Corporate Cooperation during Investigations and Audits (2007)

I. Introduction The period 1999 to 2007 was characterized in the corporate setting by a major erosion of the attorney-client privilege and the attorney work product doctrine. To a lesser but still substantial degree there was a parallel erosion of the Fifth Amendment privilege against self-incrimination and the Sixth Amendment right to counsel. This overall trend was a function of specific policies adopted by the United States Department of Justice (DOJ), and it was facilitated by policies expressly or implicitly adopted by the Securities and Exchange Commission (SEC), the United States Sentencing Commission, the Public Company Accounting Oversight Board (PCAOB) established pursuant to the Sarbanes-Oxley Act (SOX),1 and external auditors. These policies have been designed to coerce cooperation by corporations and their employees during the course of investigations and audits, by compelling the waiver of basic rights and privileges. This Article examines the relevant policies, including a modified framework (the McNulty Memorandum) announced in December 2006 by the DOJ that was designed to publicly address the loud chorus of criticism directed toward its established practices. This Article concludes that the modified policy is unlikely to accomplish any genuine reform. The Article recommends that federal legislation be adopted to stem the tide of eroding privilege. II. DOJ Policies Concerning Waiver of the Attorney-Client Privilege and Attorney Work Product Doctrine A. The 1999 Holder Memorandum Federal policy concerning waiver has been formalized during the last decade in a series of documents that identify cooperation by corporations under investigation as a key factor to be considered when the government makes a prosecutorial decision. The Holder Memorandum, issued in June 1999 by then-United States Deputy Attorney General Eric Holder, was the first of four documents that established the DOJ's policy on cooperation by corporations under investigation.2 The Holder Memorandum was issued to provide guidance as to what factors should generally inform a prosecutor in making the decision whether to charge a corporation in a given case.3 Prior to the issuance of the Holder Memorandum, the DOJ had no consistent policy on corporate prosecution. Prosecutors considering charging companies enjoyed discretion to consider whatever factors they deemed relevant, in addition to those policies generally governing federal prosecutions.4 The Holder Memorandum specified that, in general, corporations should be treated in the same manner as individuals during the course of a criminal investigation. Accordingly, prosecutors should consider all of the factors that are outlined in the U.S. Attorneys' Manual and are normally considered in the exercise of prosecutorial judgment. These include the sufficiency of the evidence, the likelihood of success at trial, and the deterrent, rehabilitative, and retributive effect of a successful prosecution.5 The Holder Memorandum also identified eight additional factors that should be considered when deciding whether to charge a corporate target. Those factors were: (1) The nature and seriousness of the offense, including the risk of harm to the public . . . ; (2) The pervasiveness of wrongdoing within the corporation, including the complicity in, or condonation of, the wrongdoing by corporate management . . . ; (3) The corporation's history of similar conduct, including prior criminal, civil, and regulatory enforcement actions against it . . . ; (4) The corporation's timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents, including, if necessary, the waiver of the attorney-client and work product privileges . . . ; (5) The existence and adequacy of the company's compliance program . . . ; (6) The corporation's remedial actions, including any efforts to implement an effective corporate compliance program or to improve an existing one, to replace responsible management, to discipline or terminate wrongdoers, to pay restitution, and to cooperate with the relevant government agencies . …