Balancing Act: Protecting Privilege While Co-operating with Government Investigations | USA

In a 2019 case, United States v. Connolly (SDNY), a defendant had argued that his former employer’s outside counsel had been acting as an agent of the government during his interviews by outside counsel, requiring that the statements he gave be suppressed and the indictment dismissed. While ultimately not granting the defendant any relief, the district court was “deeply troubled by this issue”.

“Black has made a rather convincing showing that Deutsche Bank and its outside counsel, Paul Weiss, Rifkind, Wharton & Garrison LLP… were de facto the Government for Garrity purposes; more important, the Government has made an utterly unpersuasive case in rebuttal. There remain holes in the record, however, and a full-bore Garrity hearing would be a fascinating exercise—especially because there are profound implications if the Government, as has been suggested elsewhere, is routinely outsourcing its investigations into complex financial matters to the targets of those investigations, who are in a uniquely coercive position vis-à-vis potential targets of criminal activity. See, e.g., Abbe David Lowell & Christopher D. Man, Federalizing Corporate Internal Investigations and the Erosion of Employees’ Fifth Amendment Rights, 40 Geo. L. J. Ann, Rev. Crim. Proc. iii (2011).” (United States v. Connolly, No. 16 CR. 0370 (CM), 2019 WL 2120523, at *1 (S.D.N.Y. May 2, 2019)).

In a 2022 case, United States v. Coburn, (DNJ) the court ordered a non-party corporation to produce unredacted versions of memoranda and notes from its outside counsel’s internal investigation into foreign bribery at the company to two defendants who were former executives of the corporation. This decision reiterated an earlier decision that the corporation and its counsel had waived privilege and work product protection over the documents by disclosing details of the investigation to the Department of Justice while they were negotiating a resolution to a criminal investigation against the corporation.

The rulings in both Connolly and Coburn serve as a reminder to companies to remain vigilant in preserving independence and privilege, even when co-operating with the government.

It goes without saying that companies under investigation often choose to co-operate with the government to avoid indictment or mitigate the worst consequences of a criminal case. Given the balance of the risks of fighting versus the incentives DOJ provides for co-operation (such as the prospect of reduced penalties and deferred prosecution), the decision is often to co-operate.

What co-operation means in practice can present significant practical challenges. Armed with subpoena powers, the DOJ will always expect corporate defendants to provide robust access to non-privileged materials and information it has on the facts under investigation. But this can quickly extend to at least arguably privileged materials, in the form of analysis done by the company’s lawyers.

This often takes place during formal presentations, sometimes involving written notes, slide decks, precis, memoranda and select corporate documents. These fruits of the outside counsel investigation are classic attorney work product and are typically provided notwithstanding work product protections that may apply. The more difficult question is whether counsel should reveal information covered by attorney-client privilege. Unlike attorney work product protections, which are lost only if work product is shared with an adversary (or in a way that increases the likelihood that an adversary will gain possession of them), privilege is waived by sharing the protected information with any third party, including the government.

DOJ policy on seeking waivers of privilege has changed over time. Under the “Holder Memo” and “Thompson Memo” issued in 1999 and 2003, the DOJ stated that in determining whether to charge a company with a crime, prosecutors may consider the company’s “willingness… to waive the privileges when neces­sary to provide timely and complete information”.

The current policy is stated in the DOJ Justice Manual’s Principles of Federal Prosecution of Business Organizations. “In order for a corporation to receive any consideration for cooperation under this section, the corporation must identify all individuals involved in or responsible for the misconduct at issue, regardless of their position, status or seniority, and timely provide to the Department all relevant facts relating to that misconduct” (Justice Manual, § 9-28.700). However, “[e]ligibility for cooperation credit is not predicated upon the waiver of attorney-client privilege or work product protection” (Id., § 9-28.720). Indeed, “prosecutors should not ask for such waivers and are directed not to do so” (Id. § 9-28.710). In particular, the Manual says that a company need not produce, and prosecutors may not request, notes of interviews of company personnel conducted by counsel (Id., § 9-28.720, n.2).

Rather, the Manual stresses, “the sort of cooperation that is most valuable… is disclosure of the relevant facts concerning such misconduct” (Id.). To reiterate the point, the manual explains that the key question is this: “has the party timely disclosed the relevant facts about the putative misconduct?” (Id.).

While co-operating with government investigations may be unavoidable for most companies, privilege waiver is not. To avoid the risk of such waiver and its collateral consequences for parallel civil litigation, companies and their counsel should be cautious in communicating with the government, keeping in mind DOJ’s policy on waiver. In particular: