The McNulty Memorandum

by | Dec 26, 2006 | Current Affairs, Environment, Environmental, Environmental Crimes

The McNulty Memorandum

On December 12, 2006, the United States Deputy Attorney General, Paul J. McNulty, announced that the Department of Justice (“DOJ”) is revising its corporate charging guidelines for federal prosecutors.  For reasons that we will discuss below, the revisions to the DOJ charging guidelines really do not present a change in philosophy by the DOJ.  Mr. McNulty’s comments introducing the revised charging guidelines are available at the DOJ’s web site at http://www.usdoj.gov/dag/speech/2006/dag_speech_061212.htm.  Mr. McNulty’s memorandum, which he says intended to “clarify the intent of the Thompson Memorandum in connection with how prosecutors evaluate a company’s cooperation in making their charging decisions,” is also available on the DOJ’s web site at http://www.usdoj.gov/dag/speech/2006/mcnulty_memo.pdf (“McNulty Memorandum”).  In contrast to his comments, the cover memorandum to the United States Attorneys provides the real intent.  In it, Mr. McNulty stated: “This memorandum supersedes and replaces guidance contained in the Memorandum from Deputy Attorney General Larry D. Thompson entitled Principles of Federal Prosecution of Business Organizations (January 20, 2003) (the ‘Thompson Memorandum’) and the Memorandum from the Acting Deputy Attorney General Robert D McMcCallum, Jr. entitled Waiver of Corporate Attorney-Client and Work Product Protections (October 21, 2005 (the ‘McCallum Memorandum’).”  McNulty Cover Memorandum, at 2 (emphasis added).

The McNulty Memorandum is not much different than its predecessors as it includes various factors that the prosecutor must consider in deciding whether or not to prosecute.

In conducting an investigation, determining whether to bring charges, and negotiating plea agreements, prosecutors must consider the following factors in reaching a decision as to the proper treatment of a corporate target:

  1. the nature and seriousness of the offense, including the risk of harm to the public, and applicable policies and priorities, if any, governing the prosecution of corporations for particular categories of crime;

 

  1. the pervasiveness of wrongdoing within the corporation, including the complicity in, or condonation of, the wrongdoing by corporate management;

 

  1. the corporation’s history of similar conduct, including prior criminal, civil, and regulatory enforcement actions against it;

 

  1. the corporation’s timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents;

 

  1. the existence and adequacy or the corporation’s pre-existing compliance program;

 

  1. 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;

 

  1. collateral consequences, including disproportionate harm to shareholders, pension holders and employees not proven personally culpable and. impact on the public arising from the prosecution;

 

  1. the adequacy of the prosecution of individuals responsible for the corporation’s malfeasance; and

 

  1. the adequacy of remedies such as civil or regulatory enforcement actions.

 

McNulty Memorandum, at 4 (citations omitted).  The McNulty Memorandum goes on to explicitly provide: “In determining whether to charge a corporation, that corporation’s timely and voluntary disclosure of wrongdoing and its cooperation with the government’s investigation may be relevant factors.  In gauging the extent of the corporation’s cooperation, the prosecutor may consider, among other things, whether the corporation made a voluntary and timely disclosure, and the corporation’s willingness to provide relevant evidence and to identify the culprits within the corporation, including senior executives.” Id., at 7.  The McNulty Memorandum continues and encourages corporations “to conduct internal investigations and to disclose their findings to the appropriate authorities.” Id., at 8.

The McNulty Memorandum continues and discusses the situations under which the prosecution may “request” waiver of attorney-client communications privilege or the attorney work product exemption.  The McNulty Memorandum creates two categories of information: Category I and Category II.  Category I information is “purely factual information” and could include “copies of key documents, witness statements, or purely factual interview memoranda regarding the underlying misconduct, organizational charts created by company counsel, factual chronologies, factual summaries, or reports (or portions thereof) containing investigative facts documented by counsel.” Id., at 9.  As case law holds, facts themselves are not necessarily privileged; however, the Category I documents tread dangerously close to seeking attorney opinion work product.  Category II information is attorney-client communications and attorney work-product. Id., at 10.  The McNulty Memorandum then goes on to note that the Category II information does not include situations where the defendant is relying on the “advice-of-counsel” defense or the crime-fraud exception to the attorney-client communication privilege. Id. 

             There are two process created by the McNulty Memorandum for prosecutors use in the event that they would seek waiver.  For Category I information, the United States Attorney can sign off on the request after consulting with the Assistant Attorney General for the DOJ’s Criminal Division.  For Category II information, the United States Attorney must obtain written authorization from the Deputy Attorney General.  Of course, the prosecutors are not required to obtain the necessary authorization “if the corporation voluntarily offers privileged documents without a request from the government.” Id., at 11.

In a tip of the hat to the KPMG litigation, the McNulty Memorandum notes that the prosecutors should not take into account the payment of legal fees to employees and/or agents of the corporation unless “when the totality of circumstances show that it was intended to impede a criminal investigation.” Id., at Note 1.

So, is the McNulty Memorandum a shift in the winds?  Time will tell; however, my suspicions are that it is not and that business will continue as usual at the DOJ.  A recent article in the National Law Journal lists several flaws in the McNulty Memorandum that included:

 

  1. The fact that the McNulty Memorandum is an “internal policy, unenforceable at law,” with no remedy if the prosecutor fails to follow them.
  2. the categories of information created under the McNulty Memorandum are “unlikely to be recognized by courts or accepted by third parties seeking” the materials to which the privilege has been waived.
  3. The culture of waive is underscored in the McNulty Memorandum as while a prosecutor is prohibited from considering a corporation’s refusal to provide the protected material, the McNulty Memorandum allows favorable consideration when the company agrees to waive.
  4. Prosecutors may not consider the payment of legal fees to employees and/or agents of the corporation unless the circumstances show that it was intended to impede a criminal investigation, a standard that may be easy to meet.
  5. The prosecutor can consider joint defense agreements, internal corporate discipline of the principals (or the lack thereof) who invoke their Fifth Amendment rights.

 

Marcia Coyle, The ‘McNulty Memo’: Real Change or Retreat, 29 Nat’l Law J., at 25 (December 18-25, 2006).

The ABA and other groups have taken the stance that any waiver is unacceptable.    The current president of the ABA issued a statement that called the McNulty Memorandum a “modest improvement.”  She went further stating that the new policy “merely requires high-level department approval before waiver requests can be made.”  See http://www.abanet.org/journal/ereport/d15specter.html.  Most groups are still calling for legislation. Id.   A bill has been introduced into the Senate, entitled the Attorney-Client Protection Act of 2006.”  The text of the bill introduced by Senator Arlen Specter, R-PA, can be found at http://www.ballardspahr.com/files/tbl_s29GeneralContent/PDFfile1222/36/AttorneyClientPrivilegeProtectionAct2006.pdf.

More later.

As always, feel free to call me or e-mail me with any questions at walter.james@jamespllc.com.

WDJiii