McNulty Memo Out, Filip Memo In: DOJ Makes Revisions to Corporate Charging Guidelines

September 4, 2008

Less than two years after the Department of Justice (DOJ) superseded its guidelines for prosecutors making charging decisions regarding corporations (known formally as its Principles of Federal Prosecution of Business Organizations), the DOJ has this week made significant changes to those guidelines in a memorandum authored by Deputy Attorney General Mark R. Filip.

The guidelines, which delineate several factors that focus heavily on whether a corporation has been “cooperative” during the course of the Government’s investigation when deciding whether to indict the corporation, originated in a 1999 document authored by then-Deputy Attorney General Eric Holder. This became known informally as the Holder Memo, starting a naming trend that continues. In January 2003, the Holder Memo was supplanted by the Thompson Memo, authored by then-Deputy Attorney General Larry D. Thompson. They were modified in December 2006 by then-Deputy Attorney General Paul J. McNulty, who made several substantive alterations based on several years of practical experience with the Thompson Memo, and the development of certain friction points between prosecutors, their corporate targets and the defense bar which in some instances had led to contentious battles in the federal courts.

The McNulty Memo altered the treatment of privilege waivers and provision of attorneys’ fees, and added focus on pre-existing compliance programs. The Filip Memo further shifts the field in what factors will drive determinations of whether a corporation deserves “cooperation credit”—the coin-of-the-realm in avoiding indictment under the guidelines. Where cooperation credit had previously turned on factors including waiver of attorney-client privilege or work product protections, it will now focus on disclosure of relevant facts. Further, Government requests for disclosure of non-factual attorney-client privileged materials (known under the McNulty Memo as “Category II” information) are expressly forbidden, except in extremely limited circumstances. Also disallowed as part of the cooperation analysis is consideration of whether the corporation has advanced legal fees to employees, has entered into a joint defense agreement or has sanctioned culpable employees. Overall, these changes will make it more difficult for the DOJ to conclude that it is appropriate to charge a corporation, and will make it easier for a corporation to coordinate and defend itself in a criminal investigation.

In his statement announcing the Filip Memo, Deputy Attorney General Filip expressed thanks to Senate Judiciary Committee Chairman Patrick Leahy and Senator Arlen Specter, both of whom have recently been vocal critics of the DOJ, with Senator Specter having taken particular issue with the handling of corporate charging decisions under the Thompson and McNulty Memos. Senator Specter, the ranking Republican on the Senate Judiciary Committee, has in recent years been pursuing legislative measures to further rein in federal prosecutors with regard to allowable considerations in making charging decisions. He responded to the announcement of the Filip Memo with support of the new guidelines as “a step in the right direction,” but expressed that they still “leave many problems unresolved so that legislation will still be necessary.” The full text of these remarks, the press release and the revised guidelines can be found on the DOJ’s website.

U.S. v. Stein: Second Circuit Upholds Finding that Government Pressure Interfered with Right to Counsel

The August 28, 2008 DOJ announcement regarding the Filip memo came on the same day that the U.S. Court of Appeals for the Second Circuit, in United States v. Stein, affirmed a lower court’s decision to dismiss indictments against thirteen former KPMG partners and employees on the grounds that the government had deprived defendants of their Sixth Amendment right to counsel. In 2006, the trial court in Stein had held that when KPMG placed conditions on the advancement of legal fees to the defendants, and later capped and disallowed them in an effort to satisfy the Thompson Memo’s criteria for cooperation and avoid indictment of the company, the defendants had suffered a deprivation of their Sixth Amendment rights that the government had not cured, thus requiring dismissal of the indictments.

Rejecting the government’s argument that KPMG’s fee policy decisions involved private action outside the scope of the Sixth Amendment, the Second Circuit held that KPMG’s adoption and enforcement of its fees policy “followed as a direct consequence of the government’s overwhelming influence” and therefore amounted to state action. Moreover, an assistant U.S. attorney’s in-court statement that KPMG was free to decide whether to advance fees did not return defendants to the status quo ante, since “[t]he government’s intervention, coupled with the menace inherent in the Thompson Memorandum, altered the decisional dynamic in a way that the district court could find irreparable. Having assumed a supine position in the [deferred prosecution agreement]—under which KPMG must continue to cooperate fully with the government—it is not at all likely that the firm would feel free to reverse course.”

The Second Circuit’s decision appears to be the final resolution of what had been the most significant and contentious of the court battles tied to the guidelines. The opinion can be downloaded from the Second Circuit website.

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