Once considered the bedrock of a defendant’s rights to effective counsel, the attorney-client privilege is facing increased erosion, a result of the Bush administration’s aggressive stance on corporate crime in this post-Enron era.

In its zeal to sniff out and punish corporate wrongdoers, the Department of Justice is routinely demanding corporations to waive their attorney-client privilege as part of negotiations to avoid criminal prosecution, according to Susan Hackett, general counsel of the Association of Corporate Counsel (ACC).

These waiver requests come from prosecutors who insist they are a critical component in deciding whether a defendant has cooperated sufficiently for purposes of federal sentencing guidelines.

But companies and their attorneys are fighting back.

Believing that the government has overstepped its boundaries, several interest groups – including ACC, the American Civil Liberties Union, The National Association of Manufac-turers, and U.S. Chamber of Commerce – have joined forces to pressure leading government officials. The goal is to persuade the DOJ to back off its aggressive, systematic push for waiver of attorney-client privilege.

Representatives from these groups testified on March 7 at a hearing before the

House Judiciary Subcommittee on Crime, Terrorism, and Homeland Security at which members from both political parties suggested that the DOJ should soften its waiver policy, according to the ACC.

The backlash is having some effect, apparently.

On April 5, the U.S. Sentencing Commission rescinded a portion of the federal Sentencing Guidelines that had offered the DOJ discretion in making demands for privilege waiver.

The contested clause had stated – as a condition of getting a reduced sentence – that a corporation must waive confidentiality protections if that waiver is necessary to “thoroughly” supply information “pertinent” to the government’s investigation.

“This is a very important development,” said Hackett. “It’s knocked a leg off the stool for the DOJ. The guidance that they’ve been relying on in part has been reversed.”

The Sentencing Commission’s action alone, however, will not suddenly stop the pressure on companies to waive privileges. Federal prosecutors can still seek privilege waivers as part of deciding whether to charge a company with wrongdoing.

Nonetheless, the Commission’s reversal of its policy – only a little over a year after adopting it – is a bellwether of changing political winds.

“The momentum has shifted,” Hackett said. “This is the first time we know of that the Sentencing Commission has ever reversed itself. The political sentiment in Congress is running against the DOJ. This gives us the ability to go to the DOJ and say, ‘you know, it’s time for you to change your policy. The guidance you’ve been relying on has been reversed. And Congress says it’ll do it for you if you don’t.'”

Hackett testified at U.S. Sentencing Commission hearings on March 15, calling for the commission to rework or remove the contested language in the Sentencing Guidelines.

Odd Bedfellows

While you don’t often see the ACLU and the Chamber of Commerce working together, “it’s appropriate [in this situation] because we all believe in the system. If you have a lawyer, you have to have confidentiality,” said William Ide, chair of the ABA’s Task Force on Attorney-Client Privilege.

The ABA task force was formed in 2004 to study and address the policies and practices of various federal agencies. It held a series of public hearings and received testimony from numerous legal, business, and public policy groups.

The ABA, according to Ide, issued a full report last August to its House of Delegates, which adopted a policy that essentially confirms the importance of the attorney-client privilege and calls on governments not to coerce in any way that right by demanding a waiver, either directly or indirectly.

The ABA will also be calling on the Attorney General Alberto Gonzales to amend the DOJ’s Thompson Memo by eliminating any reference to a waiver, he said.

“There are other ways that the DOJ can get the facts and information they need,” Ide said.

The Thompson Memo – issued in January 2003 by then-Deputy Attorney General Larry D. Thompson – sets forth the DOJ’s current policy on prosecuting companies for corporate fraud.

Although the DOJ first established its privilege waiver policy in 1999, Thompson updated it by directing that – in deciding whether to charge a company with wrongdoing – prosecutors should consider “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 the corporate attorney-client and work product protection.”

Since the Thompson Memo was issued, the incidence of “coerced waiver” has increased dramatically, according to Michael S. Greco, president of the American Bar Association.

“Unfortunately, the Department of Justice has adopted, and is now following, a dangerous policy that has led many of its prosecutors routinely to pressure companies and other organizations to waive their privileges as a condition of cooperation during investigations,” wrote Greco in a January 31 letter to ABA members.

Greco, partner at Kilpatrick Lockhart in Boston, said he is hopeful that federal agencies will work with the ABA to “advance the important goals of pursuing justice, while continuing to uphold the attorney-client privilege, a fundamental underpinning of our legal system as well as a primary tool in protecting the integrity of corporate governance.”

The ABA task force is also concerned about auditors who are seeking a waiver of the attorney-client privilege and is working on a “white paper” about the trend.

The ACLU was drawn into the fray because of its concern about the government’s attempts to “chip away at individual rights,” said Jesselyn McCurdy, ACLU general counsel.

“If you start with feeling comfortable around waiving the privilege in a corporate context, it will be easy to use that waiver for individuals,” McCurdy said. “It’s a slippery slope.”

This joining of odd bedfellows wasn’t happenstance. Rather, Stephanie Martz of the Washington D.C-based National Association of Criminal Defense Lawyers (NACDL) has been instrumental in bringing them together, according to Jack King, the association’s director of public affairs and communications.

“She’s a great coalition builder,” King said.

The bottom line, say defense attorneys, is that the presumption of innocence should not be forgotten or ignored and that once provided, such waivers can’t be recalled, or even limited.

Telling Survey

Martz and Hackett are also the architects of a survey conducted earlier this year of 676 in-house and 538 outside counsel.

The survey found 75 percent believe that a “culture of waiver” has evolved in which government agencies expect a company under investigation to waive legal privileges. In addition, 62 percent of in-house attorneys and 48 percent of outside counsel indicated that the government did not give specific justification for a waiver request.

“[The survey] says to me that far too many assistant U.S. Attorneys believe they have to at least request the corporation waive all privileges in order to demonstrate it is cooperating in good faith,” said King, who added that when he was a practicing defense attorney in the 1980s he never heard of such requests.

Not surprisingly, the DOJ denies it is on a witch hunt demanding waivers of corporate attorney/client privilege.

At the March 7 hearing before the House Judiciary Subcommittee on such waivers witnesses included Associate U.S. Attorney General Robert McCallum Jr., who defended the government’s policy.

In a prepared statement, McCallum acknowledged critics’ suggestion that the DOJ is “contemptuous of legal privileges,” but said, “Nothing could be further from the truth.”

McCallum argued the DOJ’s policy “carefully balances the legitimate interests furthered by the privilege, with the societal benefits of rigorous enforcement of the laws supporting ethical standards of conduct.”

Defense attorneys say that in return for the prospect of leniency, corporations are being asked and in some cases providing detailed written reports.

During testimony before the same subcommittee, William Sullivan, a partner with Winston & Strawn in Washington, D.C., cautioned that such a waiver may go beyond law enforcement officials asking for the information. The released information could become fodder for future third-parties in class actions and derivative strike suits.

“A balance,” Sullivan told the committee, “must be struck between the legitimate interests of law enforcement in pursuing and punishing illegal conduct, the benefits to be obtained by corporations which determine to assist in this process and to take remedial action, and the rights of individual employees.”

Attorneys and their clients say the privilege encourages them to talk regularly and to integrate legal advice into day-to-day operations of businesses. But removing such protections makes it more difficult to detect wrongdoing early on and correct it.

Companies fret they have no choice but to waive the privilege for fear they will be viewed as uncooperative, even if they are innocent. That, in turn, will have a profound effect on the company’s public image and could hit them where it hurts, in their bottom line.

Strained Relations

The policy, said Professor Ellen Podgor of Stetson University College of Law, also will have a chilling effect on communications between companies and their counsel.

“Why should they take the risk of talking to corporate counsel?” she asked. “They may turn over to the government what they say down the road. It makes the corporation and the corporate counsel mini- prosecutors,” said Podgor, who also co-chairs the NACDL’s White Collar Crime Committee.

Sullivan said that corporations will be hard-pressed to self-police themselves if corporate counsel are going to be perceived as “arms” of the government.

“If outside counsel is perceived as someone with a hotline to the U.S. Attorney’s office, that’s not going to work,” observed Sullivan.

Sullivan, a former assistant U.S. Attorney for the District of Columbia, suggests a limited version of selective waiver, restricted to “specifically negotiated materials” would allow a company to make disclosures without sacrificing the entire privilege.

“We would like to narrow and refine it so that it doesn’t mean a blanket waiver,” Sullivan said.

Ross H. Garber, a partner in the government investigations and white collar criminal defense group of Shipman and Goodwin in Hartford, Conn., agrees that the government’s position is likely to have an “invidious and destructive effect,” by impairing the company’s ability to receive legal advice, making it increasingly difficult to conduct effective internal investigations.

Garber said he is advising clients of the trend, which they are just now starting to recognize.