<DOC> [109 Senate Hearings] [From the U.S. Government Printing Office via GPO Access] [DOCID: f:34117.wais] S. Hrg. 109-835 THE THOMPSON MEMORANDUM'S EFFECT ON THE RIGHT TO COUNSEL IN CORPORATE INVESTIGATIONS ======================================================================= HEARING before the COMMITTEE ON THE JUDICIARY UNITED STATES SENATE ONE HUNDRED NINTH CONGRESS SECOND SESSION __________ SEPTEMBER 12, 2006 __________ Serial No. J-109-108 __________ Printed for the use of the Committee on the Judiciary U.S. GOVERNMENT PRINTING OFFICE 34-117 WASHINGTON : 2007 _____________________________________________________________________________ For Sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512ÿ091800 Fax: (202) 512ÿ092250 Mail: Stop SSOP, Washington, DC 20402ÿ090001 COMMITTEE ON THE JUDICIARY ARLEN SPECTER, Pennsylvania, Chairman ORRIN G. HATCH, Utah PATRICK J. LEAHY, Vermont CHARLES E. GRASSLEY, Iowa EDWARD M. KENNEDY, Massachusetts JON KYL, Arizona JOSEPH R. BIDEN, Jr., Delaware MIKE DeWINE, Ohio HERBERT KOHL, Wisconsin JEFF SESSIONS, Alabama DIANNE FEINSTEIN, California LINDSEY O. GRAHAM, South Carolina RUSSELL D. FEINGOLD, Wisconsin JOHN CORNYN, Texas CHARLES E. SCHUMER, New York SAM BROWNBACK, Kansas RICHARD J. DURBIN, Illinois TOM COBURN, Oklahoma Michael O'Neill, Chief Counsel and Staff Director Bruce A. Cohen, Democratic Chief Counsel and Staff Director C O N T E N T S ---------- STATEMENTS OF COMMITTEE MEMBERS Page Feingold, Hon. Russell D., a U.S. Senator from the State of Wisconsin, prepared statement.................................. 75 Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont. 4 prepared statement........................................... 77 Specter, Hon. Arlen, a U.S. Senator from the State of Pennsylvania................................................... 1 WITNESSES Donohue, Thomas J., President and Chief Executive Officer, U.S. Chamber of Commerce, Washington, D.C........................... 20 Mathis, Karen J., President, American Bar Association, Chicago, Illinois....................................................... 22 McNulty, Paul J., Deputy Attorney General, Department of Justice, Washington, D.C................................................ 2 Meese, Edwin, III, former Attorney General, Ronald Reagan Distinguished Fellow in Public Policy, and Chairman, Center for Legal and Judicial Studies, The Heritage Foundation, Washington, D.C................................................ 18 Sheppard, Mark B., Partner, Sprague & Sprague, Philadelphia, Pennsylvania................................................... 26 Weissmann, Andrew, Partner, Jenner & Block, LLP, New York, New York........................................................... 24 QUESTIONS AND ANSWERS Responses of Paul J. McNulty to questions submitted by Senators Leahy and Schumer.............................................. 37 SUBMISSIONS FOR THE RECORD Business Roundtable, Paul M. Montrone, Chairman & Chief Executive Officer, Fisher Scientific International Inc., Chairman, Civil Justice Reform Task Force, Washington, D.C., letter............ 56 Coalition to Preserve the Attorney-Client Privilege, joint statement...................................................... 58 Donohue, Thomas J., President and Chief Executive Officer, U.S. Chamber of Commerce, Washington, D.C., prepared statement...... 71 Mathis, Karen J., President, American Bar Association, Chicago, Illinois, prepared statement and attachments................... 80 McNulty, Paul J., Deputy Attorney General, Department of Justice, Washington, D.C., prepared statement........................... 109 Meese, Edwin, III, former Attorney General, Ronald Reagan Distinguished Fellow in Public Policy, and Chairman, Center for Legal and Judicial Studies, The Heritage Foundation, Washington, D.C., prepared statement........................... 123 Sheppard, Mark B., Partner, Sprague & Sprague, Philadelphia, Pennsylvania, prepared statement............................... 132 Thornburgh, Dick, Kirkpatrick & Lockhart Nicholson Graham LLP, Washington, D.C., prepared statement........................... 139 Weissmann, Andrew, Partner, Jenner & Block, LLP, New York, New York, prepared statement....................................... 144 THE THOMPSON MEMORANDUM'S EFFECT ON THE RIGHT TO COUNSEL IN CORPORATE INVESTIGATIONS ---------- TUESDAY, SEPTEMBER 12, 2006 United States Senate, Committee on the Judiciary, Washington, DC. The Committee met, pursuant to notice, at 9:30 a.m., in room SD-226, Dirksen Senate Office Building, Hon. Arlen Specter, Chairman of the Committee, presiding. Present: Senators Specter and Leahy. OPENING STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM THE STATE OF PENNSYLVANIA Chairman Specter. Good morning, ladies and gentlemen. It is 9:30. The Judiciary Committee will now proceed with this oversight hearing on the practices of the Department of Justice on the issue of departmental policy on calling for a waiver of attorney-client privilege and the elimination of the corporate practice of paying for counsel fees of their employees in the defense of criminal charges or the investigation of criminal charges. There is a memorandum of the Department which provides ``the corporation's timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents, including, if necessary, the waiver of attorney-client privilege and work product protection,'' and then a further provision on a ``corporation's promise of support to culpable employees and agents either through advancing of attorney's fees,'' et cetera, all of which goes to the ``value of a corporation's cooperation.'' This memorandum and these policies may well have the effect of significantly modifying the traditional balance on a criminal prosecution where the Government has the burden of proof because of the Government's power in establishing a criminal case, which leaves traditionally the suspect or ultimately the accused with privileges--the attorney-client privilege being one--and the obligation or practice of corporation's employees to pay counsel fees, which can be so prohibitive as to be coercive in an individual's decision on whether or not to defend himself or herself. The issue of privilege is one which the Government exercises with some forcefulness on some frequency. Executive privilege, certainly where the President were to invoke executive privilege, who could say that the President was being uncooperative, where we have the recurrent issue coming up in hearings before this Committee on nominees, including Supreme Court, where the Government says there is a privilege attached to what goes on in the Solicitor General's office, where we recently had Chief Justice Roberts and Justice Alito with documents and papers which the Government insisted on withholding, and understandably so, because of the overlying issue of privilege. The Southern District of New York has taken up this issue in an opinion by Judge Lewis Kaplan, strongly worded, condemning the Department of Justice's procedures on constitutional grounds in the KPMG case. So we have a matter here which involves very fundamental considerations of constitutional rights, due process rights, Sixth Amendment rights. Quite a number of former key employees of the Department of Justice, including Attorneys General, have objected to this policy, and this Committee will be scrutinizing it to see if it is appropriate for the Department of Justice to act. We turn now to our first witness, the distinguished Deputy Attorney General Paul McNulty. He served with distinction as the United States Attorney for the Eastern District of Virginia, handling many very important and high-profile cases. He is a graduate of Grove City College and Capital University School of Law. Thank you for joining us, Deputy Attorney General McNulty, and we look forward to your testimony. STATEMENT OF PAUL J. MCNULTY, DEPUTY ATTORNEY GENERAL, DEPARTMENT OF JUSTICE, WASHINGTON, D.C. Mr. McNulty. Thank you very much, Mr. Chairman. It is good to see you, and it is good to be here today. Today's hearing is about duty--the duty of prosecutors and the duty of corporate officials. It is about how those duties are brought together to enforce the law and to protect the integrity of the marketplace. People of good will and great distinction have criticized how we at the Department of Justice are fulfilling our duty. These are smart and experienced people, and their concerns must be taken seriously. But, Mr. Chairman, as a United States Attorney and Deputy Attorney General for the past 5 years, I have a little experience myself, and I would like, therefore, to suggest five realities that I have observed in relation to the practice of waiving attorney-client privilege in corporate fraud prosecutions. Reality number 1, Federal prosecutors have a duty to the taxpayers of this country to hold corporate officials and corporations accountable for criminal wrongdoing. Our job is to protect the integrity of public markets, to ensure that investors have a safe place to entrust their hard- earned dollars. And it is not in the interests of taxpayers, and investors in particular, for corporate fraud investigations to drag on for years. Reality number 2, those corporations want out from under the dark clouds of criminal wrongdoing as quickly as possible. The moment it becomes known that a corporation could be facing a criminal investigation and potential prosecution, the value of that company's stock begins to plummet, its shareholders lose money, and the board of directors quickly recognizes its fiduciary duty to those shareholders. It immediately sets out to locate the cancer of corporate corruption, excise the tumor, and get the company back on the road to good health. It is not in the interests of shareholders for corporate criminal investigations to drag on for years. Reality number 3, most corporations, therefore, are anxious to cooperate with Government investigations. Whether it is the Holder memo, the Thompson memo, a McNulty memo, or no memo, corporations will continue to cooperate in order to bring criminal investigations to an end, to bring them out from under the dark cloud of potential prosecution. Reality number 4, there are many ways for Government investigators to get the facts in a corporate fraud investigation, to find out who did what when. Some ways are faster and more productive than others. One of the most productive ways to get the facts is for a cooperating corporation to tell the Government what it knows. It is not the only way for the Government to learn the truth, but, generally speaking, disclosing the results of the company's internal investigation is one of the best ways. Let's face it. Searching for hot documents in rooms full of paper or on servers filled with computer files is much slower than looking through a three-ring binder or a CD-ROM identifying the most relevant evidence. As a general counsel of a Fortune 500 company recently told me, ``If I could bring a Justice Department investigation to a close by turning over an internal investigation and I did not do it, my board would fire me.'' Reality number 5, once a corporation has turned over the internal report and the prosecutor is ready to decide, indict or not indict, the corporation will insist, will demand that its cooperation be given full consideration along with other relevant factors in deciding not to indict the company. Thompson memo or no memo, the waiving of attorney-client privilege will always be argued by a company in its defense. And why shouldn't it be? Would it be fair to treat a company that did not cooperate, that circled the wagons and fought the Government every step of the way, the same as one that said to the Government, ``We are on your side, we will help you get the truth''? I am sure if prosecutors took that approach, my phone would be ringing off the hook. Mr. Chairman, Senator Leahy, three final thoughts. First, the attorney-client privilege is an extremely important component of our constitutional order and great legal tradition. The Justice Department may not and will not do harm to this principle of basic fairness. But just as drug- trafficking defendants routinely waive their constitutional right to a trial by jury in exchange for reduced charges, so, too, a corporation can waive a basic right when it is in its interests to do so. Second, the waiving of the attorney-client privilege is just one part of one factor out of nine factors cited in the Thompson memorandum for consideration in deciding whether to prosecute a company. But such a waiver can make a big difference for the hopes and dreams of shareholders who are anxiously waiting for their investments to bounce back. And, third, when it comes to waiving attorney-client privilege, we rarely have an interest in legal advice or counsel contemporaneous with the investigation. Mr. Chairman, we take the Sergeant Joe Friday approach--''Just the facts, ma'am.'' The Justice Department stands ready to work with everyone who has a suggestion for improving this waiver process. We are currently holding discussions with several interested parties. All we seek at the end of the day is the ability under the right circumstances to get the facts as quickly as possible and to fulfill our duty to the taxpayers and investors. Thank you, Mr. Chairman. [The prepared statement of Mr. McNulty appears as a submission for the record.] Chairman Specter. Thank you, Mr. McNulty. I turn now to our distinguished Ranking Member, Senator Leahy, for his opening statement. STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM THE STATE OF VERMONT Senator Leahy. Well, thank you, Mr. Chairman. I appreciate you having this hearing. I think it is extremely important. The protection of communications between client and lawyer has been fundamental to our Nation's legal justice system since its inception, as Mr. McNulty, of course, and just about everybody else in the room knows. The right to counsel has long been recognized as essential to ensure fairness and justice and equality under the law for all Americans. This administration has taken extraordinary steps to investigate and prosecute the press and to intimidate the press and critics and attorneys while it has claimed unlimited privileges and an extraordinary, unprecedented amount of secrecy for itself. As a former prosecutor, like the Chairman, I understand all too well that our democracy requires a healthy respect for the law and that criminal wrongdoing has to be punished, and wrongdoers who profit at the expense of ordinary Americans have to be held accountable. That is true for all, including corporate wrongdoers and those who violate the public's trust. Following Enron's collapse in 2001, I authored the criminal provisions in the Public Company Accounting Reform and Investor Protection Act that strengthened existing criminal penalties for corporate crime. I have since repeatedly offered stronger criminal penalties and accountability for war profiteering and contractor fraud. Those did not go through because the Bush administration blocked them. But, historically--apparently one thing we can do is war profiteering. That is allowed in the war in Iraq today. Historically, the attorney-client privilege has been balanced with competing objectives, including the need to ensure cooperation with the Government in criminal or regulatory probes. Now, the issue, of course, Mr. McNulty, as you have stated, is does the Department have this balance right. In the wake of the major corporate scandals at Enron, WorldCom, and elsewhere, you revised your policy. We have the Thompson memorandum, and now we have increased emphasis and scrutiny of a corporation's cooperation with the Government. But there is a growing number of critics of the Thompson memorandum, including former Republican Attorneys General. They have expressed concern that the Department's policy is too heavy-handed and that the policy has created a dangerous culture of waiver in our criminal justice system. Last month, the American Bar Association adopted a resolution opposing the Department's policy. Last Friday, the Wall Street Journal editorial board joined the criticism of Attorney General Gonzales and the Thompson memorandum, noting that the coercive intimidation it represents is ``more than a PR problem'' for the administration. Now, I am not one who automatically joins Wall Street Journal editorials. I think this time they are absolutely right. As I said, I am a former prosecutor. If I had taken a position like this when I was a prosecutor that, ``Boy, you better cooperate or, wow, we are really going to hit you with a lot of charges,'' the judges on the criminal bench in my State would have referred me to the Vermont Bar Association for sanctions. And I hope, even with a Federal bench that is very, very beholden to this administration, that they might consider the same thing. Now, I hold no brook for the kind of corporate wrongdoing and greed that has robbed a lot of our people. But just as I wanted to make sure the people I prosecuted had their rights so that I ended up getting a conviction that would be upheld, you ought to do the same. And I really cannot see any reason to tell a corporation, ``Well, you better give up all your rights or you are in real trouble.'' And I hear this from a lot of corporations, this idea of a CEO telling you, ``Well, if I do not just turn everything over and waive my rights and then we get in trouble, the board is going to fire me.'' Good Lord. Have we gotten to that point in this country? Erosion of the right to counsel undermines the fairness of our criminal justice system for all Americans. I am really worried about this, and as I said, I hold no brief for the people who have broken this law, just as I held no brief for the murderers and rapists and others that I prosecuted. But I also know that we have a rule of law in this country, and something I worry that we sometimes forget about. Thank you, Mr. Chairman. I will put my whole statement in the record. It is a lot stronger than that. Chairman Specter. Without objection, it will be made a part of the record. [The prepared statement of Senator Leahy appears as a submission for the record.] Chairman Specter. Mr. McNulty, when you say that the Department of Justice wants to do fundamental fairness, it is really not a matter for the Department of Justice to make that determination. That is a matter for the courts. You refer to the experience you have had as a prosecuting attorney. I made no reference to the experience that I have had. Senator Leahy talks about being a prosecutor. We understand that a prosecutor is a quasi-judicial official, but a big part of the prosecutor's responsibility is as an advocate. So it is not for the prosecutor to make the decision as to what is fundamental fairness. Now, you establish at the outset as your departmental policy that the value of a corporation's cooperation will be determined as to whether there will be charges. Well, charges themselves are a substantial penalty. That is the reality. We have a presumption of innocence in the law, but the man on the street thinks that if an individual is charged, it is somewhere between he must be guilty or he must have done something wrong. But there is a heavy opprobrium attached to a charge. And the right to counsel is just very, very fundamental. Would you say the President was being uncooperative, Mr. McNulty, if the President asserted executive privilege when the Conyers Judiciary Committee in the House asked him for materials which touch on executive privilege? Mr. McNulty. No. I am not familiar with when it was asserted in that instance, but I would assume that that was not inappropriate. Chairman Specter. Was the administration, President Bush's administration, uncooperative when they said to Senator Leahy, on a long letter he wrote for then-Judge Roberts's information, that they were not going to tell him what Judge Roberts did as an Assistant Solicitor General because it would chill the work of the Solicitor General's office? Mr. McNulty. No. Chairman Specter. Was the Department of Justice being uncooperative when similar requests for Deputy Solicitor General Alito's materials were not turned over? Mr. McNulty. No. Chairman Specter. Well, of course not. When you say that corporations want to have investigations completed promptly, you are exactly right, but so do individuals. The reality is that investigations drag on and on and on and on. And it may be that many of them, if not most of them, have to drag on. But it is a very, very heavy burden hanging over any individual to be subject to an investigation. Mr. McNulty, I conducted investigations as a D.A. contemporaneously with what the Department of Justice conducted. It was not under your watch. It was a long time ago. But Federal prosecutors do not deserve any merit badges for promptness, necessarily. But delays are very tough on individuals as well as on corporations. What is your reaction, Mr. McNulty, to the opinion of Judge Kaplan in the Southern District on the KPMG case, saying that there was a denial of fundamental due process and there was a denial of the Sixth Amendment right to counsel in that case by the Government's practices and policies? Mr. McNulty. Well, we are litigating the Kaplan decision, so I am going to say just a few things. There is a lot you cannot say when it is an ongoing litigation like that. But we have stated that we disagree with the judge's reasoning in that case. The judge essentially concluded that the Thompson memorandum was unconstitutional because it created a pressure on the corporation to cut off the attorney's fees of the defendants. We do not believe that is the correct reading of the Thompson memo. That case is on appeal now. So we essentially have taken that decision up. Chairman Specter. My time has expired. I yield to Senator Leahy. Mr. McNulty. Mr. Chairman, I will be happy to just keep listening. I just want to make sure that if there was an opportunity to respond to some of the things you said, I did not want to--I wanted to look for an opportunity down the road at some point here to be able to respond. Chairman Specter. You have a further response to make? Mr. McNulty. You made a number of different points, and I-- Chairman Specter. Take them up and respond. Mr. McNulty. Okay. I will just say a few key things. Chairman Specter. Sure. Mr. McNulty. First of all, with regard to the analogy of the executive privilege issue as it relates to this discussion, I appreciate certainly the point that there are- -it is important to respect the nature of confidential communications, and in various contexts and various places, confidential communications are critical to the way in which things operate. We all understand that. But the fact that both instances involve the confidentiality of communications to me is not as significant as the distinctions between those different areas. One, that is, the executive branch's actions, has to do with the way in which co-equal branches of Government work together to try to deal with these questions of getting information from the executive branch. In this case, we are talking about a corporation facing criminal prosecution. One of the things lost in a lot of this discussion is this issue, the Thompson memorandum--and before that, by the way, the Holder memorandum, which has virtually the identical language as the Thompson memo on this subject-- Chairman Specter. Yes, but the prior administration did not establish it as governmental policy. Point that out at the same time, Mr. McNulty. If you are going to refer to it, lay it all on the table. Mr. McNulty. Well, I am-- Chairman Specter. Well, wait a minute. It was optional with U.S. Attorneys. Mr. McNulty. It is optional now with U.S. Attorneys. Chairman Specter. Excuse me? Mr. McNulty. It is optional now with U.S. Attorneys. Chairman Specter. Well, that is not my understanding. That is not the way I read your policy. That is not the way everybody else reads your policy. Big difference between what you are doing now and what was done under Attorney General Reno. Mr. McNulty. With great respect to you, sir, I have to disagree with that. This was guidance given to prosecutors- Chairman Specter. Well, are you saying that the Thompson memo is not binding on U.S. Attorneys around the country? Mr. McNulty. No. Chairman Specter. Because if you are, I think that is good news to a lot of U.S. Attorneys. Mr. McNulty. It is no more binding than any previous guidance to U.S. Attorneys as to how to make decisions, which is what-- Chairman Specter. I am not interested in any previous guidance to U.S. Attorneys. I want to know flat-out is the Thompson memorandum binding on U.S. Attorneys. Mr. McNulty. It sets forth the guidance there to exercise when making a decision. It is binding as to here are considerations that you are take up, but it does not say you are to demand attorney-client waiver in a particular situation. Not at all. It is just guidance as to how to make a decision. Chairman Specter. Well, of course it does not, but it lists it as a prime consideration on whether they are going to be charged. Mr. McNulty. Yes. Chairman Specter. Well, I take your last answer to mean that this is policy which the U.S. Attorneys have to follow. Mr. McNulty. That is fine. I am not trying to quibble on that point, sir. It is just that what I am saying is that it is not changed with regard to how we give guidance to prosecutors in the field who are trying to work with companies on this question. In the absence of this, you would have prosecutors on an individual basis trying to decide, Will we prosecute the company or not prosecute the company when we have the evidence to do so? And that is the time this comes up. The evidence and the ability to charge is now present. The question is: Do it or not do it? What factors should be taken into consideration? We give them nine. Chairman Specter. But that is when you have the evidence, and balance in the criminal justice system is to impose the burden of proof on the prosecution and to require the prosecution to gather the evidence in a context where those who are being investigated or charged have the attorney-client privilege as well as other privileges. When you talk about the executive privilege between co- equal branches, it is true, but the Senate Judiciary on confirmation stands in a pretty good position as a co-equal branch. When you talk about the power of the Government, it is very, very elevated compared to the power of the individual, and that is why they have the burden of proof, and that is why you have the privilege against self-incrimination, and that is why you have the attorney-client privilege, to put a balance in the system. And the concern that I have is of the material imbalance. Congress can protect itself with the executive branch, but an individual, a corporate employee is very different from the corporation. And the corporate employee's interests are very different from the corporation. The corporation wants to get the matter closed early for financial reasons. The individual who has the attorney-client privilege and who wants to have his counsel fees paid so he can defend himself wants to stay out of jail or wants to be treated fairly. Do you have some further comments on the opening line of questions? Mr. McNulty. Thank you, sir. I will stop there. Chairman Specter. Senator Leahy? Senator Leahy. Well, thank you, Mr. Chairman. You know, I sort of hear you dancing all around the question of whether it is mandatory in U.S. Attorneys. There is not a single U.S. Attorney in the country who does not think this is the--who does not believe this is the policy. They feel this is the policy. They understand this is the policy. The Thompson memo, to follow up on what the Chairman was saying, even seems to encourage companies to fire employees under some circumstances to show their cooperation. Good Lord. This means you kind of come in with a sledgehammer and hope that everybody will run like hell. Don't these policies compel corporate employees to waive their right against self-incrimination or risk losing their jobs? I mean, it is kind of an interesting choices, isn't it? You either testify or you might lose your job. No compulsion there. Mr. McNulty. Now you are talking about whether or not employees must cooperate with an internal investigation. I am sorry, Senator Leahy. I am not sure if I understand-- Senator Leahy. The Thompson memo seems to encourage companies to fire employees under certain circumstances to show their cooperation--if they do not show cooperation. Mr. McNulty. Well, what the Thompson memo says is that one of the factors in looking at a company's conduct at the time of deciding whether to charge it criminally or not is if it has a compliance program. And anyone responsible for drafting a compliance program that would pass the straight- face test includes a discipline procedure. How do you handle people who fail to comply with an internal investigation? Senator Leahy. Mr. McNulty, you are probably getting into a definition of what ``is'' is. What you are saying, in effect, is you either cooperate and give us everything we want or you are in deep trouble. I mean, really, it comes down to that. It comes down to that. A corporation, if I was sitting on a board of a corporation, of course, I would be worried because I would see the Government coming in and saying, ``You better waive your rights, or we are really going to get you. Not we might just a little bit get you. If you don't waive your rights, we are really going to get you.'' And don't you actually end up in a perverse way where a company is going to be very concerned about putting in some very specific guidelines and monitor those very specific guidelines to make sure everybody is behaving themselves, because they are afraid if they slip off those guidelines just a little bit, the Federal Government, with enormous resources, can play a ``gotcha'' game. Mr. McNulty. No, I do not believe that is the intent of this-- Senator Leahy. Okay. That is your answer. Now, the KPMG case you said is still being litigated. Are you going to appeal Judge Kaplan's decision? Mr. McNulty. I believe that is what is going on, although I don't know at this moment. I will have to check to see if we have already filed. Senator Leahy. Will you check and let us know whether you have appealed? But it is your intention-- Mr. McNulty. We have appealed already. Senator Leahy. You have appealed. All right. You know, the Coalition to Preserve the Attorney-Client Privilege found that 30 percent of in-house respondents and 51 percent of outside counsel for companies that have been under investigation during the last 5 years said the Government expected waiver of the attorney-client privilege in order to engage in bargaining or to be eligible to receive more favorable treatment. It gives them the impression that if you refuse to waive the attorney-client privilege, which is, after all, the bedrock of our constitutional legal system, it assumes that it means the corporate defendant is not cooperating. Is that right? Mr. McNulty. Well, first of all, that is based upon this information that we are requiring or compelling a waiver--I am sorry. I am not sure I follow the question. Would you please-- Senator Leahy. Let me go to another one. My time is up. But I will go back to that in written questions. Yesterday was the fifth anniversary of the September 11th attack. We find in a new study that your Department's prosecutions have declined dramatically since September 11th. I will not go back to on September 10th when you wanted to--when your Department wanted to cut substantially the counterterrorism money but take since then. In 2002, right after, Federal prosecutors filed charges against 355 defendants in terrorism cases. Now it is 46. Nine out of ten terrorism cases do not go anywhere. But even those that you do list as terrorism convictions, I remember people in my State getting longer sentences for drunk-driving cases. Are we cooking the books a little bit here? Mr. McNulty. No, sir. Senator Leahy. Well, then why--I mean, I understand we do not catch Osama bin Laden. That is not your Department. But if we really have this great terrorist threat, why are people getting practically no penalties? In most States, traffic court or stealing a couple TV sets get higher penalties. What is going on? Is this just to make it look like we are doing something without--and hoping that nobody will look at nothing ever happened? Mr. McNulty. I am not sure I understand what you are talking about. My sense is that the penalties have been extremely high. In fact, we have taken some criticism-- Senator Leahy. What is the lowest penalty on a terrorism case that you have seen? Mr. McNulty. I could not tell you off the top of my head, but I know I have seen-- Senator Leahy. Would it surprise you if it was a matter of months? Mr. McNulty. It would depend upon the case itself and what was the subject of the conviction and who the judge was that sentenced and what was the jurisdiction-- Senator Leahy. Well, who the judge was, a lot of these cases it is a plea bargain where the sentence is exactly what you, the Department of Justice, recommended. Many times these are sentences that are similar to what might be recommended in a misdemeanor case. I mean, either you are being tough on terrorism or you are trying to get numbers to say you have convictions, but they are pretty minor cases. Mr. McNulty. Can I answer the question? Senator Leahy. Whatever you like, Mr. McNulty. You are the Deputy Attorney General. Mr. McNulty. We have seen sentences that go from life in prison to much lower sentences. It all depends upon the facts of the case and what-- Senator Leahy. How many life imprisonment? Mr. McNulty. I do not know off the top of my head. Senator Leahy. One? Two? Mr. McNulty. Many more than one or two. Just Moussaoui and Richard Reid alone would be two right there. Senator Leahy. Okay. Three? Four? Mr. McNulty. In Virginia, I can call on that memory much easier. We had a life sentence for Al-Tamimi. We had a 60-year sentence for Abu Ali. We had recently a 25-year sentence for another Virginia jihad case. The Virginia jihad cases, 11 convictions probably averaged somewhere from 15 years to life or 75 years, somewhere in that category. I can think of cases-- Senator Leahy. What would be the median sentence? Mr. McNulty. I am not familiar with any study that has looked at the sentences of-- Senator Leahy. Take a look at the Track study. Mr. McNulty. That study recently reported on the question of cases brought by U.S. Attorney's Offices, according to the coding numbers, the way in which U.S. Attorney's Offices identified terrorism cases at the time they charged them, which, by the way, is a different way for the Department of Justice to count or to keep track of terrorism cases. We also-- Senator Leahy. In other words, if they are really successful, it is your case. If they don't, it is their case. Is that it? Mr. McNulty. No. At the time a case is brought-- Senator Leahy. Just thought I would ask. Mr. McNulty. The case at the time it was brought, the Assistant United States Attorney logs it in and gives it a code number, and they have to do the best they can at that. Sometimes when they bring a case, they think it is going to turn out a certain way, and they coded it one way. But it does not always turn out that way. Senator Leahy. Were a number of the cases after September 11th--a number of the cases pending that had been coded one way before September 11th retrospectively coded a different way? Mr. McNulty. Nothing has been retrospectively coded. But after September 11th, Assistant United States Attorneys had a new category to pay special attention to when it came to coding. Senator Leahy. But did that mean that they coded some of the cases after September 11th that had already been pending with different numbers? Mr. McNulty. No, I am not familiar with doing that. Senator Leahy. There has never been a case like that? Mr. McNulty. I am not familiar with that, sir. I have not heard that. Senator Leahy. Okay. Your answer? Mr. McNulty. I think we are finished. Chairman Specter. Thank you, Senator Leahy. Mr. McNulty, in your prepared statement you have listed a number of cases where the Government prosecuted and got jail sentences, and I congratulate you on those cases. I think there have been many very important cases which you have brought and have gotten convictions and have gotten jail sentences, and the Department is to be commended on that. And certainly your own record as United States Attorney was an impeccable one, and your nomination to be Deputy Attorney General was greeted very favorably in all quarters, including on this Committee. Senator Leahy. I supported it. Chairman Specter. I would make just a couple of comments about the proceedings, and that is, the heavily publicized fines which we see on these conferences from the Department of Justice I find very unimpressive. I think the fines are not really very meaningful as a matter of deterrence or as a matter of punishment. But the jail sentences are. They are really very, very meaningful. And I would urge you to focus on that in the disposition of cases, and not to settle the cases but to carry them through, if necessary, in order to get the appropriate judgment of sentence at the very end. I am not suggesting at all being easy on corporate America. This Committee is now considering legislation which would make it a criminal offense for a corporate executive knowingly to put into interstate commerce a defective product, knowing and willfully, with results in death or serious bodily injury. And the illustrative case on that is the Pinto case where the evidence showed that Ford put the gas tank in the back because it saved a few dollars as opposed to putting it in some other location, and a calculation was made as to how many damage cases they had and what the costs would be to the corporation. And that definition constitutes malice under common law, which would support prosecution for murder in the second degree. In the Ford-Firestone case, where the evidence showed that both Ford and Firestone knew these defective tires were on the cars, resulting in many deaths and many, many serious injuries, we legislated to impose criminal penalties. And this idea of imposition of criminal responsibility has been objected to very vociferously by the corporate community. And I can understand that. But I would not consider trying to structure a prosecution without the traditional burden of proof and attorney-client privilege and privilege against self- incrimination. So the suggestion is not being made to you that you be soft on corporate America, but that you respect the traditional rights. And as I read this policy on the consideration of the ``value of a corporation's cooperation'' in charging, I think it is coercive, may even rise to the level of being a bludgeon. And when I referred to the individuals who want to avoid going to jail to have their defense fees paid, it is not only going to jail, they just want an opportunity to have fair treatment on the adjudication to show they were not, in fact, guilty. I would ask you to reconsider your policy as to whether the U.S. Attorneys are bound, if there is some leeway there to go back to the Holder standard, or what I understand to be the Holder standard, where the memorandum had language similar to the memorandum authored by Mr. Thompson but was not binding on the U.S. Attorneys. They could consider it or not. Or if your current policy is not binding on the U.S. Attorneys, to make that specific. Mr. McNulty. Well, Mr. Chairman, I will do that. That is the thing I pledged to you this morning, is that we are looking at this and will consider all possibilities. Look, I have got the Chairman, the Ranking Member upset. I have got former DOJ officials writing letters. We have got everybody complaining. The easiest thing for me to do today would be to come here and say we are just going to go ahead and change this policy and make everybody happy. But I would not be doing the right thing as I sit here and I think it through as well as I possibly can as a public servant. I really believe that the perception that is in existence here concerning what we are doing and how this works is different from the reality. And if I did not think that, I would not come here and say it. And I have spent many hours trying to study this and understand it. I did this when I was a U.S. Attorney. I had the conversations with corporate counsel. I negotiated attorney- client privilege waivers. I experienced that firsthand. I have talked to many, many U.S. Attorneys about this. I chaired the Attorney General's Advisory Committee when the McCallum memo went out in order to coordinate the views on this subject. And I really do not see this as the kind of coercive practice that is being described by the groups. This is one factor to consider when the corporation is facing criminal prosecution. It is not an investigation issue. It is a charging issue, because it has already been determined that the violations of criminal law have occurred. Now the question is: Do you charge the company or not charge the company? And we tell the prosecutors, Look at nine factors. As U.S. Attorney, I did not even consider this to be one of the big ones. One of the big ones is, How pervasive is the criminal conduct? Did you try to stop it? Did you have an effective compliance effort ahead of time to try to keep this from occurring? How far does it go up the ladder? Was the CEO involved in it? Those are the questions that you ask when you are trying to decide to charge the company or not. Now, if they have cooperated, which they almost always do because they say, look, we are an independent board of directors with a fiduciary duty to get to the wrongdoing and make sure that we clean this up; we are on your side, how can we help put this behind us? That is when the issue of well, do you know what is going on? Do you have a report that you can hand us that says this is where the wrongdoing occurred, we have investigated it, and we are prepared to assist you and find out the facts. If they are willing to do that, which any prosecutor in his right mind would say, yes, that would be very helpful to us, should they not get credit for that when it comes to charging the company criminally or not charging the company? That is all we are telling the U.S. Attorney, is consider this. The text of the Thompson memo language itself says this is one factor to be considered when making this decision. And that is what this attorney-client waiver factor amounts to. We are not trying to coerce anybody into doing it. We are giving them an option of providing us information if they will try to persuade us not to charge them criminally. Chairman Specter. Just a couple more comments, and I will yield again to Senator Leahy. Mr. McNulty, I am not upset. I regard this as a conversation among three lawyers talking about what ought to be done here as a matter of public policy, three lawyers who have had some experience in the field and want to come to a proper conclusion. Chief Justice Roberts said that when he argued cases before the Supreme Court, it was a conversation among equals. I was enormously impressed with his confidence and thought that he could be Chief Justice with that attitude when he was a lawyer. [Laughter.] Chairman Specter. This is just a discussion among three lawyers. But I do not think somebody ought to get credit for waiving a constitutional right or ought to get credit--or ought to get a demerit or a deficit for asserting a constitutional right. I think the response of the prosecutor ought to be exactly neutral. If someone asserts a constitutional right, that is ordained by a power of the Constitution, which in and of itself has enormous magnitude and a lot of experience in coming to that privilege and a lot of experience in applying that privilege. Stated differently, privilege against self- incrimination is a lot smarter than Arlen Specter. I am sure of that. So I would not give anybody credit for waiving it, and I would not consider it a negative factor if it was asserted. Mr. McNulty. But thousands of criminals today, as we sit here, will get that very benefit for waiving a constitutional right. Thousands of criminals today in the United States will stand before a court at a plea bargaining hearing and say--the court will ask in a colloquy, ``Do you understand that you are waiving your right to a trial by jury, the right of the Government to prove its case beyond a reasonable doubt''--the right, the right, the right. And the defendant will say, ``Yes, Your Honor. Yes, Your Honor, I do.'' And why is he doing that? He is doing that because the Government is going to hold him accountable for one of five counts or two of five counts and drop three counts, and he prefers that than to go to trial and risk conviction on all five counts. That is-- Chairman Specter. I think he is doing it because he is guilty. Mr. McNulty. Well, of course. Chairman Specter. That is why he is saying, ``I plead guilty,'' and when he pleads guilty, he gives up a lot of rights. And I think he has pleaded guilty because he thinks if he does not, it is going to be proved anyway. But if he could defend himself and if he could go through a proceeding where the conclusion is not guilty, which is different than innocent, because the Government has not met its burden of proof, and he has counsel and someone to pay for the counsel--we sometimes lose sight of how expensive lawyers are, but when I practiced law, my fees were so high that I could not afford to hire a lawyer who charged those fees. Seriously. I did not earn enough as a lawyer to pay someone the hourly rate that I had to charge other people. So I think when he pleads guilty, he does so because he is guilty, and he thinks if he does not, it is going to be proved. And, of course, it is fair on sentencing. And I think the cooperation of an individual along the way is fair for the judge to consider on sentencing, but not as to the charge by the prosecutor. Senator Leahy? Senator Leahy. Well, Mr. McNulty, like the Chairman, I have respect for you. I voted for you both as U.S. Attorney and Deputy Attorney General. I appreciate your comment that you are concerned that you have upset the Chairman and myself. You do not have to worry about upsetting me, although I must note that you are probably the first person in 6 years in this administration that has given a darn whether he upset me or not. [Laughter.] Senator Leahy. And I keep a daily journal. I intend to mark this in my journal as sort of a red banner day, unique, the first time anybody in this administration gave a darn. I will probably put it differently in the journal that they actually upset me. But you and I should probably discuss this further, and I will not take the time. We have both gone over our time here, but I cannot tell you how concerned I am. It is not just a plea bargain. Heck, I have been there with plea bargains, both as a defense attorney and as a prosecutor. But there are lot of things that go on leading up to that time, and not the least of which is the Government has to prove they have a pretty good case, and the person says, ``Okay, you got me.'' Now, let's figure out what we do about it. And then there is a certain advantage to both sides in avoiding a trial at that time, especially in the kind of trials you are talking about, where the Government could be spending millions of dollars in a trial; and the other side of that, if they are guilty, let's work it out. But what has happened, you have corporations and somebody says, Look, I cannot keep these people on salary because while, in effect, not the case of the Government having to prove they are guilty, but they are going to have to prove beyond a reasonable doubt that they are innocent, we are just going to cut them loose. We are going to cut them loose. They are going to suddenly be without a salary. They are suddenly going to be there where they really can be coerced into a plea. And you know yourself when you are talking about some of these things of conspiracy or obstruction of justice, you get into kind of a gray area where, if you know that you are going to have to hire very expensive lawyers to prove it, you may well want to look for a plea. What I am worried about is that--and I hold no brief for it, whether it is corporate criminals or the person who puts on a ski mask and points a gun in your face. But I do worry that if the Government has made a mistake in bringing a case, they can ruin a whole lot of people's lives, and you can have a whole lot of people cut loose. I look at the judge's ruling in the KPMG case and others, and as I said, I found the Wall Street Journal editorial rather compelling. I am really worried about this. I am really worried that we take this attitude that the Government is always right, and if you have been charged, you must be guilty. And I know no matter how much you talk about the presumption of innocence, I know every time I walked into a courtroom as a prosecutor, the jury would always say of course they are presumed innocent, and they are thinking, ``Yeah, right.'' You already have an enormous number of arrows in your quiver. And I cannot imagine a U.S. Attorney who does not consider this mandatory. So maybe, Mr. McNulty, you and I should sit down and chat about this some more. Your answers are not going to change beyond what you have given here today, but I am really, really concerned about it. I think the fact that you have a number of very conservative Republican Attorneys General who have raised a question about this, others across the political spectrum-- across the political spectrum have raised a question about it. I would look at it very carefully. But maybe you and I might chat. Mr. McNulty. I am happy to do that and address as best I can the worries that you do have here. We want to get it right. We do not want to be doing something that is inappropriate or unreasonable. But we want to do our job, and that is the question here. We are not interested, just to clarify, in a lot of what would fall into attorney communications with their clients, the advice they are giving them in terms of the ongoing investigation. That is not sought. That is discouraged in the memo. And occasionally--rare, rare circumstance could you have an investigation involving perhaps a crime itself being committed in that conversation, but that would be a very unusual situation. So we are not interested in a lot of what you might be thinking would be communications that should definitely not be touched. We are talking really here about the contents of an internal investigation. That is the very large percentage of what this conversation is about today--What happened? And the company has a fiduciary duty, an incentive to find that out fast. And, Senator Leahy, when it comes to finding that out fast, yes, they go to employees and they begin to question them, and they have what are called Upjohn warnings, and they tell them right up front, ``Here is the deal. We do not represent you. We represent the company. The attorney-client privilege belongs to the corporation, not to any individual. And you are free to answer these questions or not, but we do have an internal policy at this corporation''--as all good companies do. I imagine if you went and looked at Fortune 500 companies, you might find 500 compliance plans just like this, which say that when we are doing an investigation, as a condition of your employment you need to speak truthfully to our folks. And that will exist whether the Thompson memo is in place or not. If today I walked out of the room and said to you, ``We will repeal the Thompson memo,'' tomorrow corporations would still go to people to get them to talk. They would still be compelled to cooperate. Corporations would still have counsel calling the Government and saying, ``How can we help resolve this case?'' And prosecutors would still be faced with the question. Now that you have helped me, what should we do with you? What should we do with the company itself? Do we charge or not charge under respondeat superior? And the company would say, ``Well, can I write you a letter laying out the arguments why we should not be charged?'' Senator Leahy. Mr. McNulty, I am aware of this. You know, I had--it has been years since I was a prosecutor, but I have a lot of friends in the corporate world. I am well aware of this. I have a lot of friends in the prosecution world and the defense bar. I am well aware of this. You do not have to--and I am sure the Chairman is, too. You do not have to give us Plea Bargaining 101. But the fact is--and you must be aware--that the amount of concern that has been raised by the ABA, that has been raised by former Attorneys General, that has been raised by both the business community, the non-business community, maybe--maybe--it may not all be as serendipitous as you seem to indicate. That is what I am saying. I understand what you say. A lot of what you say I do not disagree with. But in my years here, in six different administrations, I have never seen such concern, especially concern toward an administration that has been very, very, I think in many ways, lenient on the business community. I am thinking of the war profiteering and things like that, where your administration blocked efforts in that regard. But what I am saying when you see the number of people, Republicans or Democrats, who have raised concern about this and the very prestigious people raising concerns about it, I think it is worth taking a second look. I really do. Chairman Specter. We have honestly taken a lot more time up in our discussion here, and we have done so because there are so many items on the Senate agenda that others on the Committee could not be here. But we have also done so because I think your U.S. Attorneys may be interested in the dialogue and may have some effect on their thinking and the way they put the matters into operation. So it is always useful, and we do not have a chance to dialogue with you often publicly, Mr. Deputy Attorney General. So we utilized the time to keep you here for an hour, but I think to a good purpose. It is nice sometimes when only Senator Leahy and I are here so we have a little more time for a discussion and do not adhere so strictly to the time limits which we customarily do. Senator Leahy. I can tell Mr. McNulty is delighted that we had all that extra time. [Laughter.] Chairman Specter. Thank you very much, Mr. McNulty. Mr. McNulty. Thank you, Mr. Chairman. Thank you, Senator Leahy. Chairman Specter. We turn now to our distinguished second panel: former Attorney General Edwin Meese; President of the U.S. Chamber of Commerce, Tom Donohue; President Karen Mathis of the American Bar Association; Andrew Weissmann, Esquire, of Jenner & Block; and Mark Sheppard, Esquire, from Sprague & Sprague. Our lead witness is Hon. Edwin Meese, who is the Ronald Reagan Distinguished Fellow in Public Policy and Chairman of the Center for Legal and Judicial Studies at the Heritage Foundation. Mr. Meese was at Governor Reagan's right hand as his chief of staff, instrumental in Governor Reagan's election to the Presidency, served as domestic counselor in the first term of President Reagan, was Attorney General in the second term. He sat at this table in 1985 for his confirmation hearings, and I personally had the opportunity to work with him both as domestic counselor in structuring the armed career criminal bill and in his excellent work as Attorney General from 1985 through the end of President Reagan's second term. We appreciate your taking the time to join us, Mr. Meese, and we look forward to your testimony. STATEMENT OF EDWIN MEESE III, FORMER ATTORNEY GENERAL, RONALD REAGAN DISTINGUISHED FELLOW IN PUBLIC POLICY, AND CHAIRMAN, CENTER FOR LEGAL AND JUDICIAL STUDIES, THE HERITAGE FOUNDATION, WASHINGTON, D.C. Mr. Meese. Thank you, Mr. Chairman. As you point out, I am an official of the Heritage Foundation. For the record, may it be noted that the Heritage Foundation takes no Government money, nor does contract work, and is a nonpartisan public policy research and education institution here in Washington, D.C. Let me also say that I have submitted written testimony, which I ask be made part of the record, and I will summarize it. Chairman Specter. Without objection, it will be made a part of the record, as will all the written statements. Mr. Meese. Mr. Chairman, I have spent almost 48 years of my professional career, most of that time involved in one or another with law enforcement. I have been a career prosecutor for many years. I have educated prosecutors, and I have directed prosecutors. And I say that to provide some perspective as to my testimony this morning. First of all, let me say that I have great respect for Deputy Attorney General McNulty, who just testified, as well as for Robert McCallum, who was the author of a revised version of the so-called Thompson memorandum, both of whom are men of great integrity and great professionalism and ethical conduct. I must point out, as I think has already been referred to, however, by the Committee, that there are literally thousands of Assistant United States Attorneys throughout the country, and it is important that they receive the proper guidance in terms of the application of constitutional rights. And so I commend the Committee for convening this hearing and, interestingly enough, having it chaired and having the Ranking Member be former prosecutors themselves. I believe that the abrogation of the attorney-client privilege in any form would be a threat to constitutional rights, would be bad policy, unwise practice, and would be counterproductive to both compliance with the law and with just criminal proceedings. Let me mention four reasons why I believe that to be true. First of all, the attorney-client privilege is most needed, I believe, in corporate investigations and corporate prosecutions. In an age of overcriminalization, particularly in regard to business conduct, there is a real question of whether a certain course of conduct is or is not a violation of law. Likewise, there is often a dispute over whether a specific action should be a crime in any event. And so as Senator Leahy said, these type of cases involved often a gray area. And so for that reason, effective legal representation and legal counsel is extremely critical. Secondly, I believe that abrogating the attorney-client privilege is counterproductive to the compliance with the law. We want corporations to get the best legal advice. We want them to conduct investigations where there is whistleblower indications or other reasons to believe that there is a possibility of improper conduct taking place. And so I think it would be unjust then to have the results of their seeking legal advice and conducting an investigation in-house to then, in order to ensure compliance, have that turned around and used as evidence against them. Thirdly, I believe it would be wrong for the Government to have the power to coerce business firms into not providing legal counsel or not continuing the employment of employees who they believe to be innocent of criminal activity. And, fourth, I think that if you abrogate the attorney- client privilege, you encourage corporate officials to keep information from their counsel, which, both from the standpoint of good lawyering as well as the standpoint of compliance with the law, would be necessary. The remedy I suggest--and it is included in more detail in my written testimony--is, first of all, let me point out I think the work of Robert McCallum and the memo that he issued in 2005 is a significant reform. But I also believe it does not go far enough. In that regard, I would suggest that the memorandum be amended to eliminate any reference to waiver of attorney-client privilege or work product protections in the context of determining whether to indict a business organization. In the same manner and in the same context, I think that all references in the memorandum to a company's payment of its employees' legal fees or continuing their employment should be eliminated. Secondly, I think that the written policies should explicitly state that requests for waiver will not be approved except in exceptional circumstances, and exceptional circumstances should generally be limited to those that would bring into operation what is well established as the crime fraud exception to the attorney-client privilege. Third, I would suggest that in the meantime, prior to those reforms, that the Justice Department should make available to the public specific uniform national policies and procedures governing waive requests and that this become a national standard. And, finally, in order to promote the responsible use of waiver requests, I believe the Justice Department should collect and publish statistics on how often waiver is requested, how often business organizations agree to those requests, and how often organizations waive even apart from any requests by prosecutors. I think that these suggestions would enable the public generally as well as the Congress to understand more about how this particular problem is being handled by the Department. Thank you. [The prepared statement of Mr. Meese appears as a submission for the record.] Chairman Specter. Thank you very much, Mr. Meese. We now turn to the President and CEO of the U.S. Chamber of Commerce, Thomas Donohue. Mr. Donohue established in the Chamber the Institute for Legal Reform. He serves on the Product's Council for the 21st Century Workforce and the President's Advisory Committee for Trade Policy. He has his bachelor's degree from St. John's University and a master's from Adelphi. Thank you for coming in today, Mr. Donohue, and the floor is yours. STATEMENT OF THOMAS J. DONOHUE, PRESIDENT AND CHIEF EXECUTIVE OFFICER, U.S. CHAMBER OF COMMERCE, WASHINGTON, D.C. Mr. Donohue. Thank you, Mr. Chairman, and a special thanks to you and Senator Leahy and others for organizing this hearing. And thank you for saying a bit about my background. You all know that I am the one person here who is not a lawyer, but spend more time talking to corporate leaders than most. I am here this morning on behalf of the Chamber, and I am also testifying on behalf of the Coalition to Preserve the Attorney-Client Privilege, which includes most of the legal and business associations in this country. I am here to ask the Committee, either through oversight of the Department of Justice or by enacting legislation, to invalidate provisions of the DOJ's Thompson memorandum and similar policies at other Federal agencies, like the SEC, that prevent executives and employees from freely, candidly, and confidentially consulting their attorneys. We want you to help fix this problem. While the intention of the former Deputy Attorney General Larry Thompson--who, by the way, now serves on our board of directors--to crack down on corporate wrongdoing was laudable and appropriate, the policies set forth in the Thompson memorandum violate fundamental constitutional and long- recognized rights in this country in their implementation by U.S. Attorneys and their colleagues around the country. They obstruct--rather than facilitate--corporate investigations, and they were developed--and implemented-- without the involvement of Congress or the judiciary. This would perhaps be just another classic case of a Federal agency overstepping its bounds if the consequences were not so profound. The attorney-client privilege is a cornerstone of America's judicial system. This privilege even predates the Constitution, as you have indicated. The Thompson memorandum violates this right by requiring companies to waive their privilege in order to be seen as fully cooperative with Federal investigators. This has effectively served notice to the business community, and to the attorneys that represent them, that if you are being investigated by the Department and you want to stay in business, you better waive your attorney-client privilege. A company that refuses to waive its privileges risks being labeled as ``uncooperative,'' which all but guarantees that they will not get a favorable settlement. The ``uncooperative'' label severely damages a company's brand, its shareholder value, its relationship with suppliers and customers, and its very ability to survive. Being labeled ``uncooperative'' also drastically increases the likelihood that a company will be indicted, and one need only look to the case of Arthur Andersen to see what happens to a business that faced the death blow-- notwithstanding the fact that the Supreme Court found later on that it was all handled badly. Once indicted, a company is unlikely to survive even defending itself in a trial or make the outcome of that trial relevant. Keep this fact in mind the next time you hear a Justice official use the phrase ``voluntary waiver.'' The enforcement agencies argue that waiver of attorney- client privilege is necessary for improving compliance and conducting effective and thorough investigations. The opposite may be true. An uncertain or unprotected attorney-client privilege actually diminishes compliance with the law. If company employees responsible for compliance with complicated statutes and regulations know that their conversations with attorneys are not protected, many will simply choose not to talk to their attorneys. The result is that the company may fall out of compliance-- not intentionally--but because of a lack of communication and trust between the company's employees and its attorneys. Similarly, during an investigation, if employees suspect that anything they say to their attorneys can be used against them, they won't say much at all. That means that both the company and the Government will be unable to find out what went wrong, to punish wrongdoers, and to correct the company's compliance system. And there is one other major consequence. Once the privilege is waived, third-party private plaintiff lawyers can gain access to attorney-client conversations and use them to sue the company or obtain massive settlements. Despite our coalition's repeated attempts to work with the Justice Department to remedy these problems, Justice has refused to acknowledge the problem or has argued that the attorney-client privilege waiver is only very rarely formally requested in an investigation. However, to debate the frequency of ``formal'' waiver requests or ``voluntary waivers'' is to engage in a senseless game of semantics. As the CEO of the country's largest business association and as a member of three public company boards, I know how the game is played by prosecutors. As long as the Department of Justice exercises policies that threaten companies with indictment if they do not waive their privilege willingly, whether in the front line formal request or not. Efforts to reform the Thompson memorandum have been ineffective. Last year, Associate Attorney General McCallum put out another memo, but what his memo said, Mr. Chairman, is 93 U.S. Attorneys, using the Thompson memorandum, which I also read and we read as compelling, they can put together their own interpretation of that policy. I am not sure that is a great idea, as the former Attorney General indicated. I will end now by saying it does nothing to change the internal policies that penalize companies when the Justice Department and the SEC comes to visit. What perhaps is most disturbing, as I wrap up here, is that the Thompson memorandum was developed without any input of the gentlemen sitting here or your colleagues or without any input of the courts. Compromise reforms or half-baked ideas for softening the memo are not going to fix this. I call on the Congress and your Committee to use your influence--and you happen also to have a very important seat on the Appropriations Committee--to get a little more attention to this matter. You know, the coalition got a letter back from the Justice Department and it said, well, they were not going to do anything about this because the Congress told them to get real tough on corporate crime. If we take away the rights of protection from corporations and corporate officials, when do we take it away from Congressmen and religious leaders and individual citizens? And that is what we are here about, Mr. Chairman. Thank you very much. [The prepared statement of Mr. Donohue appears as a submission for the record.] Chairman Specter. Thank you, Mr. Donohue. Our next witness is Ms. Karen Mathis, President of the American Bar Association; been active with the ABA for more than 30 years, member of the ABA Board; bachelor's degree from the University of Denver, law degree from the University of Colorado. Thank you for coming in today, Ms. Mathis, and we look forward to your testimony. STATEMENT OF KAREN J. MATHIS, PRESIDENT, AMERICAN BAR ASSOCIATION, CHICAGO, ILLINOIS Ms. Mathis. Thank you. Good morning, Chairman and Ranking Member. Thank you so much for allowing me to be here to testify with you. As you indicated, I am the President of the American Bar Association, and I am a practicing lawyer in Denver, Colorado. Chairman Specter. Ms. Mathis, is your button on for the microphone? Ms. Mathis. Thank you. Can you hear me now, Senator? And were you able to hear me earlier? Chairman Specter. Yes. Go ahead. Ms. Mathis. I am here today on behalf of the American Bar Association and its more than 410,000 members. The American Bar Association strongly supports the attorney-client privilege and the work product doctrine. We are concerned about the provisions of the Department of Justice's Thompson memorandum and related Federal governmental policies that have seriously eroded these fundamental rights. We are working in close cooperation with a broad coalition which includes legal and business leaders, ranging from the U.S. Chamber of Commerce to the American Civil Liberties Union, in an effort to reverse these governmental waiver policies. We are concerned about the separate provisions of the Thompson memorandum that erode employees' constitutional and other legal rights, including the right to effective legal counsel. The Justice Department policy outlined in the 2003 Thompson memorandum erodes the attorney-client privilege and the related work product doctrine by requiring companies to waive these protections in most cases in order to receive cooperation credit during investigations. The ABA is concerned that the Department's waiver policy has caused a number of profoundly negative effects. First, it has resulted in the routinely compelled waiver of attorney-client privilege and work product protections. The policy states that the waiver is not mandatory and should not be required in every situation. However, most prosecutors regularly require companies to waive in return for cooperation credit. There is a growing culture of waiver, and it was confirmed by a recent survey of over 1,200 corporate counsel, which was conducted by the Association of Corporate Counsel, the National Association of Criminal Defense Lawyers, and the American Bar Association. Second, the policy seriously weakens the attorney-client privilege and work product doctrine. It discourages companies from consulting with their lawyers, and it impedes lawyers' ability to effectively counsel compliance with the law. Third, the policy undermines companies' internal compliance programs by discouraging them from conducting internal investigations designed to quickly detect and remedy misconduct. For these reasons, the ABA believes that the Department's waiver policy undermines rather than enhances compliance with the law. In an effort to persuade the Department to reconsider and revise its policies, the ABA sent a letter to Attorney General Gonzales in May recommending specific revisions, and we have included that in our written testimony. In its July response letter, the Department failed to address many of the specific concerns raised and simply restated the existing policy. We have included that in our submission. Last week, a group of ten prominent former senior Justice Department officials from both parties, as the Senators have indicated, sent a letter to General Gonzales and raised many of the same concerns. This remarkable letter came from the people who ran the Department, and their widespread concerns should be of concern and interest to the Senators. The ABA urges this Committee, exercising its oversight judgment and authority, to send a strong message to the Department that the Thompson memorandum is improperly undermining attorney-client privilege and work product protections, and it must be changed to protect these fundamental rights. This memorandum also contains language that violates employees' legal rights by pressuring their employers to take certain punitive actions against them during investigations. In particular, it instructs prosecutors to deny cooperation credit to companies that assist or support their so-called culpable employees or agents in several ways: by paying for their legal counsel, by participating in a joint defense or information- sharing agreement, by sharing relevant information with the employees, or by declining to fire or sanction them for exercising their Fifth Amendment rights. The ABA strongly opposes these provisions. By forcing companies to conclude that their employees are culpable, long before guilt has been proven or assessed, the policy reverses the presumption of innocence principle. The ABA urges the Committee to encourage the Justice Department to eliminate these employee-related provisions from the Thompson memorandum, and we believe that this change and the other reforms we have discussed earlier in this testimony would strike a proper balance between effective law enforcement and the preservation of essential attorney-client, work product, and employee legal protections. I would like to thank the Committee, the Chairman, and the Ranking Member on behalf of the ABA for allowing us to present this testimony and refer you to our more complete written testimony. Thank you, Senators. [The prepared statement of Ms. Mathis appears as a submission for the record.] Chairman Specter. Thank you very much, Ms. Mathis. Our next witness is Mr. Andrew Weissmann, partner of Jenner & Block in New York. He had been in the Department of Justice and was the prosecutor of more than 30 individuals relating to the Enron Task Force, where he was the Enron Task Force Director. He is currently actively engaged in criminal defense work, has a bachelor's degree from Princeton and a law degree from Columbia. Thank you for coming in today, Mr. Weissmann, and we look forward to your testimony. STATEMENT OF ANDREW WEISSMANN, PARTNER, JENNER & BLOCK, LLP, NEW YORK, NEW YORK Mr. Weissmann. Good morning, Chairman Specter and Ranking Member Leahy. I would like to make two points regarding the Thompson memorandum. First, there have been and there still are wide differences across the country regarding when and how to seek a waiver of the attorney-client privilege in white-collar investigations. The Thompson memorandum gives a green light to Federal prosecutors to seek waivers of the attorney-client privilege. But it offers no guidance about when it is appropriate to do so. The considerable variances in implementation of the Thompson memorandum often subject corporations, which are national in scope, to the vagaries and unreviewed decisions of individual prosecutors. Thus, although the theory of the Thompson memorandum is a good one--that is, setting forth the criteria that should guide all Federal prosecutors in deciding when to seek to charge corporations--in practice the interpretation and implementation of the factors is left to the unguided determinations of individual prosecutors. Even assuming, as I do, the good faith and dedication to public service of all Federal prosecutors, they are not receiving the necessary guidance to diminish the wide variations that currently exist. Many prosecutors have interpreted the Thompson memorandum to mean that it is appropriate at the very outset of the criminal investigation--unlike what the Deputy Attorney General said previously, these are not determinations that are made after criminal--a criminal determination is made that there is a corporation that is guilty but, rather, made at the beginning--that it is appropriate to seek at that point a blanket waiver of all attorney-client communications other than the current communications with the corporation about how to defend the case. That waiver can include disclosure of all reports prepared by counsel of its interviews of company employees as part of an internal investigation, as well as production of counsel's notes taken at any interview, whether of a company employee or a third party. And this request for a waiver occurs even though the Government can interview those witnesses themselves, or if the Government was present for the interviews, and easily could replicate the information by rolling up its sleeves and doing the interviews of the witnesses on their own. On the other hand, other prosecutors take a more surgical approach and proceed incrementally, only seeking a full waiver where it is truly important to the investigation and other interim steps have failed. This latter approach is, of course, far more responsible and, in my opinion, the DOJ should promulgate guidance strictly cabining prosecutors' discretion to seek immediate blanket waivers and curtailing the solicitation of waivers that are simply a shortcut for the Government to obtain information they could obtain anyway directly. The second point I would like to make is that I think that the issues being addressed here today by the Committee are symptoms of a larger problem with the current state of the law regarding criminal corporate liability. There are two principal forces at work. As has been mentioned, the first is the prevailing understanding that a corporate indictment could be the equivalent of a death sentence. One of the lessons corporate America took away from Arthur Andersen's demise in 2002 is to avoid an indictment at all costs. A criminal indictment carries potentially devastating consequences, including the risk that the market will impose a swift death sentence, even before the company can go to trial and have its day in court. In the post- Enron world, a corporation will, thus, rarely risk being indicted by a grand jury at the behest of the Department of Justice. The financial risks are simply too great. The second principle at work is the current standard of criminal corporate law under Federal common law. A corporation can be held criminally liable as a result of the criminal actions of a single, low-level employee if only two conditions are met: the employee acted within the scope of her employment, and the employee was motivated, at least in part, to benefit the corporation. No matter how large the company and no matter how many policies a company has instituted in an attempt to thwart the criminal conduct at issue, if a low-level employee nevertheless commits a crime, the entire company can be prosecuted. In light of the Draconian consequences of an indictment and the fact that the Federal common law criminal standard can be so easily triggered, the Thompson memorandum offers prosecutors enormous leverage. A rethinking of the criminal corporate law is in order. The standard for criminal liability should take into account a company's attempts to deter the criminal conduct of its employees. Holding the Government to the additional burden of establishing that a company did not implement reasonably effective policies and procedures to prevent misconduct would both dull the threat inherent in the Thompson memorandum as well as help correct the imbalance in power between the Government and the corporation facing possible prosecution for the acts of an errant employee. A more stringent criminal standard, one that ties criminal liability to a company's lack of an effective compliance program, would have the added benefit of maximizing the chances that criminality will not take root in the first place, since corporations will be greatly incentivized to create and monitor strong and effective compliance programs. The objectives of a law-abiding society, of the criminal law, and even of the Thompson memorandum itself, would thus be well served. Thank you very much for the opportunity to testify. [The prepared statement of Mr. Weissmann appears as a submission for the record.] Chairman Specter. Thank you, Mr. Weissmann. Our final witness is Mr. Mark Sheppard, partner in the law firm of Sprague & Sprague. The Committee had asked Mr. Sprague, Richard Sprague, to testify, but he could not do so because he is on trial. Mr. Sprague had been first assistant district attorney during my tenure and is one of America's outstanding lawyers and specializes in criminal defense work now. Mr. Sheppard was recognized as a Pennsylvania Super Lawyer in the area of white-collar criminal defense, a bachelor's degree from Lehigh and graduated with honors from Dickinson School of Law. We appreciate your coming down today, Mr. Sheppard, and the floor is yours. STATEMENT OF MARK B. SHEPPARD, PARTNER, SPRAGUE & SPRAGUE, PHILADELPHIA, PENNSYLVANIA Mr. Sheppard. Thank you, Mr. Chairman, and Mr. Sprague sends his regards and is sorry he could not be here. Good morning, Chairman Specter and Ranking Member Leahy. Before I get into it--and I thank you for getting into my background--I have practiced white-collar criminal defense work for the past 19 years, where I have represented both corporations and individual directors, officers, and employees in Federal grand jury investigations. I want to begin my remarks by thanking you for giving me the opportunity to be here to discuss my concerns about the deleterious effect of the ``cooperation'' provisions of the Thompson memorandum and similar Federal enforcement policies, including the Securities and Exchange Commission's Seaboard Report. These policies have so drastically altered the enforcement landscape that they threaten the very foundation of our adversarial system of justice. This threat is brought about by the confluence of two recent trends: increasing governmental scrutiny of even the most routine corporate decision making and untoward prosecutorial emphasis upon waiver of long-recognized legal protections as the yardstick by which corporate cooperation is to be measured. These policies and, in particular, those which inexorably lead to the waiver of the attorney-client and work product privilege upset the constitutional balance envisioned by the Framers, impermissibly intrude upon the employer- employee relationship, and in real life result in the coerced waiver of cherished constitutional rights. The Thompson memorandum purports to set forth the principles to guide Federal prosecutors as they make the decision whether to charge a particular business organization. As the Chairman pointed out, while the majority of those principles are minor revisions of DOJ policy, the memorandum makes clear that corporate enforcement policy in the post-Enron era will be decidedly different in one very important aspect, and as the memo states: The main focus of the revisions in the Thompson memorandum is increased emphasis on and scrutiny of the authenticity of a corporation's cooperation. According to the memorandum, ``authentic'' cooperation includes the willingness to provide prosecutors with the work product of corporate counsel from an internal investigation undertaken after a problem was detected. Authentic cooperation also includes providing prosecutors with the privileged notes of interviews with corporate employees who may have criminal exposure, yet have little or no choice to refuse a request to speak with corporate counsel. This means that employees effectively give statements to the Government without ever having a chance to assert their Fifth Amendment right. Incredibly, the Thompson memorandum is explicit in this goal of performing an end-run around the Constitution. It states, ``Such waivers permit the Government to obtain statements of possible witnesses, subjects, and targets without having to negotiate individual cooperation or immunity agreements.'' Further, ``authentic'' cooperation includes disclosure of the legal advice provided to corporate executives before or during the activity in question. Lastly, and from my perspective as a practitioner, I believe the most troubling aspect of the Thompson memorandum, is the impact that it has on the ability of corporate employees to gain access to separate and competent legal counsel. The memorandum specifically denounces these longstanding corporate practices such as the advancement of legal fees, the use of joint defense agreements, and permitting separately represented employees to access the very records and information that they need to defend themselves. Despite these Draconian outcomes, corporations are complying with these demands in ever increasing numbers. And while no one of the nine elements of cooperation outlined in the memorandum purports to be dispositive, each is, in fact, mandatory. In the current climate, few, if any, public companies can afford the risk of possible indictment and the myriad of collateral consequences, not the least of which is the diminution of shareholder value. Indeed, the words from the front lines are frightening, as one attorney recently noted: The balance of power in America now weighs heavily in the hands of Government prosecutors. Honest, good companies are scared to challenge Government prosecution for fear of being labeled ``uncooperative'' and singled out for harsh treatment. Even before Sarbanes-Oxley, internal investigations were standard operating procedure. The reports generated by these investigations, including analysis by the company's counsel and statements by their employees who may choose not so speak with prosecutors, are a veritable road map. As such, they are simply too tempting a source of information for a Federal prosecutor to ignore. It is my experience that occasionally, although not routinely, Federal prosecutors can be convinced to conduct their investigations without these privileged road maps. Indeed, law enforcement, as the Chairman pointed out, has a number of arrows in its quiver and certainly does not need the waiver of the attorney-client privilege in order to do its job. The Thompson memorandum, however, makes clear that these standard elements of cooperation where the facts can be provided without legal conclusions or the mental impressions of counsel are provided, these are simply not enough. Prosecutors are now empowered to expect that corporate counsel act as their deputies. Counsel is expected to encourage employees to give statements without asserting their Fifth Amendment rights, without obtaining independent counsel, all with little regard paid to the potential conflict of interest it poses for the corporate attorney and the employee. If the employee refuses, he may be terminated with no apparent recognition of the inherent unfairness of meting out punishment for the invocation of a constitutional right. Too often, employees must face this Hobson's choice without the benefit of separate counsel. That is because employees face the prospect that the corporation will refuse to advance legal fees. The effectiveness assistance of counsel in the investigatory stage is essential, and the Government knows this. I fear that under the guise of cooperation, prosecutors are seeking to deprive employees of counsel of their choosing in the hope that counsel chosen by the corporation will tow the party line. I can still vividly recall a conversation I had as a young associate with one of the recognized deans of the Philadelphia Federal criminal defense bar. Chairman Specter. Mr. Sheppard, how much more time will you need? Mr. Sheppard. Ten seconds. I am wrapping up now, Mr. Chairman. He told me, much to my dismay at the time, that much of white-collar practice is ``done on bended knee.'' That statement was a recognition of the awesome power and resources of the Federal Government. It was possible, however, to effectively represent your client. In today's corporate environment, I and my fellow practitioners feel that this may no longer be possible. Thank you, Mr. Chairman. [The prepared statement of Mr. Sheppard appears as a submission for the record.] Chairman Specter. Thank you, Mr. Sheppard. Senator Leahy is on a tight time schedule, so I will yield to him for his questions first. Senator Leahy. Thank you, Mr. Chairman. I appreciate the usual courtesy. Mr. Meese, you and I have known each other for a long time, and I am glad to see you here. Can you think of any circumstances during your tenure with the Department of Justice where the Department requested or required a waiver of the attorney-client privilege from a cooperative corporate defendant in a criminal case? Mr. Meese. To the best of my knowledge and recollection, Senator, I cannot remember any such instance. To the best of my recollection, the issue never came up during the time that I was in the Department, and it was certainly not a part of the policy of the Department to require such a waiver. Senator Leahy. Would you have been pretty surprised if somebody had made such a request to you as Attorney General? Mr. Meese. I believe that I would, yes. I have always felt that the best way to proceed in any criminal matter is to have the best possible lawyers on both sides. This usually resulted in a settlement of the case in many instances, but also you had the protection of the potential defendant as well as the best interests of the prosecution in going forward. Senator Leahy. Also, your case is more apt to stand up on appeal, too. Mr. Meese. That, too. Senator Leahy. Lastly, I looked at the letter you and several other senior Justice Department officials--you asked the Attorney General to stop the practice of requiring organizations to waive the attorney-client privilege and work product protections, and I read the letter to say because you felt the practice discouraged corporate employees from consulting with the lawyers about how to comply with the law. Aren't there ways for the Government to obtain cooperation from a corporation without waiving the attorney-client privilege and work product doctrine? Mr. Meese. I believe there are, and I think this is something where, in certain cases, corporate counsel would recommend certain things to be done to cooperate without waiving the attorney-client privilege, such as agreements as to certain documents that would be turned over with the understanding that that did not constitute a waiver of the privilege in general. Senator Leahy. Notwithstanding the testimony this morning, I get the impression talking to U.S. Attorneys around the country that they think this is pretty much a black-letter rule from the Department of Justice. And if the policy is not changed, what impact do you think this is going to have on corporate compliance with our laws and regulations? Mr. Meese. Well, Senator, I think that it would have a positive impact to change the rule because I really do think that many companies now are hesitant to involve corporate counsel in investigations and in taking positive steps to ensure compliance. And so I think that changing the rule would be positive rather than negative in terms of the ultimate objective, which is not to prosecute corporations. It is to get compliance with the law. Senator Leahy. Mr. Weissmann, you are the former director of the Enron Task Force. Do you recall any case where a corporation received leniency when the corporation did not waive the attorney-client privilege? Mr. Weissmann. Yes, that has happened. Senator Leahy. And when is that? Mr. Weissmann. I am sorry? Senator Leahy. You do recall that happening? Mr. Weissmann. Yes. Senator Leahy. Okay. So do you believe that there are effective ways for the Government to obtain cooperation without a corporation waiving the attorney-client privilege? Mr. Weissmann. There are. There are a number of steps a careful prosecutor can take to obtain information that is useful for an investigation that will have no or limited impact on either the work product or attorney-client privilege, for instance, turning over so-called hot documents, directing the Government to particular witnesses who might be useful. But it is not necessary for the corporate counsel to turn over their own notes of that interview. Senator Leahy. So what former Attorney General Meese was saying, if you have got good lawyers on both sides, they are going to work their way through this labyrinth. Let me ask just one last question before time runs out. In the case of Garrity v. New Jersey, the Supreme Court held that the Government could not force police officers to make statements that could be used against them criminally by threatening to fire them if they did not testify. This sort of follows up on some things that Mr. McNulty said earlier. In your mind, are there potential Garrity-like concerns with the Department's cooperation policies since employees can be required to cooperate with an internal investigation and the corporation can be required in turn by the Government to waive the attorney-client privilege? Am I pushing this too far, or do you see a Garrity problem? Mr. Weissmann. I do see a Garrity problem. For many years, I know that various Federal prosecutors have always stayed far away from the so-called Garrity issue because they were concerned about the actions of the private company being imputed, being taken as the actions of the State, which would then run afoul of Garrity. That is why KPMG was surprising and the United States v. Stein decision was surprising, because it appeared from that case that the line was crossed where the Government had asked the private actor to do something at their behest. Senator Leahy. Do the others agree? Or anybody disagree, I should say. Attorney General Meese, do you agree with what Mr. Weissmann said on Garrity? Mr. Meese. In general, yes. Senator Leahy. Mr. Donohue, I realize you are not a lawyer, but do you agree? Mr. Donohue. Senator, what I can tell you is that in many cases prosecutors in a very careful way have raised the issue of protection of privilege. They have raised the issue of dismissal of employees. They have raised the issue of not protecting employees even when it is contractually agreed on legal fees. As many of your witnesses have said today, the Department of Justice is a very strong organization. Senator Leahy. Ms. Mathis, do you agree with Mr. Weissmann on Garrity? Ms. Mathis. Yes, the ABA does agree, Senator. And, further, we have given you in our written testimony a number of ways in which we believe that a diligent prosecutor can get to the relevant information. Senator Leahy. And, Mr. Sheppard, do you agree with Mr. Weissmann on Garrity? Mr. Sheppard. Yes, I do, Senator Leahy. Senator Leahy. It probably will not surprise you to know I also agree. [Laughter.] Ms. Mathis. Senator, if I may just add for the record, the ABA does not as a rule comment on particular cases, and I should clarify that we agree with the principle stated by the Court. Senator Leahy. And I fully understood that, and I have read your testimony and fully agree. Thank you, Mr. Chairman. Chairman Specter. Thank you, Senator Leahy. Mr. Meese, I know that you are a zealous protector of separation of power, and as this Committee focuses on these issues and considers legislation, we have the option of making a recommendation to the Department, letting the Department exercise its own discretion, which is very broad. We have the option of awaiting the outcome of the litigation in the Southern District of New York. The Court may make a definitive order. It may be upheld on appeal. Or we can legislate. With your broad experience, what would your recommendation be? Mr. Meese. Mr. Chairman, I would hope that this hearing itself might have a salutary effect upon the Department to see how strongly not only the Committee in terms of both the Chairman and Ranking Member, but also what I would consider a broad array of the legal and business community feel about this particular action. And so I hope that that in itself might be helpful. I would hope that that would be the case, including perhaps a recommendation from the Committee itself in a more formal manner to the Department of Justice. Perhaps the Court may have some decision in this matter. I would hope that legislation would be the last resort. But I think that if there were no other remedy availing, it would be appropriate inasmuch as it is a proper function of Congress to enforce--or to implement by legislation basic constitutional rights, which I believe this is one. Chairman Specter. So you would say that the Congress would be acting appropriately, but as a last resort, if everything else fails? Mr. Meese. That would be my position, yes, sir. Chairman Specter. Mr. Meese, the Committee is now wrestling with another privilege issue. We have not given you notice of this question, but I would like to get your view on it, if you care to comment. We are considering the reporter's shield privilege, and it arises in the context of the investigation on the so-called disclosure of the CIA agent Valerie Plame, and its emphasis was focused by the incarceration of a reporter, Judith Miller, for some 85 days. The investigation proceeded after there was no longer the national security interest, and we are making a delineation. We are going to have a hearing to try to define more fully the national security interest to give protection to the Government on that issue so that the privilege would not extend that far. And it is complicated as to how we do that, but we are working on it. But absent national security, do you think that it is a wise matter for public policy to have a Federal shield law, as so many States do? Mr. Meese. Well, Senator, Mr. Chairman, it is difficult to generalize from that particular case because, from what I know about it, this should never have come about. Again, this is only my knowledge from reading the news media, which from time to time cannot be totally relied upon. But I think from what I have learned, this should never have proceeded that far. I consider this a flawed investigation and prosecution, because it appeared from at least the facts that seemed to be available that no crime had been committed, which should have been determined by the prosecutor in the first 48 hours simply by reading the law and having the facts available. And so had that been done, that is when the prosecutor should have folded his tent and disappeared. Therefore, this would never have come about, the kinds of interrogations as well as the unfortunate-- what I consider the unfortunate subsequent interrogations of many witnesses, which led ultimately to charges totally unrelated to the original crime under investigation, alleged crime under investigation. So it is a little hard to generalize from this case. I have concerns about a general shield law for the news media that may go to the ultimate finding of guilt or innocence, and to say that in no case can a news media journalist be questioned as to their sources of information can be as damaging to defendants by keeping them from having sources of information and evidence that would be valuable in terms of defending themselves against charges, as well as in legitimate prosecutions. So I have real concerns about shield laws as a blanket prevention of obtaining information. I would rather have something a little more flexible, leaving it up to the judge under the circumstances to determine whether a shield law would be appropriate rather than an absolute blanket shield. Chairman Specter. With respect to your statement about the investigation went too far, the special prosecutor has been quoted as saying that it was important to protect the ability of the Government to get honest testimony. We intend to do oversight on that matter at the appropriate time. But when you talk about the ability of the Government to get honest answers, it has a ring of similarity to the justification for the policy that we are discussing today, where the Government wants to find out the facts. And we agree, everybody agrees the Government ought to find out the facts. It is just how you do it, and how you do it respecting the traditional balance on the criminal justice system. But do you think there is any justification, at least as reported--and that is all we can go on at the present time--to structure a continuing grand jury investigation to uphold the integrity of the Government's finding out what the facts are? Mr. Meese. Well, the purpose of a grand jury investigation should be obviously what the Constitution sets it up for, and that is, a protection for both the people, the Government and the potential defendant, to make sure there is adequate evidence to go forward with a prosecution. And it seems to me that that should be the purpose--that that should be in a sense the limited purpose or confine the purpose of investigation, not simply as a fishing expedition for the Government. And to the best of my knowledge, that was the way in which grand jury investigations were conducted during the time I was Attorney General. Chairman Specter. Mr. Donohue, in your experience what has been the effect of the policy of the Department of Justice? I want to introduce into the record, without objection, the testimony of former Attorney General Dick Thornburgh, who was supposed to testify here today, but advised that there is an emergency session of the Third Circuit. And Mr. Thornburgh's essential conclusions are, in a sentence, ``In my view, they''--referring to the so-called Thompson memorandum policies--''are not necessary for effective law enforcement, and they can actually undermine corporate compliance. Accordingly, these criteria should be dropped or substantially revised.'' My question to you: Has this policy had a chilling effect or discouraged corporations from internal investigations? Mr. Donohue. Just one comment first, and then I will answer that question directly. The American business community, and particularly the Chamber, has no tolerance and no love for people that intentionally and maliciously break the law in the business context. It is bad for business. What has happened since the Thompson memorandum, we have emboldened Federal prosecutors--and, by the way, after that, State representatives--to a series of behaviors that they say are acceptable for two reasons: first of all, they have the Thompson memorandum; and, second of all, they have been told by the Congress and by the press and by the American people to root out all of this behavior that they long thought was going on with large companies. And I think what it has done is created an atmosphere in which the conduct or the management of corporations is becoming more and more difficult, because if you look at the regulatory process, the antitrust process, all those things we live under, we have to deal with our lawyers every day. And as people begin to wonder every time they have, you know, a problem that if they are visiting with their lawyer and those notes that lawyer is taking, where are they going to end up? ``Can I ask you, counsel, a really tough question? I got a big problem in my mind. I am dealing with my boss. I am dealing with outside forces. I am dealing with my investors. I need to talk to you.'' And I believe that we are playing so much defense in the corporate boardrooms that we have taken our eye off running the companies and we are spending all of our time talking to more and more lawyers. This is a lawyers' retirement act, and I am glad for them. But we need to take a look here and say what are we doing to the fundamental ability to drive this economy to employ people and to lead the world's economy, and we are making some big mistakes here, sir. Chairman Specter. Is it deterring internal corporate investigations? Mr. Donohue. I believe it is. Chairman Specter. Are corporations changing their policy about paying attorney's fees for individuals under investigation? Mr. Donohue. I think there are a lot of corporations, as you are, watching the current case. Some of the attorney fee payments are guaranteed in employment contracts. Some have been the normal practice of sort of keeping company and employee together for mutual defense. And some are just thoughtful understandings of what it can cost what has been a good employee to defend himself for a week or a month or for 3 years. And people can be easily bankrupt and, therefore, as you well indicated, coerced into actions that they otherwise would not take. Let me just say, Mr. Chairman, the environment in corporate boardrooms and in the CEO's office and in the general counsel's office has changed fundamentally in this country, and not for the better. Chairman Specter. Thank you. Ms. Mathis, when the ABA submitted a letter to the Department of Justice seeking to have some modifications in this policy, were you satisfied with the Department's response? Ms. Mathis. Respectfully, Senator, we were not. We received a response that was very general in its nature, that reflected much of what Deputy Attorney General McNulty testified to today. It did not deal with the specifics of our letter, nor did it deal with the specifics in the attachment to the letter, which sets forth a number of manners in which we believe prosecutors can obtain the information they need for their prosecutions without violating attorney-client privilege, the work product doctrine, or even the rights of employees. Chairman Specter. May I suggest that the ABA try again in light of the testimony here today, perhaps referencing executive privilege, which you have heard Mr. McNulty's testimony on. Work product, the Department of Justice is a staunch defender of work product in the Solicitor General's office, withheld all sorts of documents, and I think appropriately so in the Roberts confirmation, in the Alito confirmation. And those are certainly analogous. Give some consideration to trying again. Mr. Weissmann, in your task force on Enron, to what extent did you utilize the approach of the so-called Thompson memorandum? Mr. Weissmann. Well, our understanding is it was required, so we used it consistently because we had to. There were-- Chairman Specter. You used it consistently, and did you get waivers of the attorney-client privilege? Mr. Weissmann. We did, and I would say that we did it, what I would hope was strategically and in a limited way in the manner that I described earlier, which was it wasn't necessary at the outset-- Chairman Specter. It was not necessary? Mr. Weissmann. It was not necessary at the outset to ask for blanket waivers, and we did not. Chairman Specter. You did? Mr. Weissmann. No, we did not ask for blanket waivers up front. Chairman Specter. Was it necessary to ask for the waivers which you did ask for? Mr. Weissmann. I think that there is one area where it was, and that is when you are investigating an underlying transaction. To take one example, in Enron there was a transaction involving moving the losses from one business segment to a winning business segment. And knowing what people at the time said to their lawyers within Enron was very useful information. I would point out in that situation, most companies are more than happy to turn that over because they are usually going to rely on an attorney-client defense, having an advice- of-counsel defense. Chairman Specter. Taking the situation as a whole, do you think that it was a fair practice to do what you did in Enron with respect to the Thompson memo? Mr. Weissmann. I do, but I do think that there should be greater guidance, because I know that the practices that we used were ones that we devised on our own, and it did not come from any guidance from the Department to require prosecutors across the country to be so surgical. Chairman Specter. So you did not need the greater guidance, but you think that as a matter of policy, the DOJ practice needs more guidance for the attorneys in the field? Mr. Weissmann. Yes. Chairman Specter. Mr. Sheppard, tell us a little bit more about the ``bend your knees'' concept. Is it really that bad? And do you only have to go so far as bending your knees? Mr. Sheppard. There are times when I have been flat on my back, Senator, on behalf of my clients. Chairman Specter. A powerhouse lawyer like Richard Sprague bending his knees, that does not comport with the Richard Sprague I know--not that he has arthritis, but I don't think he bends at the knees before anybody. Mr. Sheppard. He does not, Mr. Chairman. He sends me to do those things. [Laughter.] Chairman Specter. Well, that certainly should earn you a raise, which Mr. Sprague can afford to give you. Mr. Sheppard. In answer to your question, Mr. Chairman, I think the concern that I have the most here is that the decision by the corporation needs to be the decision of the corporation. It really cannot be at the very outset and at the earliest parts of the investigation a decision that is made by, in essence, the prosecutor. Deputy Attorney General McNulty's comments about when these factors come into play do not comport at all with my experience. From the very minute that a problem arises in the corporate context, these considerations, and particularly the cooperation considerations in the Thompson memorandum, figure prominently in every decision that corporate counsel makes and in every decision that the individuals who may be represented by separate counsel need to make. For me, I think the answer is it should be the employee's decision, it should be the corporation's decision on whether they want to cooperate and how they should do so. It is not the decision that should be made by the prosecutor on pain of a corporate death sentence. Chairman Specter. Well, thank you all very much. The Committee is going to pursue this issue. It is true that we have had a large, large number of complaints about it, just a tremendous number of complaints. And we have members of this Committee who have had considerable experience in the criminal justice system, and the criminal justice system has evolved over centuries, common law practice, and then the formulation of the Constitution and the Bill of Rights and many, many, many decisions and a lot of experience. And the attorney-client privilege is rockbed in the judicial system. And the practice of paying attorney's fees is also a very common practice and relied upon, and there is no doubt that it would weigh heavily on a judgment any individual would do when faced with an investigation as to whether he or she could afford the cost of defending himself or herself. So we have to be very cautious on significant changes in that structure, and I think that these factors do constitute significant changes. And perhaps former Attorney General Ed Meese has given us the right formula. Let's see if we can solve the problem without legislation, but as a last resort, it is up to the Congress of the United States to determine what is appropriate in the administration of criminal justice in this country. Thank you all very much. That concludes our hearing. 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