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Fraud case tactics eased

The Baltimore Sun

The Justice Department said yesterday that it is reining in some of the legal tactics used by its attorneys in cracking down on corporate fraud, apparently in response to criticism that prosecutors may be too aggressive when pressuring businesses to cooperate in investigations.

The revisions address some of the agency's internal guidelines that prosecutors use to decide whether to criminally charge a corporation rather than its executives or employees.

Companies now have more leeway to resist demands to turn over confidential documents and protect employees' legal rights without facing greater risk of indictment.

Indictment can be a death knell for companies, illustrated by the collapse of Chicago's Arthur Andersen accounting firm in 2002. Its 85,000 employees were thrown out of work after it was charged with obstructing the investigation of Houston-based energy trader Enron Corp., one of its top clients.

Still, the new guidelines should not be considered a pullback in the government's efforts to crack down on corporate misconduct, white-collar crime experts said.

"With these changes the pendulum swings back a little toward companies exercising their legal rights, but just a little bit," said David Yellen, dean of the School of Law at Loyola University Chicago.

However, some critics of the Justice Department's policies on corporate crime said the revisions do not go far enough.

"The Justice Department's new corporate charging guidelines for federal prosecutors fall far short of what is needed to prevent further erosion of fundamental attorney-client privilege, work product, and employee protections during government investigations," Karen Mathis, president of the American Bar Association, said.

The ABA, defense lawyers and business lobbyists have labeled some of the guidelines as unconstitutional and coercive. They also argue that attorney-client privilege has eroded in recent years largely through the influence of Justice Department guidelines known as the Thompson memo.

Then-Deputy Attorney General Larry Thompson crafted the government's policy in 2003 in the aftermath of scandals at Enron and WorldCom Inc.

The guidelines were drafted partly in response to a backlash from business and political leaders to Andersen's death penalty. They gave corporate offenders the chance to spare themselves the ordeal of an indictment and the so-called collateral damage that befell Andersen by cooperating with prosecutors.

But the price of cooperation was high, according to defense lawyers. Among the factors prosecutors could consider was whether a company would agree to waive privilege in regard to legal analyses, notes and conversations, and whether a company cut off payment of attorneys' fees of employees involved in probes.

Still, the rules ushered in a new wave of prosecutions that let companies off the hook but focused on individuals. Accounting firm KPMG, for instance, avoided indictment last year by reaching a $456 million agreement with prosecutors. But several former employees were indicted in connection with the creation and sale of allegedly illegal tax shelters.

A federal judge in the case ruled this year that the government violated the rights of the KPMG defendants by urging KPMG to cut off payments.

Criticism of the Thompson memo prompted Deputy Attorney General Paul McNulty to review it. Now, before prosecutors seek a waiver of privilege they must get approval from the deputy attorney general.

Ameet Sachdev writes for the Chicago Tribune.

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