Attorney-Client Privilege

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Erosion of Attorney-Client Privilege

A series of actions by federal regulators in recent years has threatened core legal protections surrounding the communications between attorney and client. While the intentions of the regulators to prevent corporate wrongdoing may appear on the surface to have merit, their actions threaten core legal protections and may obstruct rather than expedite corporate investigations.

The attorney-client privilege is one of the oldest common law protections and the bedrock of a party’s constitutional right to receive guidance from legal counsel. It is the right of a client to refuse to disclose confidential attorney communications and to prevent legal counsel from disclosing the communications.

Having privileged access to legal counsel allows individuals and corporate officers to seek legal advice on the law and how to conform to the law. It also facilitates internal corporate investigations and remedies of prior conduct by allowing a lawyer to conduct an internal corporate inquiry through communicating confidentially with company employees.

Department of Justice Rulings Erode Attorney-Client Privilege

U.S. Department of Justice guidelines, and subsequent directives issued by other federal agencies, have sought to compel companies to give up their attorney-client privilege as a means for federal prosecutors to obtain information about companies under investigation.

A memorandum issued by then-Deputy Attorney General Eric Holder in June 1999 outlined criteria for federal prosecutors to use when determining whether to file criminal charges against corporations. One criterion was whether or not a corporation provides timely and voluntary disclosure of wrongdoing and is willing to cooperate in an investigation. The memorandum further stated that in considering the company’s level of cooperation, the prosecutor can consider whether or not the company has waived attorney-client privilege.

A reissue of the guidance in January 2003 by U.S. Deputy Attorney General Larry Thompson contained similar language and added that a company would face risks of prosecution if it failed to be forthcoming with information early in the investigation. An update of the memorandum by Acting Deputy Attorney General Robert McCallum in October 2005 called for written guidelines related to waivers.

In December 2006, U.S. Deputy Attorney General Paul McNulty again issued revised guidance, requiring that federal prosecutors seek approval from the Justice Department before requesting waiver of attorney-client privilege.

In McNulty’s revised guidance, if prosecutors seek privileged factual information from a company, they must have the approval of their U.S. Attorney, and if the information sought is privileged communications or legal advice, they must have the approval of the Deputy Attorney General. Further, the McNulty guidance cautions that attorney-client communications should only be sought in rare circumstances and that a corporation declining to waive privilege is not to be a consideration of the prosecutors when deciding about taking punitive action against the company.

Other Federal Entities Attack Privilege

In May 2004, U.S. Sentencing Commission guidelines were amended and described how a corporation’s failure to waive privilege would invoke stricter sentences. A protest by the American Bar Association and the Coalition to Preserve the Attorney-Client Privilege led the Commission to propose removing this reference to privilege waivers.

Other federal entities, including the Securities and Exchange Commission, the Internal Revenue Service, the Department of Labor, the Federal Trade Commission, the Environmental Protection Administration and the Federal Election Commission have advocated enforcement strategies focusing on waivers of privilege.

Impact of Federal Guidelines

The attacks on attorney-client privilege in investigating or prosecuting companies has grown entirely out of the federal bureaucracy – with no involvement by Congress or the judiciary in developing and implementing these rules.

While the guidelines typically state that a corporate waiver of privilege is “voluntary,” in fact, the companies are under great pressure to waive privilege, leading some to refer to the option as being voluntary in name only. Corporations under investigation are acting under a type of threat of prosecution that in the past has shown to erode investor confidence, deplete key staff resources, undermine brand reputation, eradicate jobs and retiree pension funds, and ultimately cause some companies to cease operating altogether.

Moreover, once privilege has been waived, third-party plaintiffs’ lawyers may gain access to sensitive information that will feed expensive litigation or induce payment of large settlements, further harming a corporation that may be making every effort to cooperate with federal prosecutors.

The erosion of this basic right to consult with an attorney in confidence ultimately can harm American workers, retirees, and investors – while effectively hindering rather than helping to address instances of corporate wrongdoing.

Fixing the Problem

The U.S. Chamber of Commerce and other entities have been working to remedy the problem and restore guarantees of attorney-client privilege. The Chamber is part of the Coalition to Preserve the Attorney-Client Privilege, a diverse group of organizations advocating for reform. The American Bar Association Task Force on the Attorney Client Privilege has been active as well on this reform effort.

Senator Arlen Specter has introduced legislation, the Attorney-Client Privilege Protection Act of 2007, S. 186, that would prohibit federal agencies and the Department of Justice from requesting that companies waive attorney-client privilege. Senator Specter introduced similar legislation in the closing days of the 109th Congress. U.S. Chamber of Commerce President Thomas J. Donohue testified before the Senate Judiciary Committee on this issue.Download Testimony

 

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