You Have a Right to an Attorney (on the Company’s Dime)

Congressmen are marking up a bill that would protect employees' attorney-client privilege and could ease pressure on companies to cut off legal defense funds to employees accused of wrongdoing.

One week after a federal judge dropped a case against 13 former KPMG employees because prosecutors had pushed the accounting firm into not paying their legal fees, a House committee will mark up a bill that would alleviate pressure on companies to make similar agreements.

On Tuesday, the Subcommittee on Crime, Terrorism, and Homeland Security is scheduled to mark up the “Attorney-Client Privilege Protection Act of 2007,” which mirrors a bill introduced by Sen. Arlen Specter earlier this year. Unlike Specter’s bill, which has no co-sponsors and hasn’t moved since its introduction in January, the House bill is sponsored by both Democrat and Republican congressmen.

The House bill to change the controversial process used by Department of Justice prosecutors to push companies into cooperating with federal investigations was introduced earlier this month, just a few weeks before DoJ deputy attorney general Paul McNulty is set to leave office. In December, McNulty had revised the much-derided Thompson Memo, which allowed prosecutors to push for companies’ cooperation by waiving employees’ attorney-client privilege rights and refusing to pay their legal fees.

While McNulty’s version — which largely called on prosecutors to still consider the previous guidelines — restricted how prosecutors can seek privileged information from companies, critics said it did not go far enough to protect employee rights. Rather, it “merely requires high level department approval before formal waiver requests can be made,” according to the Coalition to Preserve the Attorney-Client Privilege, which includes the American Civil Liberties Union, the Business Roundtable, and the U.S. Chamber of Commerce.

The guidelines in both documents undermine companies’ internal compliance programs and their ability to maintain confidentiality agreements between company-hired attorneys and employees, says Stephanie Martz, director of the White Collar Crime Project for the National Association of Criminal Defense Lawyers, which is also part of the coalition. In fact, according to the coalition, companies will still feel “inexorable pressure” to waive attorney-client privilege to receive credit from the government for cooperating with a federal investigation.

Introduced in 2003 by former DoJ deputy attorney general Larry Thompson, the Thompson Memo had received particular criticism during the KPMG tax-shelter case. U.S. District Court Judge Lewis Kaplan postponed the case last year and dismissed it last week after ruling that prosecutors had denied the KPMG ex-employees their constitutional rights by compelling the firm to stop paying their legal fees. He has said prosecutors used the Thompson Memo to justify their actions.

McNulty’s memorandum instructs prosecutors to ignore whether a company has paid for its employees’ attorneys fees when determining how they’ll charge the corporation. However, this consideration does not apply in all cases, employee advocates note.

Earlier this month, Rep. Bobby Scott (D-Va.) introduced his version of legislation that would override the so-called McNulty Memo. His bill would disallow federal investigators from pressuring a company to waive attorney-client privilege, fire employees who assert their legal rights, or refuse to pay attorney fees. “An attorney cannot zealously represent his or her client and the client cannot adequately assist in his or her defense if both are concerned that the government can coerce them into turning over their communications.” Scott said.

Last week, President Bush nominated Craig Morford, a U.S. attorney in Tennessee, to replace McNulty, who is leaving the DoJ later this summer.

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