Forum - Part
I
The McNulty
Memo: Why
it matters to corporate counsel
By
Nathan A. Fishbach
Jan.
8, 2007
 |
|
Nathan
A. Fishbach
|
On
Dec. 12, 2006, the U.S. Department of Justice (DOJ) revised its
internal policies on charging corporations with federal crimes,
issuing new guidance to federal prosecutors around the country.
Known
as “the McNulty Memo” after author Deputy Attorney General
Paul J. McNulty, the directive is the latest in a series of DOJ
statements outlining the factors, which prosecutors should consider
when deciding whether to seek criminal charges against a corporation.
The McNulty Memo is available at www.usdoj. gov/dag/speech/2006/mcnulty_memo.pdf.
The
Context
To
assess the McNulty Memo’s importance, it is necessary to
place it into the appropriate context. In recent years, the DOJ
has increased its focus on combating corporate crimes. Acts previously
add-ressed in the civil and administrative arenas are now the
focus of federal criminal investigations and prosecutions. To
a large extent, this allocation of law enforcement resources to
fighting corporate crime is aided by the steady expansion of federal
criminal jurisdiction to offenses previously reserved for prosecution
by state attorney generals and local district attorneys.
What
heightens the stakes for corporations is the relatively modest
standard, which prosecutors must meet to establish a corporation’s
criminal culpability. The majority view (including that of the
Seventh Circuit) holds that a corporation is “‘vicariously
criminally liable for the crimes committed by its agents acting
within the scope of their employment — that is, within their
actual or apparent authority and on behalf of the corporation’
— when the agents’ actions were ‘intended, at least
in part, to benefit’” the entity.
The
corporation can be liable even if the agent’s “acts
were illegal, contrary to [the corporation’s]… instructions
or against [its]… general policies.” The theory behind
this standard for establishing corporate criminal liability is
that the corporation “has a duty to prevent its employees
from committing” crimes. 7th Cir. Fed. Jury Instruction —
Criminal 5.03.
An
investigation, let alone a prosecution (even resulting in an acquittal),
can be devastating to a corporation. The impact has ripple effects
(really tidal waves) across the corporation’s numerous “stakeholders,”
such as stockholders, staff, customers, suppliers, and lending
institutions.
Given
the DOJ’s increased focus upon corporate crimes, the modest
requirements for establishing corporate criminal liability, and
the negative impact of a criminal investigation and/or prosecution,
the factors considered by the Government in its charging decisions
is quite important. The McNulty Memo provides guidance to prosecutors
in making this determination and to corporations in addressing
allegations of corporate misconduct.
The
McNulty Memo’s Major Changes
The
McNulty Memo outlines nine broad factors which federal prosecutors
should consider in deciding whether to charge a corporation. Prior
to the McNulty Memo, federal prosecutors used the Thompson Memo
as a guide. Issued in 2003 by then Deputy Attorney General Larry
D. Thomp-son, the Thompson Memo lists most of the same factors
as the McNulty Memo.
However,
the McNulty Memo revises two portions of the Thompson Memo —relating
to the Government’s request for the production of privileged
material and the Government’s consideration of the corporation’s
payment of the attorneys’ fees for its personnel.
Production
of Privileged Material
In
the McNulty Memo as well as the Thompson Memo, one of the nine
factors that is considered in reaching its charging decision is
“the corporation’s timely and voluntary disclosure of
wrongdoing and its willingness to cooperate in the investigation
of its agents.”
In
determining the extent of the corporation’s cooperation,
the Thompson Memo states that a prosecutor could consider “if
necessary, the waiver of corporate attorney-client and work product
privilege.” The McNulty Memo revises this portion of the
Thompson Memo by setting forth specific criteria which prosecutors
must consider and procedures which they must follow prior to seeking
the production of privileged material.
The
McNulty Memo provides that prosecutors may request privileged
material only “when there is a legitimate need for the privileged
information to fulfill their law enforcement obligations.”
The McNulty Memo states that there must be “a careful balancing
of the important policy considerations underlying the attorney
client privilege and work product doctrine and … law enforcement
needs…”
The
McNulty Memo sets forth four criteria which prosecutors should
use in determining whether there is a “legitimate need”
for the privileged information. It notes that “[i]f a legitimate
need exists, prosecutors should seek the least intrusive waiver
necessary to conduct a complete and thorough investigation, and
should follow a step-by-step approach to requesting information.”
The
McNulty Memo divides privileged material into two categories.
Category I consists of “purely factual information,”
such as “key documents, witness statements, or purely factual
interview memoranda regarding the underlying misconduct, organization
charts created by company counsel, factual chronologies, factual
summaries, or reports (or portions thereof) containing investigative
facts documented by counsel.”
By
contrast, Category II material consists of “attorneys-client
communications or non-factual attorney work product,” including
“legal advice given to the corporation before, during, and
after the underlying misconduct occurred.” As described below,
because of its sensitive nature, prosecutors face greater hurdles
seeking authorization to request Category II legal material as
opposed to Category I factual material.
To
a large extent, the McNulty Memo’s revision of the DOJ’s
policy for seeking privileged material is a response to criticism
that the Thompson Memo “may be discouraging full and candid
communication between corporate employees and legal counsel.”
In September 2006, the Senate Judiciary Committee received statements
addressing the impact of the Thompson Memo on the right to counsel
in corporate investigations. Moreover, proposed legislation —
the “Attorney Client Privilege Protection Act of 2006”
— governing Government requests for privileged information
(as well as other aspects of litigation with the Government),
is now under consideration.
Attorneys
Fees
Under
the Thompson Memo, in assessing a corporation’s cooperation,
the prosecutor may weigh “whether the corporation appears
to be protecting its culpable employees and agents.” It noted
that “while cases will differ depending on the circumstances,
a corporation’s promise of support to culpable employees
and agents…may be considered by the prosecutor in weighing
the extent and value of a corporation’s cooperation.”
One such type of corporate support referred to in the Thompson
Memo was “the advancing of attorneys fees.”
The
McNulty Memo reverses this position, noting that “[p]rosecutors
generally should not take into account whether a corporation is
advancing attorneys’ fees to employees or agents under investigation
and indictment.” The McNulty Memo states that “[i]n
extremely rare cases, the advancement of attorneys’ fees
may be taken into account when the totality of the circumstances
show that it was intended to impede a criminal investigation.”
To
some extent, the McNulty Memo can be seen as a reaction to the
highly publicized decisions of U.S. District Judge Lewis Kaplan,
who sharply criticized the Government for advising a corporation
that it would consider its payment of their employees’ legal
fees. United States v. Stein, 435 F. Supp. 2d 330 (S.D.N.Y. 2006);
United States v. Stein, 2006 WL 2060430 (S.D.N.Y. July 25, 2006);
The Thompson Memorandum’s Effect on the Right to Counsel
in Corporate Investi-gations Before the U.S. Senate Committee
on the Judiciary (Sept. 12, 2006) (statement of Mr. Andrew Weissmann,
Jenner & Block LLP).
In
reversing the prior policy, the Mc-Nulty Memo notes that many
corporations are required by state statute and/or contract to
advance the fees for these corporate officials and therefore,
such payments “cannot be considered a failure to cooperate.”
