Friend of the U.S. Chamber of Commerce

Corporations and Wall Street investment firms, after enduring four years of investigations provoked by a flood of financial scandals, are calling for the U.S. Justice Department to rein in its prosecutors.
The effort, led by the U.S. Chamber of Commerce, targets policies that businesses say give the Justice Department unreasonable leverage to force companies into settlements. Those policies include pressuring companies to reveal confidential talks with lawyers and demanding they not pay legal fees for employees under investigation.

``We don't have to violate people's constitutional rights, and we don't have to set up cooked deals so it makes it easier for the government to extort a settlement or a guilty plea,' said Thomas Donohue, president of the Washington-based Chamber of Commerce, which represents 3 million companies.
The campaign, joined by the New York-based Securities Industry Association and the Bond Market Association, got a boost from two federal trial judges who questioned whether the government forced companies to stop paying their ex-employees' legal bills. A court hearing will be held today in New York in one of those cases, involving former KPMG LLP executives accused of selling illegal tax shelters.

Enron Fallout
Corporate regulations crafted after accounting frauds at Enron Corp. and WorldCom Inc. are also under attack in other areas. A pro-Republican research organization has filed suit against part of the 2002 Sarbanes-Oxley law, which stiffened fraud penalties. Several members of Congress are circulating legislation to scale back some of the law's rules.
Investor advocates say revising Sarbanes-Oxley and reducing the power of prosecutors is dangerous and shortsighted. They predict it will lead to another round of scandals, like the one that pushed Enron into bankruptcy in 2001 after revelations it hid billions in losses in off-the-books partnerships.

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

U.S. stocks have surged, sending the Dow Jones Industrial Average to its third-highest close ever last week.
2003 Memorandum

The Justice Department's policies, set forth in a 2003 memorandum by then-Deputy Attorney General Larry Thompson, are designed to help prosecutors decide whether to indict a company.

An indictment is often fatal, and company lawyers say they will agree to almost any demand to avoid charges. The 2002 indictment of accounting firm Arthur Andersen LLP for destroying documents in the Enron probe led to the disintegration of the firm, which at one time employed 85,000 people.

The guidelines give businesses more leniency if they show a willingness to cooperate with the government. One indication of cooperation is a company's agreement to disclose its lawyers' confidential work by waiving attorney-client privilege. Another such sign is ``whether the corporation appears to be protecting its culpable employees' by paying their legal bills.

Michael Elston, chief of staff to Deputy Attorney General Paul McNulty, said the memo is an important tool in the fight against corporate crime. He said the Justice Department is willing to listen to the business groups but hasn't decided if the guidelines should be revised.

Legal Fees
Prosecutors don't demand companies cut off employees' legal fees, nor do they order the waiver of attorney-client privilege, Elston added. At most, he said prosecutors request a corporation consider waiving privilege.
``No one has brought to the department's attention a specific example of a prosecutor seeking a waiver in an inappropriate or abusive manner,' he said.

In the KPMG matter, the firm, following the Thompson guidelines, avoided criminal prosecution by agreeing to pay $456 million and entering into a so-called deferred prosecution deal. Charges against KPMG, the fourth-largest U.S. accounting firm, will be dropped at the end of 2006 if the firm stays out of trouble.
KPMG's decision not to pay its ex-partners' legal bills drew the ire of U.S. District Judge Lewis Kaplan, who ordered a hearing into whether the firm was pressured by the government. Kaplan called a prosecutor's explanation of the matter ``shameful' and told him that the fourth-biggest accounting firm had the right to pay the bills ``without your thumb on the scale.'

Pressing for Change
Last week, the Chamber of Commerce, the securities and bond associations and the Association of Corporate Counsel filed a brief in the case calling the attorney-fee provision unlawful. In an interview, George Kramer, the securities association's deputy general counsel, said the guidance ``turns our criminal justice system on its head.' He said the group will continue to press for changes in the Justice Department guidelines.
``Whenever you have a big scandal, the pendulum is likely to shift in one direction,' Kramer said. ``If prosecutors lose sight of trying to really obtain justice in the interest of trying to get a quick hit and nail somebody, then the pendulum has swung too far.'

The case, and one in New Hampshire that raised similar issues with former employees of Enterasys Networks Inc., have galvanized opponents of the Thompson memo. The Chamber's coalition has attracted a diverse group of supporters, including the American Civil Liberties Union, the American Bar Association, the National Association of Criminal Defense Lawyers and former Attorneys General Griffin Bell, Edwin Meese and Dick Thornburgh.

Attorney-Client Privilege
The groups have been meeting with Justice Department officials, and last week American Bar Association President Michael Greco wrote Attorney General Alberto Gonzales asking on behalf of the group's 400,000 members that the provision on attorney-client privilege waivers be revised.

On Capitol Hill, lawmakers prodded by the coalition have also begun to speak out against the policies. In March, Democrats and Republicans at a House Judiciary Committee hearing criticized the attorney-client privilege waivers as prosecutorial overreaching and a likely violation of employees' constitutional rights.
``This is a growing movement,' said R. William Ide, a partner at the McKenna Long & Aldridge law firm in Atlanta and a former bar association president who heads a task force on the issue. ``The minute people get educated on this they get very concerned.'