In brave, new corporate world, cooperate or else

COMMENTARY Jobs and Labor

In brave, new corporate world, cooperate or else

Sep 28, 2006 3 min read
COMMENTARY BY

Former Senior Legal Research Fellow

Brian is a former Senior Legal Research Fellow

Sometimes what you don't know can hurt you - and your family - a lot. Imagine that after almost 10 years at your company, you've been promoted to supervisor of the finance department. Lately you've heard through the grapevine that the company is the subject of a federal criminal investigation, but you know you've done nothing wrong.

As you walk into your office one Monday morning, coffee in hand, you get a call from your company's legal department. An attorney you've never met tells you that the federal prosecutors investigating the company would like to speak with you. You aren't technically required to cooperate, he says, but it would be best for everyone if you did.

Your pulse races. What answer do you give? If you say yes, could you be waiving some important right? If you say no, do you look suspicious?

But, you remind yourself, you've done nothing wrong. Even if you inadvertently violated some federal law you knew nothing about during the course of your normal duties, your company will defend you and give you your own lawyer if you end up needing one. Right?

That used to be true. But you had better revisit such assumptions before taking any unexpected calls from your legal department.

In fact, you would be well-advised to jump on the Internet and grab a copy of two recent opinions by a federal court in Manhattan that illuminate how the Department of Justice's current policies and practices for investigating white-collar crime put you at risk. The case is U.S. v. Stein, and it involves the federal prosecution of 12 former employees of international accounting powerhouse KPMG.

In the Stein case, Judge Lewis Kaplan concluded that the Justice Department violated the employees' Fifth and Sixth Amendment rights by heavily pressuring KPMG to "encourage" its employees to cooperate with the federal investigation. When employees who were pushed to give statements to the federal prosecutors and show up without counsel refused to do so, the government notified KPMG. The firm immediately sent the employees letters threatening to stop paying their (extensive) legal bills and strongly implying they'd be fired unless they promptly started cooperating with the government.

KPMG did this not because it's a bad business or disloyal to its employees, but because it had no choice.

Every big business knows that a federal indictment alone can destroy it before it ever gets close to trial. That's what happened to Arthur Andersen. The 89-year-old accounting firm imploded and its 28,000 employees (at least 99 percent of whom were never implicated or suspected of any wrongdoing) were scattered to the four winds almost immediately after the Justice Department indicted it. When the Supreme Court eventually reversed the firm's conviction, it was far too late to help the firm or its employees (or its creditors).

KPMG isn't alone. Scores of companies have found themselves in the same vise created by the Justice Department's policies. A department document called the Thompson Memorandum requires every federal prosecutor considering whether to indict a company to assess how well the company did on a set of nine factors. One of them is whether the company fully cooperated with the investigation.

"Cooperation" generally includes encouraging employees to provide testimony to government investigators as well as (subtly) encouraging them to testify without a lawyer. "Cooperation" also typically includes refusing to pay employees' legal fees.

KPMG told the federal prosecutors that it was willing to do anything it could to avoid indictment, which was music to the government's ears. Besides threatening to cut off the legal fees and terminate any employee who didn't cooperate, the firm capped its legal fee payments for all employees - even those who cooperated. This violated KPMG's previously unbroken tradition of advancing all legal fees for all employees.

Never before have America's employees been so vulnerable to federal indictment just for doing their job. Somebody needs to sound an alarm.

Who should you count on to protect your rights when the feds come knocking at your workplace? Congress has expressed serious concerns about the Justice Department's policies on white-collar crime, but nothing concrete has changed yet.

So for now, the only person you can really rely on to protect your rights is yourself - and the best lawyer you can afford.

Brian Walsh is a senior legal research fellow in the Center for Judicial Studies at The Heritage Foundation in Washington, D.C.

First appeared in the McClatchy Tribune wire