Atkins Supports Legislation to Curb Agency Abuse of Attorney-Client Privilege
In light of pending legislation to stop the SEC and other federal agencies from conditioning a company’s cooperative efforts on waiving the attorney-client and work privileges, Commissioner Paul Atkins noted that the SEC is re-examining its policind procedures with respect to cooperation credit and penalties. In remarks before the Federalist Society in Dallas, he emphasized that combating efforts to characterize waiving companies as cooperative and non-waiving companies as non- cooperative is particularly important after the SEC's January 2006 Statement Concerning Financial Penalties indicating that the extent of cooperation in an investigation is also an element in determining how high civil monetary penalties against companies could be set.
As the SEC and other federal agencies press to have the attorney-client privilege waived, said the commissioner, the entire privilege is weakened. As knowledge of its weakening spreads, he reasoned, corporate employees will be less candid and forthcoming, corporate internal investigations will be less trustworthy, and shareholders and government investigators will be frustrated in their efforts to prevent misdeeds.
The House has already passed H.R. 3013, the Attorney-Client Privilege Protection Act, he noted, and there is a companion bill in the Senate, S. 186, still in committee. These bills prohibit federal agencies from pressuring companies to waive their privileges or take punitive actions against their employees as conditions for receiving cooperation credit during investigations, while at the same time specifically preserving the ability of prosecutors and other federal officials to obtain the important, non-privileged factual material they need to punish wrongdoers.
The legislation is needed because there is a growing sense that the Department of Justice’s McNulty Memo cure to the earlier Thompson and Holder memoranda is not working. Thompson-Holder stated explicitly that a corporation's willingness to waive the attorney-client and work product privileges should be considered in determining whether it has cooperated adequately with the SEC and other governmental investigations.
Issued in late, 2006, the McNulty Memo provides standards to guide federal prosecutors when they request disclosure of privileged information, observed Commissioner Atkins, but it does not remove from consideration a company's willingness to punish employees who assert their constitutional rights or to enter into valid joint defense or information-sharing agreements with the employees. In addition, while McNulty does bars prosecutors from urging companies not to pay their employees' legal fees in cases where payment is statutorily or contractually required, said the SEC official, the bar does not apply when payment is discretionary or when prosecutors believe that the totality of the circumstances show that it was intended to impede a criminal investigation.
In the commissioner’s view, the most important weakness of the current situation is that DOJ still gives entities credit for turning over work product as well as other material that may be privileged. Privileged material is divided into two categories. Category I material includes witness statements, interview memoranda, and reports; and companies may be considered uncooperative for not producing it. Category II material includes other highly sensitive information, including opinion work product, the contemporaneous advice of counsel, lawyer mental impressions, and other legal advice.
According to Atkins, categorizing these materials does not solve the problem. A company refusing to waive its privilege and turn over Category I material risks being labeled as uncooperative, which in turn increases the risk of being indicted. The opportunity to receive credit for Category II material also increases the pressure to turn privileged information over. Who at a corporation, asked the commissioner, wants to be responsible for not striving to receive every bit of credit possible, regardless of the collateral consequences to the corporation in civil litigation and to other parties, such as officers, directors, and employees in both criminal and civil proceedings.
In support of the need for more robust protection of privilege, the commissioner also cited a report by former Delaware Chief Justice Norman Veasey, which found that the McNulty Memorandum has not significantly reduced the incidence of government coerced waiver, and that federal prosecutors continue to routinely demand waiver of the privilege during investigations despite the new policy.
Finally. Commissioner Atkins observed that the SEC’s 2001 Seaboard Report is a guide encouraging companies to cooperate in an investigation. But it is no comfort, said the commissioner, that the SEC's primary guiding document on attorney-client privilege waiver states that obtaining a waiver is not an end in itself, but only a means to extract useful information.
That said, the commissioner emphasized that waiver is not itself listed as one of the Seaboard criteria for determining whether, and how much, to credit self-policing, self-reporting, remediation, and cooperation. Thus, in Atkins’ view, attempts to interpret Seaboard as allowing the SEC to reward companies for waiving privilege must be resisted. Rewarding companies for co-operating by waiving privilege may sound nice, he continued, but its effect is the same as punishing them for not waiving privilege since both effectively strip the attorney-client privilege.