Specter Bill Seeks to Alter DOJ Corporate Fraud Investigations

In an attempt to pressure the Justice Department to alter the way it investigates corporate fraud, a key member of the Senate Judiciary Committee on Thursday formally introduced legislation aimed at preventing prosecutors from forcing companies to waive the attorney-client privilege in order to avoid indictment. Sen. Arlen Specter, R-Pa., the outgoing chairman of the committee, said on the Senate floor that the DOJ had not moved quickly enough to change policies that he said encroached on corporate defendants' constitutional right to counsel.
Specter was joined by former Attorney General Richard Thornburgh and lobbyists from a number of business and legal groups, who said that forcing a change in the DOJ's policy could lead the Securities and Exchange Commission, the Internal Revenue Service and other government agencies to review their policies on privilege waivers.
Specter's move comes as Deputy Attorney General Paul McNulty is leading an internal review of the government's corporate-fraud prosecution policies in the wake of a concerted lobbying effort by business groups and a court decision in New York that found one of the policies to be unconstitutional.
At issue is the way federal prosecutors have interpreted provisions of the so-called Thompson memo, issued in 2003 by then-Deputy Attorney General Larry Thompson. In the memo, Thompson lists a number of factors prosecutors should consider when deciding whether to indict a company for corporate fraud. Among them: whether the company has waived the attorney-client or work-product privilege and granted prosecutors access to internal investigations prepared by the company's lawyers. (Thompson is now general counsel of PepsiCo.) Given that companies under criminal indictment are often driven to bankruptcy -- most notably exemplified in the case of accounting firm Arthur Andersen -- the DOJ's critics say corporate defendants are left with little choice but to waive their privilege and turn over documents relating to internal investigations. Those documents often become public through court proceedings and provide fodder for shareholder class actions.