIFF OMITTED] T0629.032
[GRAPHIC] [TIFF OMITTED] T0629.033
[GRAPHIC] [TIFF OMITTED] T0629.034
[GRAPHIC] [TIFF OMITTED] T0629.035
[GRAPHIC] [TIFF OMITTED] T0629.036
[GRAPHIC] [TIFF OMITTED] T0629.037
[GRAPHIC] [TIFF OMITTED] T0629.038
[GRAPHIC] [TIFF OMITTED] T0629.039
[GRAPHIC] [TIFF OMITTED] T0629.040
[GRAPHIC] [TIFF OMITTED] T0629.041
[GRAPHIC] [TIFF OMITTED] T0629.042
[GRAPHIC] [TIFF OMITTED] T0629.043
[GRAPHIC] [TIFF OMITTED] T0629.044
[GRAPHIC] [TIFF OMITTED] T0629.045
[GRAPHIC] [TIFF OMITTED] T0629.046
[GRAPHIC] [TIFF OMITTED] T0629.047
[GRAPHIC] [TIFF OMITTED] T0629.048
[GRAPHIC] [TIFF OMITTED] T0629.049
[GRAPHIC] [TIFF OMITTED] T0629.050
[GRAPHIC] [TIFF OMITTED] T0629.051
[GRAPHIC] [TIFF OMITTED] T0629.052
[GRAPHIC] [TIFF OMITTED] T0629.053
[GRAPHIC] [TIFF OMITTED] T0629.054
[GRAPHIC] [TIFF OMITTED] T0629.055
[GRAPHIC] [TIFF OMITTED] T0629.056
[GRAPHIC] [TIFF OMITTED] T0629.057
[GRAPHIC] [TIFF OMITTED] T0629.058
[GRAPHIC] [TIFF OMITTED] T0629.059
[GRAPHIC] [TIFF OMITTED] T0629.060
[GRAPHIC] [TIFF OMITTED] T0629.061
[GRAPHIC] [TIFF OMITTED] T0629.062
[GRAPHIC] [TIFF OMITTED] T0629.063
[GRAPHIC] [TIFF OMITTED] T0629.064
[GRAPHIC] [TIFF OMITTED] T0629.065
[GRAPHIC] [TIFF OMITTED] T0629.066
[GRAPHIC] [TIFF OMITTED] T0629.067
[GRAPHIC] [TIFF OMITTED] T0629.068
[GRAPHIC] [TIFF OMITTED] T0629.069
[GRAPHIC] [TIFF OMITTED] T0629.070
[GRAPHIC] [TIFF OMITTED] T0629.071
[GRAPHIC] [TIFF OMITTED] T0629.072
[GRAPHIC] [TIFF OMITTED] T0629.073
[GRAPHIC] [TIFF OMITTED] T0629.074
[GRAPHIC] [TIFF OMITTED] T0629.075
[GRAPHIC] [TIFF OMITTED] T0629.076
[GRAPHIC] [TIFF OMITTED] T0629.077
[GRAPHIC] [TIFF OMITTED] T0629.078
[GRAPHIC] [TIFF OMITTED] T0629.079
[GRAPHIC] [TIFF OMITTED] T0629.080
[GRAPHIC] [TIFF OMITTED] T0629.081
[GRAPHIC] [TIFF OMITTED] T0629.082
[GRAPHIC] [TIFF OMITTED] T0629.083
[GRAPHIC] [TIFF OMITTED] T0629.084
[GRAPHIC] [TIFF OMITTED] T0629.085
[GRAPHIC] [TIFF OMITTED] T0629.086
[GRAPHIC] [TIFF OMITTED] T0629.087
[GRAPHIC] [TIFF OMITTED] T0629.088
[GRAPHIC] [TIFF OMITTED] T0629.089
[GRAPHIC] [TIFF OMITTED] T0629.090
[GRAPHIC] [TIFF OMITTED] T0629.091
[GRAPHIC] [TIFF OMITTED] T0629.092
[GRAPHIC] [TIFF OMITTED] T0629.093
[GRAPHIC] [TIFF OMITTED] T0629.094
[GRAPHIC] [TIFF OMITTED] T0629.095
[GRAPHIC] [TIFF OMITTED] T0629.096
[GRAPHIC] [TIFF OMITTED] T0629.097
[GRAPHIC] [TIFF OMITTED] T0629.098
[GRAPHIC] [TIFF OMITTED] T0629.099
[GRAPHIC] [TIFF OMITTED] T0629.100
[GRAPHIC] [TIFF OMITTED] T0629.101
[GRAPHIC] [TIFF OMITTED] T0629.102
[GRAPHIC] [TIFF OMITTED] T0629.103
[GRAPHIC] [TIFF OMITTED] T0629.104
[GRAPHIC] [TIFF OMITTED] T0629.105
[GRAPHIC] [TIFF OMITTED] T0629.106
[GRAPHIC] [TIFF OMITTED] T0629.107
[GRAPHIC] [TIFF OMITTED] T0629.108
[GRAPHIC] [TIFF OMITTED] T0629.109
[GRAPHIC] [TIFF OMITTED] T0629.110
[GRAPHIC] [TIFF OMITTED] T0629.111
[GRAPHIC] [TIFF OMITTED] T0629.112