December 15, 2006

Welcome Waiver Relief via DOJ’s “McNulty” Memorandum

On Tuesday, Department of Justice Deputy Attorney General Paul McNulty announced major changes to the DOJ’s policies outlined in the 2003 Thompson Memorandum. In essence, this so-called “McNulty Memorandum” supersedes the “Thompson Memorandum” and “McCallum Memorandum.” Here are prepared remarks of Deputy Attorney General McNulty and a DOJ press release.

The two key policy shifts outlined in the “McNulty Memorandum” are (i) federal prosecutors must now obtain written approval before seeking a waiver of the attorney-client privilege and work product protection and (ii) prosecutors generally may not consider a corporation’s payment of legal fees to employees in determining a company’s cooperation.

The McNulty Memorandum spends considerable time addressing waiver issues, taking a more thoughtful approach to requests for waivers of the attorney-client privilege compared to the DOJ’s recent approaches – but skeptics remain. For example, one member notes that he is somewhat skeptical of the distinction that they make between “non-factual attorney work product” (Category II) and factual information that “may or may be privileged” (Category I). If it’s work product, then it should all be worthy of the same level of consideration.

We have begun posting related law firm memos (and the responses of the ABA and US Chamber of Commerce) in our “Attorney-Client Privilege” Practice Area.

Does Senator Specter’s New Bill Still Have a Purpose?

Beating the McNulty Memo by nearly a week, Senator Arlen Specter (R-Pa and outgoing chair of the Senate Judiciary Committee) introduced a bill on December 7th – the “Attorney-Client Privilege Protection Act of 2006” – that would curtail many of the hotly contested issues raised by the Thompson Memorandum.

Senator Specter’s legislation would prohibit federal prosecutors from using a company’s waiver of attorney-client privilege, and other factors, to determine the level of cooperation while it is under investigation. In part, the proposed legislation states:

“In any Federal investigation or criminal or civil enforcement matter, an agent or attorney of the United States shall not—

(1) demand, request, or condition treatment of the disclosure by an organization, or person affiliated with that organization, of any communication protected by the attorney-client privilege or any attorney work product;

(2) condition a civil or criminal charging decision relating to a organization, or person affiliated with that organization, on, or use as a factor in determining whether an organization, or person affiliated with that organization, is cooperating with the Government —….”

While the McNulty Memo establishes that failure to comply with a DOJ request for waiver should not be held against a company in determining cooperation, the new Memo appears to still be viewed by some as “encouraging” the culture of waiver. Accordingly, the cooperation debate now is focused on whether the guidelines and procedures of the McNulty Memorandum go far enough to address the concerns of Sen. Specter and business organizations so that the Specter Act would be unnecessary…

SEC Speaks at the AICPA Conference

At the annual AICPA National Conference that wrapped up in DC Wednesday, a number of SEC Staffers from the Office of Chief Accountant gave speeches, including these:

Stock Option Backdating
Fair Value Accounting
Earnings Per Share
Auditor Independence
Professional Judgment in Financial Reporting
SAB 108 and FIN 46R
Improving Audit Effectiveness
Purchase Price Allocations
Risk Based Evaluations of ICFR
IFRS Roadmap

I didn’t attend the shindig but I did run a few of my accountant friends to the airport afterwards. They said that this year’s AICPA Conference did not include any “big reveals” from any of the regulators. By the way, anyone notice the global warming on the East Coast? I have been driving with the top down for a week…