In a criminal prosecution that America's legal and business
communities have been watching closely, a federal court in
Manhattan issued two rulings this summer that shed light on questionable
and apparently unconstitutional tactics that the U.S. Department of
Justice has been using in its post-Enron, post-WorldCom offensive
against "white-collar" financial crime. United States v.
Stein involves the Justice Department's prosecution of
former employees of the international accounting firm KPMG for
their alleged wrongdoing in the firm's tax-shelter practice. The
case's ramifications reach far beyond KPMG.
Coupled with hearings the House of Representatives held in March
and the Senate held in September on closely related issues, the
rulings by Judge Lewis Kaplan of the U.S. District Court for the
Southern District of New York promise to spur much-needed reform of
Justice Department policies and practices for investigating
and prosecuting white-collar crime. Judge Kaplan concluded
that the federal prosecutors violated the KPMG defendants' Fifth
and Sixth Amendment rights. The prosecutors did this
indirectly-i.e., by pressuring KPMG to exert professional and
financial pressure on its employees to forgo their rights.
Neither these rulings nor the government conduct they exposed
came as a shock to the many attorneys, business leaders, and
professional and business associations that have been voicing
their concerns and objections regarding what are widely considered
to be abusive tactics by the Justice Department in its
investigation and prosecution of white-collar crime. These concerns
and objections have, however, received relatively little attention
in the mainstream media, which generally reports nothing about
white-collar crime other than news of federal prosecutors'
regular successes in investigating, prosecuting, and
convicting well-known businesses and their employees. The average
American thus may be surprised to learn the details of the
prosecutorial conduct, as described in Judge Kaplan's
opinions, that apparently is authorized by Justice Department
The Stein case provides compelling evidence that our
federal justice system needs reform. Five specific reforms to the
Department of Justice's prosecutorial policies and practices stand
out. The Justice Department should:
- Eliminate consideration of whether a business organization
waived its rights to maintain the confidentiality of privileged
attorney-client communications and attorney work product when
determining whether the business should be indicted;
- Accept, but never request, materials or information that
is covered by the attorney-client privilege or attorney
- Not seek production of materials and information for which
a business has asserted a privilege or work-product objection
in response to a valid subpoena or other request by the
government unless the materials and information are not in
fact entitled to protection because they are being used to
perpetrate a crime or fraud;
- Collect and regularly publish, at least until the above
recommendations are implemented, statistics showing how often
federal prosecutors request waivers, how often individuals and
businesses agree to such requests, and how they waive privilege
apart from any overt request; and
- Eliminate any consideration of whether a business is
paying employees' legal fees when determining whether the
organization will be indicted.
STEIN REVEALS PROSECUTORS' COERCIVE
KPMG at the Mercy of the Government
In U.S. v. Stein, twelve former KPMG employees are being
prosecuted for their alleged wrongdoing in KPMG's provision of
tax-shelter products and services. In order to avoid the
potentially catastrophic effects that a federal indictment
alone can have on a business, in August 2005 KPMG entered into a
deferred prosecution agreement with the Justice Department that
required KPMG to admit that tax fraud had been committed by the
accounting firm itself.
Earlier this year, the defendants in the Stein
prosecution made pre-trial motions asserting that their Fifth
Amendment due-process rights and Sixth Amendment rights to counsel
were violated by the Justice Department's written policies and
federal prosecutors' conduct when investigating KPMG. Judge Kaplan
agreed. The written opinions accompanying Judge Kaplan's two
rulings provide an eye-opening account of the Justice
Department's current practices in investigating and
prosecuting white-collar crime.
The story begins well after the defendants' alleged misconduct.
Once the IRS concluded its investigation of KPMG's tax-shelter
practice and referred the case to the Justice Department for
possible prosecution, federal prosecutors convened an initial
meeting with attorneys from Skadden, Arps, Slate, Meagher &
Flom, the law firm serving as KPMG's outside defense counsel. When
KPMG learned of the IRS's criminal referral, it promptly concluded
that a federal criminal indictment probably would destroy the
firm, much as federal indictment alone had destroyed its former
competitor Arthur Andersen.
Before indictment by the Justice Department for its alleged
wrongdoing in the Enron scandal, Arthur Andersen was an 89-year-old
accounting powerhouse with annual worldwide revenues of $9.3
billion and 28,000 employees. By the time the U.S. Supreme Court
reversed Andersen's conviction, the firm had long since
imploded and its partners and employees had dispersed. All that
remained were relatively paltry assets upon which numerous
litigants were making claims, most piggy-backing on Justice
Department allegations of Enron-related wrongdoing. If they had any
doubt before, every business leader and business attorney now knows
that the mere decision to prosecute can destroy their company.
Federal prosecutors decide whether to prosecute a business such
as KPMG or Arthur Andersen based in part on whether the
organization cooperates fully with the government's investigation.
Arthur Andersen thus stands as a powerful lesson to businesses
on what can happen to them if they fail to persuade prosecutors
that they have fully cooperated. This lesson has not been lost on
firms being investigated by federal regulators and prosecutors.
As Judge Kaplan noted, there can be little doubt that KPMG had
taken to heart the fate of Arthur Andersen. At its first meeting
with prosecutors, KPMG's outside counsel disclosed that the firm
had decided to cooperate fully with the government in order to
avoid indictment. The firm's counsel explained that KPMG had
concluded that indictment would probably destroy it. KPMG's goal,
he said, was to save itself, not to protect any of its
KPMG had essentially thrown itself on the mercy of the
prosecutors and would do anything necessary to avoid indictment.
This should have been apparent to anyone in the meeting and should
have caused the prosecution team to tread lightly to ensure that
KPMG did not overstep the bounds of fairness or use its economic
leverage over its employees in an improper manner.
Soon after the opening comments by KPMG's counsel, the lead
prosecutor "asked" whether KPMG had any legal or contractual
obligations to pay its employees' legal fees and what the firm's
plans were in this regard. KPMG's counsel requested the prosecution
team's perspective on whether the firm could pay legal fees. The
supervising prosecutor's response was that the Justice
Department's so-called Thompson Memorandum must be considered.
The Justice Department's Thompson
When deciding whether to prosecute a business organization,
every federal prosecutor is required to assess the nine factors set
forth in Principles of Federal Prosecution of Business
Organizations, a memorandum issued in January 2003 by
then-Deputy Attorney General Larry Thompson. The Thompson
Memorandum revised its predecessor, the Holder Memorandum, primarily by making a federal
prosecutor's assessment of the Holder Memorandum's factors
mandatory rather than advisory. Prominent among the Thompson
Memorandum's nine factors is number four, "the
corporation's timely and voluntary disclosure and its
willingness to cooperate in the investigation of its
agents." Most of what the Thompson Memorandum and
Justice Department prosecutors deem to be cooperation is
non-controversial. What has caused widespread concern,
however, is the Thompson Memorandum's direction to prosecutors to
consider (1) whether a business organization has declined to pay or
advance attorney fees for its "culpable employees and agents" and (2) whether the organization has waived
its attorney-client privilege.
Even if no member of a prosecution team ever mentions either
factor to a company, the mandatory nature of the Thompson
Memorandum places great pressure on the company to take these two
steps. As the Thompson Memorandum itself
emphasizes, a "prosecutor generally has wide latitude in
determining when, whom, how, and even whether to prosecute." A company and its counsel know that
the prosecution team will go through each of the Memorandum's nine
factors point by point. If a company has chosen not to comply with
any one of the specific examples the Memorandum provides of proper
cooperation, it will be glaringly apparent. As KPMG's chief in-house counsel
testified at a deposition, the firm's goal was "to be able to say
at the right time with the right audience, we're in full compliance
with the Thompson [Memorandum]." Anything less may well have constituted
Corporate counsel are well apprised of the Justice
Department's attitude toward legal representation of
executives and other employees whom prosecutors believe may be
guilty. The language of the Thompson Memorandum assumes, before
their trial or even their indictment, that those employees the
government suspects of wrongdoing are in fact guilty of
Another factor to be weighed by the prosecutor is
whether the corporation appears to be protecting its culpable
employees and agents. Thus, while cases will differ depending
on the circumstances, a corporation's promise of support to
culpable employees and agents . . . through the advancing of
attorneys fees . . . may be considered by the prosecutor in
weighing the extent and value of a corporation's
How a company is supposed to determine, before any trial or
indictment, whether its employees are in fact culpable-i.e.,
guilty of wrongdoing-is a question Justice Department policies
fail to answer.
Justice Department officials echoed this language in their
statements for the House and Senate hearings. As Judge Kaplan noted, Justice
Department officials have in the past also been quoted by the
media expressing skepticism that employees who know they have not
acted with criminal intent need excellent legal representation. No responsible corporate counsel could
fail to take such statements into account when contemplating
whether the prosecution team might deem a company's payment of
even a single employee's legal fees to be a "failure to
Prosecutors Increase the Pressure to
Set against this background, the supervising prosecutor's
reference to the Thompson Memorandum at the parties' first
meeting carried with it dire implications for KPMG's survival.
Judge Kaplan's opinions indicate that none of the parties disputes
that both KPMG counsel and the federal prosecutors attending
the first meeting were well aware of the relevant Thompson
Memorandum factors. KPMG's counsel could not have missed the import
of the supervising prosecutor's comment regarding the
KPMG's counsel explained to the prosecutors that the firm
normally paid its employees' legal fees but that it was still
investigating whether it had a legal or contractual obligation to
do so. Like most professional services organizations, KPMG had a
long-standing practice of paying its employees' legal fees in
full for actions taken as a part of their official duties. Neither
KPMG's counsel nor the court could identify any exceptions to this
practice. To the contrary, Judge Kaplan found that, prior to the
current investigation, KPMG had always paid fees without limit. In
one instance, KPMG had paid approximately $20 million to defend
four of its partners during the course of a criminal investigation
and civil charges by the Securities and Exchange Commission
Despite this policy, in the face of the pressure exerted by the
Thompson Memorandum, KPMG's counsel promised the prosecutors at
this first meeting that the firm would cut off payments for any
employees who declined to cooperate, such as by invoking their
constitutional right against self-incrimination. KPMG's counsel then moved on to discuss
the firm's internal investigation and efforts to dismiss those
partners the firm felt were not being cooperative.
The moment KPMG's counsel made another comment about legal
representation for KPMG's partners, the lead prosecutor shifted the
discussion back to KPMG's payment of attorney fees. He requested
that KPMG take steps to determine whether it had any legal or
contractual obligation to pay legal fees for those employees who
The supervising prosecutor followed up on the lead prosecutor's
request with an ambiguous comment to the effect that
misconduct should not or could not be rewarded and referred to
"federal guidelines." At the hearing before Judge Kaplan, this
prosecutor testified that she intended the comment to allude to the
possibility that KPMG might provide generous severance agreements
to employees under suspicion or investigation. Judge Kaplan
ultimately found that, whatever the supervising prosecutor's
subjective intent might have been, everyone else in the room-KPMG
representatives and prosecutors alike-interpreted her comment
as suggesting that if the firm paid its employees' attorney fees,
federal prosecutors might determine that the firm was not in
compliance with the Thompson Memorandum's cooperation
factor. As KPMG's counsel knew, the result of that determination
would probably be indictment.
Whatever doubt could have existed about the meaning of the
supervising prosecutor's comment was eliminated by the lead
prosecutor's next statement. If KPMG determined that it was
under no obligation to pay fees but did so anyway, he said,
"[W]e'll look at that under a microscope."
The prosecutors' comments and questions were not an off-hand
inquiry into KPMG's plans to pay attorney fees but part of the
prosecution team's overall strategy. Before this initial meeting,
the prosecution team gathered to prepare, and it produced a
document listing the issues the government intended to address
with KPMG. Titled "Skadden Meeting Points," the document listed on
its first page six questions that the prosecution team planned to
ask KPMG's counsel regarding whether the firm intended to pay
KPMG got the message. Despite the firm's unbroken practice of
paying the full amount of its employees' attorney fees, KPMG's
counsel unsurprisingly reported to the lead prosecutor soon
after the first meeting that, in the firm's opinion, it had no
legal obligation to do so. Counsel stated its concern, however,
that not paying fees at all would cause the firm significant
problems because of its long-standing practice to the contrary. For
this reason, the firm had decided to cap the amount of fees it
would pay for each employee and make payment conditional on the
employee's full cooperation with the government's
Further, KPMG's counsel asked the federal prosecutors to
inform KPMG immediately if any employee did not cooperate. KPMG promised that the firm would notify
any uncooperative employees that their attorney fees would be cut
off completely and that they might face other employment
consequences unless they cooperated fully.
Apparently, even this was not enough cooperation to satisfy
the prosecution team. Displeased with the language and tone of
KPMG's form letter encouraging employees to cooperate with the
government investigation, prosecutors went so far as to draft
their preferred language for the firm to use. The government's
draft emphasized that employees were free to meet with government
investigators "without the assistance of counsel." KPMG used a version of this language in a
follow-up document to its employees. The lead prosecutor also urged
KPMG to encourage its employees to be "totally open" with the prosecution team, even to the
point of admitting criminal wrongdoing.
By contrast, the government apparently did not encourage KPMG to
inform its employees that the firm's goals did not include
protecting its employees or that KPMG and the government were,
in effect, working as a team. In light of the prosecutors'
expressions of displeasure over KPMG's initial form letter, the
firm itself could not risk informing its employees of these
important facts affecting their constitutional rights and other
Thus was instituted a system whereby prosecutors would
inform KPMG whenever an employee was not sufficiently cooperative,
and KPMG would promptly inform that employee that the firm would
cut off attorney fees and possibly fire him unless he immediately
began to cooperate fully. Judge Kaplan found several instances in
which KPMG employees altered their course after the firm stated
that it would cut off their attorney fees, strongly implied that it
would fire them, or both. When recalcitrant witnesses whom the
government reported to KPMG suddenly began to cooperate,
prosecutors could not have failed to notice that the system was
The court concluded that through this system the government
violated the defendants' Fifth and Sixth Amendment rights. After a second hearing on these issues,
the court suppressed statements two defendants had provided to the
government only after KPMG had threatened to cut off
their legal fees and terminate their employment for their failure
A Telling Admission
The Justice Department's actions after the rulings by Judge
Kaplan strongly suggest that the Department is not disturbed by the
conduct of its prosecutors and that this conduct was not an
isolated occurrence. A few days after the first Stein
ruling, the Justice Department sent Judge Kaplan a brief letter
that speaks volumes. The media focused on the letter's request
that, in order to protect the individual prosecutors'
professional reputations, Judge Kaplan remove their names from
his opinion. But the first sentence of the letter's
second paragraph is more telling. It states:
The Government appreciates the Court's acknowledgement that
the prosecutors' conduct in this case was in accordance
with established Department of Justice policy that had
never before been addressed by a court.
The Justice Department's policies and practices for
investigating white-collar crime have run off course. Given the
immense pressure placed upon the Department by the media, Capitol
Hill, and the White House to come up with more white-collar
prosecutions and convictions of corporate executives, its decision
to streamline its policies and practices in order to obtain
deferred prosecution agreements, guilty pleas, and convictions
may be understandable. But that does not justify its conduct.
A WIDESPREAD PROBLEM
The violation of the former KPMG employees' constitutional
rights is part of a larger problem and not an isolated incident.
The extensive efforts of a broad array of organizations to redress
the coercive effects of the Thompson Memorandum's policies and
procedures illustrate this. This loose coalition spans the
political spectrum and includes the American Bar Association (ABA),
American Civil Liberties Union (ACLU), Association of
Corporate Counsel, Business Roundtable, National Association of
Criminal Defense Lawyers, and U.S. Chamber of Commerce. The
ABA, for example, formed a task force on the attorney-client
privilege in response to its members' concern over the
Department of Justice's increasing use of privilege waivers and
denials of attorney fee payments as tools in its white-collar law
enforcement efforts. As a result of the task force's efforts, the
ABA adopted a resolution stating that waiver of attorney-client
privilege should not be taken into account when determining whether
to prosecute a company. In May 2006, the ABA submitted a
reworked version of the Thompson Memorandum to Attorney General
Alberto Gonzales. The ABA's recommended revisions would
eliminate consideration of whether a company waived its
attorney-client privilege and whether it paid its employees'
attorney fees when Justice Department prosecutors are determining
whether the company should be indicted.
Members of the coalition have recommended to the U.S. Sentencing
Commission that the U.S. Sentencing Guidelines not take waiver of
attorney-client privilege into consideration when determining
for sentencing purposes whether a business organization cooperated
with the government. In August 2005, several former high-ranking
Justice Department officials joined in a letter supporting this
position, including former U.S. Attorneys General who served under
Presidents Jimmy Carter, Ronald Reagan, George H.W. Bush, and Bill
Clinton. The Sentencing Commission voted
unanimously in May 2006 to recommend that all language regarding
the waiver of the attorney-client privilege and work-product
protections be dropped from the relevant section of the U.S.
Sentencing Guidelines, which apply to all federal criminal
cases. Because Congress has not rejected or modified the
Commission's recommendation, it took effect as of November 1,
Despite this achievement, companies and their employees continue
to face federal criminal investigations and prosecutions in
the midst of a "culture of waiver." This culture has been
identified and partially quantified by surveys of attorneys
conducted by the coalition and headed by the Association of
Corporate Counsel (ACC) and National Association of Criminal
Defense Lawyers (NACDL). Approximately 75 percent of
respondents agreed that a culture of waiver exists "in which
governmental agencies believe it is reasonable and appropriate
for them to expect a company under investigation to broadly
waive [its] attorney-client privilege."
The Justice Department has criticized such surveys. Deputy
Attorney General Paul McNulty, for example, asserted before the
Senate Judiciary Committee last month that "no critic has
produced any empirical data demonstrating that prosecutors are
routinely requesting, let alone coercing[,] waivers."
This criticism is misplaced. The burden of proving the
frequency or infrequency of waivers should be on the government.
The Justice Department is the only entity that can produce
definitive empirical data. Only the Department has access to
the actual numbers that can demonstrate how frequently federal
prosecutors request privilege waivers and how frequently
companies waive privileges, either upon government request or
"voluntarily." Yet the Justice Department has been unwilling to
collect and publish these statistics.
WHY SHOULD AMERICANS CARE?
Payment of Attorney Fees
Not long after Judge Kaplan's first ruling in Stein in
June, an attorney posted a comment in response to a discussion of
Stein on the Wall Street Journal's weblog on legal
issues. The attorney expressed doubt whether the rights of the
Stein defendants were really worth protecting:
These defendants not only had counsel, but very good [counsel].
. . . [Judge] Kaplan is biased in favor of the rich defendants and
"their lawyers." If we are to give corporate wrongdoers such
special treatment, I think it should come from the legislature.
Such doubt about whether Americans should care about the
constitutional rights of white-collar criminal defendants is not
Judge Kaplan addresses this doubt by showing that what happened
in the KPMG investigation has troubling, widespread implications
for more Americans than just "rich defendants." It has become
an important principle of American working life that "an employer
often must reimburse an employee for legal expenses when the
employee is sued, or even charged with a crime, as a result of
doing his or her job." While acknowledging that this principle
is "not of constitutional dimension," Judge Kaplan points out that
employees in the highest and lowest positions in companies of all
sizes depend on their employers to provide for their legal defense
if they inadvertently run afoul of the law in the course of their
duties. Both the overnight delivery service driver who hits a
bicyclist who swerved in front of his truck and the high school
guidance counselor who provided regular counsel and advice to a
teenager who ends up committing suicide expect their employers
to pay for a good lawyer to defend them when these bad things
happen at work.
Second, the cost of defending against most white-collar criminal
charges is far greater than the cost of defending against the
typical traffic accident or even medical malpractice case.
White-collar criminal cases usually involve tens of thousands,
hundreds of thousands, or even millions of documents, all of
which must be sorted and sifted, then reviewed and reviewed again,
to determine whether the suspects actually committed a crime. By
June 2006, the government's case against the twelve KPMG defendants
involved 335 witness deposition transcripts, 195 income tax
returns, and approximately 5 to 6 million pages of
documents. This is the equivalent of approximately
3,000 boxes of documents that defense attorneys, paralegals, and
other legal assistants must categorize, index, and review in
fine detail. Only a select few of these documents will be presented
at trial (which, after his two rulings this summer, Judge Kaplan
postponed until January 2007), but the defense must be intimately
familiar with all of them in order to anticipate which the
prosecution might use to persuade the jury that the accused is
Although the most prominent white-collar criminal prosecutions
involve the top executives of major corporations, for every
prosecution of a high-ranking executive, several lower-level
employees are typically alleged to have been involved in
related criminal conduct. CEOs and other top executives of the
Fortune 500 may be wealthy, but annual salaries plummet
dramatically a step or two down the corporate ladder. A director or
mid-level manager in New York or San Francisco may earn $100,000 to
$150,000 per year, but that is not nearly enough to fund a
competent defense in a complex white-collar prosecution.
An innocent employee who cannot pay for his own defense has
almost no viable options. Few if any public defenders are expert at
defending against complex white-collar criminal charges. An
employee cannot capably represent himself against a team of federal
prosecutors and FBI or SEC investigators whose job it is to present
the most compelling case possible that the defendant is guilty.
Without a capable defense, there cannot be a fair trial. Regardless
of guilt or innocence, the employee would be vulnerable to
receiving the harshest sentence available under the law. Rather
than exercise his Sixth Amendment right to a trial and face this
risk, an employee will almost certainly plead guilty in an
attempt to negotiate a less onerous sentence.
Finally, the Justice Department's assumption-as expressed in the
Thompson Memorandum's cooperation factor-that a company's
decision to pay for its employees' legal defense implies that the
company is uncooperative is inconsistent with the
position the Department itself has taken when one of its own
has been the subject of criminal investigation and prosecution. As
one commentator pointed out almost a decade ago, the Justice
Department began paying attorney fees for FBI Agent Lon Horiuchi
when he faced congressional hearings in 1995 and started defending
against a wrongful death and civil rights suit in connection with
the shooting death of the wife of suspected white supremacist Randy
Weaver at Ruby Ridge. Soon after the State of Idaho indicted
Horiuchi for the shooting, the Justice Department announced
that it would "continue to pay for his legal representation." As the commentator argued, the
Department should not be faulted for this decision.
This decision by the Department of Justice is absolutely
appropriate. Agent Horiuchi apparently was acting in the course of
his official duties, as part of a hostage rescue team. No reason
exists why he should be forced into bankruptcy, or a reluctant
guilty plea, as a result of the Idaho state prosecution of his
actions as part of that team. He, like all defendants, is entitled
to a fair trial and to competent legal representation at that
Similarly, federal prosecutors should realize that a business
organization can cooperate with law enforcement efforts while
fulfilling all of its legal and ethical obligations to pay attorney
fees for employees who are under investigation or indicted but not
yet convicted. As Judge Kaplan observed, "There is no necessary
inconsistency between an entity cooperating with the government
and, at the same time, paying defense costs of individual employees
and former employees." When considering the fairness of the
Thompson Memorandum's policies, the Justice Department should
take to heart its own policy decision to pay for the legal defense
of Agent Horiuchi.
In order for our criminal justice system to function
properly, those who have important information that is
relevant to criminal investigations or prosecutions must be
required to disclose it to law enforcement officials. Privileges, on the other hand, operate to
protect some relevant information from disclosure. Why, then,
should the average American be concerned if the Justice
Department routinely subjects companies suspected of
white-collar crimes to great pressure to waive their
attorney-client privilege? This is no arcane legal question but one
that cuts to the heart of America's legal system.
Privileges such as the attorney-client privilege play a vital
role by protecting and promoting important societal values.
Anglo-American society has for at least four centuries concluded that the attorney-client
privilege encourages and facilitates law-abiding conduct by
granting individuals a safe-haven for any discussions they may want
to have with their attorneys about whether a current or proposed
course of conduct is indeed legal. Further, much beneficial and
law-abiding conduct will needlessly be avoided if such discussions
cannot be held without individuals fearing that the
information they disclose could be used against them by law
enforcement. This is termed the "instrumentalist" justification for
No one denies how useful it is to prosecutors to have
access to all of a criminal suspect's confidential
communications with his attorney. It is far less difficult and far
more efficient to secure a conviction if all of the most
damaging facts have been located, organized, and even summarized by
the defendant's attorney or his company's attorney. Justice Department officials themselves
often assert this usefulness as a justification for requesting or
Nevertheless, uncovering every last fact in the search for the
truth and obtaining criminal convictions quickly and
efficiently are not the only objectives of America's justice
system, and they do not necessarily embody its preeminent values. The American justice system places a
premium on protecting the rights of the accused and providing
justice and fairness at all stages of criminal proceedings,
from initial investigation to indictment and from trial and
sentencing to parole decisions. Accordingly, the balance in
the American justice system is weighted in favor of ensuring that
the innocent are not wrongly condemned rather than ensuring that
the guilty do not go free.
Such values are firmly established in the Constitution. For
example, the Bill of Rights' inclusion of the right against
self-incrimination demonstrates that America's legal system is
willing to forgo large swaths of important evidence, thereby
jeopardizing convictions, to protect defendants against unjust
conviction. The Fifth Amendment right against self-incrimination is
an absolute privilege. It protects a criminal suspect or defendant
from having to speak to anyone at all about the circumstances
surrounding a crime, his whereabouts at the time it was
committed, or anything else that a law enforcement official
may want to learn. The Fifth Amendment thus stands as a substantial
impediment to obtaining the truth regardless of how likely or
obvious it may seem that a suspect is guilty. This is one of the
choices the American people have made to protect the innocent from
The attorney-client privilege is far less of a hindrance to
criminal investigation and prosecution. Unlike the Fifth Amendment
right against self-incrimination, the attorney-client privilege
does not shield criminal suspects or defendants from being required
to disclose whatever relevant facts they may know, even if those facts were learned during
confidential attorney-client communications. Further, the
Fifth Amendment protects suspects' rights against
self-incrimination even if they are engaged in an ongoing criminal
enterprise. By contrast, the well-established crime-fraud
exception to the attorney-client privilege allows
government investigators and prosecutors access to
confidential attorney-client communications when attorneys or their
clients are using the attorney-client relationship to carry on
a criminal enterprise, plan future criminal conduct, or perpetrate
a fraud upon the court or others.
Of vital importance, when an American finds himself subject to a
criminal investigation or prosecution, his attorney may be the
only person in whom he can fully confide. Even if innocent,
anything he says to his co-workers, lifelong friends, or
parents can and often will be used against him. When presented to a
jury by a skillful prosecutor, an innocent man's statement to his
friend that he is afraid he might be found guilty becomes
damning evidence that he is in fact guilty. The
attorney-client privilege thus permits an employee under
investigation or indictment to bare his soul and provide his
attorney evidence that might help him fight the criminal charges as
well as evidence that makes him appear guilty and must therefore be
DUTY TO DO JUSTICE, NOT MERELY TO
The Justice Department should be careful to choose the proper
yardstick to measure its success, but does not appear to do so.
Justice Department officials led off their statements for both the
House hearing in March and the Senate hearing in September by
listing the disconcertingly large number of corporate presidents
and executive officers the Department has convicted since 2002-as
well as the much larger number of corporate fraud convictions
the Department has obtained of employees at all levels. The
Department recently released its annual statistical report, which purportedly illustrates its
effectiveness at investigating and prosecuting white-collar crimes.
The Department's conviction rate in white-collar criminal cases is
astronomical. Even as the number of cases opened shrinks, the
number of convictions grows. Nevertheless, the Department may
be relying too heavily on conviction rates to define its success.
The Department's ultimate aim-justice itself-cannot of course be
gauged by statistics alone.
Before serving as a justice of the U.S. Supreme Court and chief
prosecutor in the Nuremberg Nazi war-crimes trials, Robert Jackson
served as the Attorney General of the United States. In April 1940,
Attorney General Jackson addressed a gathering of all U.S.
Attorneys, the chief federal prosecutors. His topic was the
proper role and professional philosophy of a federal prosecutor,
and he began by considering the awesome power a prosecutor holds:
"The prosecutor has more control over life, liberty, and reputation
than any other person in America. His discretion is tremendous." Jackson went on to address the ethical
choices a prosecutor must make in order to be a great prosecutor
rather than merely a "successful" prosecutor:
Your positions are of such independence and importance that
while you are being diligent, strict, and vigorous in law
enforcement you can also afford to be just. Although the
government technically loses its case, it has really won if justice
has been done. The lawyer in public office is justified in
seeking to leave behind him a good record. But he must remember
that his most alert and severe, but just, judges will be the
members of his own profession, and that lawyers rest their good
opinion of each other not merely on results accomplished but on the
quality of the performance.
No one should doubt the dedication to professional
excellence and integrity of Justice Department prosecutors.
Contrary to some mischaracterizations, they are almost
uniformly concerned about the constitutional rights of the persons
whom they investigate or prosecute. Nevertheless, it takes more
than dedication to resist the siren song of focusing on securing
convictions in the criminal cases that are receiving the most
attention from the media, the Congress, and the public.
Prosecutors must withstand the temptation to eliminate or bypass
impediments to successful prosecutions, including the
attorney-client privilege and employer-funded legal defenses, where
those impediments implicate important constitutional values or
the American people's fundamental notions of fairness. To take
the easier course is to exalt efficiency over justice-to the
ultimate detriment of all those whom the Department seeks to
RECOMMENDATIONS FOR REFORM
A subcommittee of the House Judiciary Committee held a
hearing on the policies and tactics of the Thompson Memorandum in
March, and the Senate Judiciary Committee held its own hearing in
September. These are good first steps toward
accomplishing what should be Congress's initial goals in
redressing the Thompson Memorandum's improper effects: publicly
exploring the Justice Department's tactics, highlighting possible
abuses, and calling the Department-including specific officials, if
necessary-to account for using tactics that take unfair
advantage of employees and violate their constitutional rights
by leveraging business organizations' extreme fear of indictment.
Despite how politically popular white-collar investigations and
convictions may be, the public needs to be apprised of the great
potential for abuse and error. Millions of Americans who work for
firms involved in interstate commerce are vulnerable to these
threats, and Members of Congress have a role to play in changing
the law if the Justice Department will not change its own
policies and practices, particularly those expressed by the
The Justice Department's current policies and practices for
investigating and prosecuting white-collar crime fail to take into
adequate account the principle that the government cannot, and
should not, do indirectly what it is forbidden to do directly.
The Thompson Memorandum should be amended to eliminate any
reference to the waiver of attorney-client privilege or
work-product protections in the context of determining whether
to indict a business organization. Similarly, all of the
Memorandum's references to a company's payment of its
employees' legal fees should be eliminated. Justice traditionally
has been best served when all parties to criminal litigation are
well represented by experienced, diligent counsel. Any policy that
undermines such representation should be considered with suspicion.
If government action is involved, as the Stein case
illustrates, such conduct may well violate fundamental Fifth
and Sixth Amendment rights.
In the meantime, the Justice Department should create and
publish specific and uniform national policies and procedures
governing waiver requests. All requests for waiver by federal
prosecutors and regulators should require approval by Justice
Department officials at the national level. Only published national
procedures and national oversight can ensure that the waiver
request process is uniform, predictable, and transparent.
To promote the responsible use of waiver requests, as well as to
counter the "culture of waiver," the Justice Department should
collect and publish statistics on how often waiver is requested,
how often business organizations agree to such requests, and how
often organizations waive even apart from any request from
If the Department's policies and practices do not change,
employers should be required to provide all employees a written
Miranda-like warning explainingthat anything they say
to an attorney for the company can and generally will be used
against them if they ever are indicted as part of company
wrongdoing. Employees must be fully informed that their employers
are highly likely to waive any attorney-client privilege if the
company becomes the subject of a government investigation. As Judge
Kaplan's opinions make clear, employees' Fifth and Sixth Amendment
rights cannot be adequately protected without such
Finally, some amount of reform may be imposed by the justice
system itself. Individual defendants should be emboldened by Judge
Kaplan's decisions. Judge Kaplan suggested that the former
KPMG employees could have moved to suppress on the basis of KPMG's
coercive actions and the language of the Thompson Memorandum
alone. Defendants should rely on Judge Kaplan's thorough and
well‑reasoned opinions to persuade other courts to engage in
discovery and hold evidentiary hearings on the Justice Department's
coercive tactics. Similar constitutional violations may turn
Brian W. Walsh is
Senior Legal Research Fellow in the Center for Legal and Judicial
Studies at The Heritage Foundation.
United States v. Stein, No. S1 05 Crim.
0888, 2006 WL 2060430 (S.D.N.Y. July 25, 2006) [hereinafter Stein
II]; United States v. Stein, 435 F. Supp. 2d 330 (S.D.N.Y.
June 26, 2006) [hereinafter Stein I].
See, e.g., Irwin M. Stelzer,
Protecting the Innocent: Even White-Collar Defendants Have
Rights, The Weekly Standard, Aug. 21, 2006 ("[W]hen the mere
threat of prosecution, combined with public castigation, can cause
as much damage as conviction, innocent-until-proven-guilty
becomes rather meaningless."), available at
Principles of Federal Prosecution of
Business Organizations, Memorandum from Deputy Attorney General
Larry D. Thompson to Heads of Department Components and U.S.
Attorneys (Jan. 20, 2003), available at
[hereinafter Thompson Memorandum].
Federal Prosecution of Corporations,
Memorandum from Deputy Attorney General Eric Holder to the U.S.
Attorneys' Offices (June 16, 1999) (on file with the Department of
Thompson Memorandum, supra note
3, § II.A.4 (emphasis added).
Id. § VI.B ("[W]hile cases will
differ depending on the circumstances, a corporation's promise of
support to culpable employees and agents . . . through the
advancing of attorneys fees . . . may be considered by the
prosecutor in weighing and evaluating the extent and value of a
Id. §§ II.A.4, VI.A, VI.B.
one commentator recently noted: "The mandatory nature of the
Thompson Memo is not lost on defense counsel, and the evidence in
Stein illustrated this point." Stephanie A. Martz, Report
from the Front Lines: The Thompson Memo and the KPMG Tax Shelter
Case, Wall St. Law., Aug. 2006, at 5-6.
Thompson Memorandum, supra note
3, § II.B.
See Martz, supra note 8, at 6
("In general, it cannot be gainsaid that if a company decides to
ignore any individual factor set forth in the Thompson Memo, or any
subset of factors, it does so at its own peril.").
Stein I, 435 F. Supp. 2d at 348 & n.78
(internal quotation marks omitted) (quoting deposition testimony of
KPMG's chief legal officer, former U.S. District Judge Sven Erik
Thompson Memorandum, supra note
3, § VI.B (emphasis added).
E.g., The Thompson Memorandum's
Effect on the Right to Counsel in Corporate Investigations: Hearing
Before the Senate Comm. on the Judiciary, 109th Cong.
(forthcoming) [hereinafter Senate Hearing] (statement of
Dep. Att'y Gen. Paul J. McNulty, U.S. Dep't of Justice, Sep. 12,
2006, at 10), available at
White Collar Enforcement (Part I): Attorney-Client Privilege and
Corporate Waivers: Hearing Before the Subcomm. on Crime,
Terrorism, and Homeland Sec. of the House Comm. on the
Judiciary, 109th Cong. 109-112 (2006) [hereinafter House
Hearing] (statement of Assoc. Att'y Gen. Robert McCallum, U.S.
Department of Justice) at 8, 9.
E.g., Stein I, 435 F. Supp. 2d at 338
n.13 (quoting Laurie P. Cohen, In the Crossfire: Prosecutors'
Tough New Tactics Turn Firms Against Employees, Wall. St. J.,
June 4, 2004, at A1).
The Fifth Amendment states that no person
"shall be compelled in any criminal case to be a witness against
himself." U.S. Const. amend. V.
Stein I, 435 F. Supp. 2d at 342.
Id. at 345 (internal quotation marks
Stein II, No. S1 05 Crim. 0888, 2006 WL
2060430, at *17.
See, e.g., Laurie P. Cohen, U.S.
Asks Judge to Strike Statements in KPMG Case, Wall St. J., July
6, 2006, at C3.
Letter from U.S. Attorney Michael J. Garcia
to U.S. District Judge Lewis A. Kaplan 1 (June 30, 2006) (emphasis
added), available at .
Letter from Am. Bar Ass'n President Michael
S. Greco to Attorney General Alberto Gonzales (May 2, 2006),
available at .
Letter from Former Justice Department
Officials to Hon. Richard J. Hinojosa, Chairman, U.S. Sentencing
Commission (Aug. 15, 2005), available at .
Notice of Submission to Congress of
Amendments to the Sentencing Guidelines Effective Nov. 1, 2006,
U.S. Sentencing Comm'n, 71 Fed. Reg. 28063-01, 28073 (proposed May
House Hearing, supra note
13,app. (The Decline of the Attorney-Client Privilege in the
Corporate Context: Survey Results) at 69, 71-72.
Senate Hearing, supra note 13
(statement of Dep. Att'y Gen. Paul J. McNulty, at 10).
Law Blog, Wachtell Lipton on the KPMG
Decision (June 30, 2006), at .
Stein I, 435 F. Supp. 2d at 335.
Judge Kaplan framed it well:
Stein I, 425 F. Supp. 2d at 371 n.205.
See, e.g., House Hearing,
supra note 13 (statement of Assoc. Att'y Gen. Robert
McCallum, U.S. Department of Justice), at 9. The Justice Department
conviction statistics cited by McCallum show that of the over 900
corporate fraud convictions the Department secured from July 2002
through December 2005, less than 35 percent involved CEOs,
presidents, vice presidents, and similar executives.
John T. Boese, Attorney's Fees: DOJ
Announces Intent to Pay Attorney's Fees of FBI Agent Indicted by
State in Ruby Ridge Slaying, FraudMail Alert (Fried, Frank,
Harris, Shriver & Jacobson LLP, Washington, D.C.), Sep. 12,
1997, available at http://
Press Release No. 97-342, "Regarding Charges
Filed Against Lon Horiuchi," U.S. Department of Justice (Aug. 21,
1997), available at .
Boese, supra note 37.
Stein I, 435 F. Supp. 2d at 364.
See Branzburg v. Hayes, 408
U.S. 665, 688 (1972) (recognizing the "longstanding principle that
the public . . . has a right to every man's evidence except for
those persons protected by a constitutional, common-law, or
statutory privilege" (internal quotation marks omitted)).
See Berd v. Lovelace, 21 Eng. Rep. 33
(Ch. 1577); Dennis v. Codrington, 21 Eng. Rep. 53 (Ch.
Cf. John Gibeaut, A Matter of
Opinion: Speakers Debate Whether Deferred Prosecution Agreements
Help Corporations, A.B.A. J., Oct. 2006, at 58, 58 ("Defense
lawyers say privilege waivers enable the government to gather
evidence against individual employees-including their statements to
internal company investigators-without worrying about things like
Fifth Amendment rights against self-incrimination.").
See, e.g., Thompson Memorandum,
supra note 3, § VI.B ("[W]aivers permit the government
to obtain statements of possible witnesses, subjects, and targets,
without having to negotiate individual cooperation or immunity
agreements. In addition, they are often critical in enabling the
government to evaluate the completeness of a corporation's
voluntary disclosure and cooperation. Prosecutors may, therefore,
request a waiver in appropriate circumstances."); Senate
Hearing, supra note 13(statement of Dep. Att'y Gen. Paul
J. McNulty, at 6) (explaining that a company's privilege waiver can
provide prosecutors "access to the results of an internal
investigation [which] would obviously assist the government in
conducting a more streamlined inquiry").
"By protecting relationships and values
outside the courtroom, privileges demonstrate that even though the
search for truth is of critical importance in the litigation
process, it is not necessarily paramount to all other interests of
society." Christopher B. Mueller & Laird C. Kirkpatrick,
Evidence § 5.1, at 330 (1995).
Upjohn Co. v. U.S., 449 U.S. 383, 395
(1981) ("The privilege only protects disclosure of communications;
it does not protect disclosure of the underlying facts by
those who communicated with the attorney . . . ."); U.S. v.
Cunningham, 672 F.2d 1064, 1073 n.8 (2d Cir. 1982) ("The
privilege attaches not to the information but to the communication
of the information. Thus, [the client] may be examined as to
any fact but may not, absent a waiver, be compelled to say whether
or not he communicated that fact to his counsel.").
U.S. Department of Justice, United
States Attorneys' Annual Statistical Report, Fiscal Year
2005, available at .
Robert H. Jackson, The Federal Prosecutor,
Address Before the United States Attorneys (Apr. 1, 1940), in 31 J.
Crim. L. & Criminology 3 (1940), available at .
Id.; see also Berger v. U.S.,
295 U.S. 78, 88 (1935) (Sutherland, J.) ("The United States
Attorney is the representative not of an ordinary party to a
controversy, but of a sovereignty whose obligation to govern
impartially is as compelling as its obligation to govern at
all; and whose interest, therefore, in a criminal prosecution is
not that it shall win a case, but that justice shall be
Cf. Rutan v. Republican Party of Ill.,
497 U.S. 62, 77-78 (1990) ("What the First Amendment precludes the
government from commanding directly, it also precludes the
government from accomplishing indirectly."); Perry v.
Sindermann, 408 U.S. 593, 597 (1972) ("[I]f the government
could deny a benefit to a person because of his constitutionally
protected speech or associations, his exercise of those freedoms
would in effect be penalized and inhibited. This would allow the
government 'to produce a result which [it] could not command
directly.' Such interference with constitutional rights is
impermissible." (internal citation omitted)).
Members of the white-collar defense bar
should also keep in mind the standard recommended by the court in
Stein for proving a violation of employees' Fifth Amendment
rights. The court concluded "that an individual claiming that a
statement was compelled in violation of the Fifth Amendment
must adduce evidence both that the individual subjectively
believed that he or she had no real choice but to speak and
that a reasonable person in that position would have felt the same
way." Stein II, No. S1 05 Crim. 0888, 2006 WL 2060430, at *9.