A Problem at Justice

Tuesday, July 24, 2007

AJUDGE'S decision this month to throw out criminal charges against 13 former employees of the accounting firm KPMG illustrates what has gone wrong with the government's pursuit of corporate cases, and why a legislative remedy is needed.

In his July 17 decision, U.S. District Judge Lewis A. Kaplan of New York dismissed the charges because he found that the Justice Department had so egregiously violated the constitutional rights of the defendants that allowing the cases to go forward would be wrong. What prompted Judge Kaplan's extraordinary action was evidence that federal prosecutors had demanded that KPMG stop paying legal fees for the individual defendants, even though companies commonly pay such fees unless employees are convicted. The Justice Department, according to Judge Kaplan, strongly suggested that cutting off the legal fees would put the company in the government's good graces and possibly help it avert indictment. The incentives for KPMG were palpable: Remember the Arthur Andersen accounting firm, which collapsed after Enron-related charges were lodged against it?

The tactic on attorneys fees is one of several contained in the so-called McNulty Memorandum, a Justice Department guide for how prosecutors should proceed with corporate cases. The memo also contains provisions allowing prosecutors to ask companies to waive their attorney-client and work-product privileges, two long-ensconced legal principles. The memo was revised in December and now requires prosecutors to obtain permission from agency headquarters before seeking such waivers. The department claims the tools were not often invoked and have been used even less frequently since the revisions. But these tactics so tilt the scales toward prosecutors and are so potentially damaging to due process that a legislative remedy is needed. Sen. Arlen Specter (R-Pa.) and Rep. Robert C. Scott (D-Va.) have introduced such legislation, narrowly tailored to bar the Justice Department from awarding legal brownie points to companies that acquiesce to fee and privilege waiver demands. The Scott bill is scheduled for markup by a House Judiciary subcommittee today.

Judges -- not Congress -- are usually in the best position to keep overzealous prosecutors at bay, and no one wins if corporate crooks get away scot-free. But this Justice Department seems to have lost sight of the enormous hammer it already wields over companies and individuals alike -- without resorting to extraordinary measures. A modest check on that power is appropriate.

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