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U.S. Businesses Lobby Government to Curb Federal Prosecutors

by Matthew T. Clarke

U.S. businesses and Wall Street investment companies have begun a campaign to get the Justice Department to reign in federal prosecutors in business crime cases. The effort by the U.S. Chamber of Commerce, Securities Industry Association and Bond Market Association focuses on prosecutors pressuring companies to waive attorney-client privilege and stop paying the attorney fees of employees under investigation.

In 2002, largely in response to the Enron and other U.S. corporate scandals, Congress passed the Sarbanes-Oxley Act stiffening penalties for business fraud. In 2003, then-Deputy Attorney General Larry Thompson issued a memorandum containing guidelines for prosecutors considering indicting a company. The guidelines grant leniency to companies that cooperate with prosecutors. In the memorandum, waiver of attorney-client privilege by a company is considered a sign of cooperation while protecting culpable employees by paying their legal bills is a sign of non-cooperation.

An indictment alone can bring down a company, as it did with Arthur Anderson LLP, an accounting firm associated with the Enron scandal which went from 85,000 employees to bankrupt following its indictment. The now-defunct company was eventually vindicated on appeal, but that did nothing to change the companys dissolution.

Some federal legislators have proposed amendments to Sarbanes-Oxley intended to tone it down.

It is a mere four years since the capital markets lost trillions in value as investor confidence in business evaporated, said former Securities and Exchange Commission chief accountant Lynn Turner. In good times, people have short memories, and it appears some members of Congress and the financial community are taking advantage of that.

The U.S. Chamber of Commerce sees it differently.

We dont have to violate people's constitutional rights, and we dont have to set up cooked deals so it makes it easier for the government to extort a settlement or a guilty plea, according to Thomas Donohue, the chamber's president.

But violations of constitutional rights, planting of evidence, pressure to take plea bargains and financial ruin that makes it impossible to hire an attorney are problems faced by poor criminal defendants every day. Not surprisingly, no one is coming forth to lobby for them or propose new legislation to curb the awesome power brought to bear against them by government prosecutors.

It seems likely that the lobbyists will succeed. American Bar Association (ABA) President Michael Greco has written Attorney General Alberto Gonzales asking him to revise the attorney-client privilege waiver provision on behalf of the ABA's 600,000 members. In March 2006, Democratic and Republican members of the House Judiciary Committee criticized the attorney-client privilege waivers, labeling them prosecutorial overreaching and a probable violation of employees' constitutional rights. In a case against KPMG, the nations fourth-largest accounting firm, federal district judge Lewis Kaplan called the pressure on KPMG not to pay employees' legal bills shameful and told the prosecutor KPMG had the right to pay the attorney fees without your thumb on the scale. Presumably he was referring to the scales of Justice.


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