This article first appeared in FINalternatives.

The review originally appeared in the June 2009 issue of The Federal Lawyer.

This article was originally published here.

The second generation of corporate criminal prosecutions is upon us and promises to be even more aggressive than the post-Enron era of 2001–2008, which saw record fines, penalties, and prison sentences. This new, post-Troubled Asset Relief Program (TARP) era will see intensified government efforts to stem what it considers to be corporate fraud, greed, and mismanagement. Legislation, such as the Fraud Enforcement and Recovery Act and the Derivatives Markets Transparency and Accountability Act of 2009, will increase the criminal prosecution abilities of the Department of Justice (DOJ), the Securities and Exchange Commission (SEC), and the Commodities Futures Trading Commission (CFTC) [1].

As corporations find themselves under the microscope of the DOJ, the SEC, and the CFTC, one issue will arise in each case: How can corporations cooperate with government agencies without waiving the attorney-client privilege and work product protection? This problem, which has haunted the white-collar bar for more than 10 years, was not resolved with the DOJ’s most recent memorandum regarding privilege waiver, which stated that the it wants “just the facts” and would no longer base cooperation on privilege waiver. Instead, the new policy has caused awkward discussions between corporate counsel and DOJ trial attorneys in trying to determine a method by which the corporation can provide “just the facts” without waiving the privilege, which under even the best of circumstances is difficult.

The answer to this dilemma likely does not lie with a new and improved DOJ policy. Instead, it should be established by a new Federal Rule of Criminal Procedure that delineates the method through which corporations cooperate and allows the government to judge corporate cooperation the same way it judges a natural defendant’s cooperation. The groundwork for such a rule already exists in Federal Rule of Civil Procedure 30(b)(6) and its case law.

Fed. R. Civ. P. 30(b)(6) provides that a party, in its notice or subpoena, may:

Name as the deponent a public or private corporation, a partnership, an association, a governmental agency, or other entity and must describe with reasonable particularity the matters for examination. The named organization must then designate one or more officers, directors, or managing agents, or designate other persons who consent to testify on its behalf; and may set out the matters on which each person designated will testify. A subpoena must advise a nonparty organization of its duty to make this designation. The persons designated must testify about information known or reasonably available to the organization.

As the rule suggests, it is not “literally possible” to take the deposition of a corporation; rather, the information sought must come from a natural person. As a consequence, the person designated to personify the corporation does not give his or her personal opinions. The designee “presents the corporation’s position on the topic,” and the testimony elicited from the deponent at the deposition represents the knowledge of the corporation. Further, the 30(b)(6) witness does not waive the attorney-client privilege by testifying, under a requirement of the Federal Rules of Civil Procedure.

If the government adopts a similar rule into the Federal Rules of Criminal Procedure, the privilege waiver issues innate to corporate criminal prosecutions should be resolved. Such a rule could state:

An organization at its discretion may, when notified by any governmental agency that it is under investigation, designate one or more officers, directors, or managing agents, or designate other persons who consent to proffer on its behalf in negotiations with the governmental agency. The persons designated must proffer about information known or reasonably available to the organization. And, in the event of a subsequent civil action brought against the organization by a third party, such designated persons must, if available, be among the designated witnesses in any subpoena issued under Fed. R. Civ. P. 30(b)(6).

This rule, as articulated, has many benefits. For instance:

1. It does not require the corporation to provide a witness to proffer with the government. Instead, it is discretionary and will only be used if the corporation decides to cooperate.
2. If the corporation decides to cooperate, the designee will personify the corporation and allow it to proffer information to the government and allow the corporation to enter into a proffer agreement.
3. If asked questions, such as how did the corporation discover information, corporate counsel can interrupt the question on privilege grounds.
4. The corporation will be held to the same standards of cooperation as a natural subject/target and cooperation will be based upon information the corporation provides, not whether it waived privilege.
5. If the corporation, through its designee, willfully makes false statements during the proffer, the government could charge the corporation with perjury, obstruction of justice, making false statements, or violating any other applicable criminal statutes relating to the giving of false statements.

Corporations, of course, would have to choose a designee with certain characteristics to best guard its interests in the proffer. For example, the designee should:

1. not have any personal criminal exposure
2. be knowledgeable of the facts of the government’s investigation [2]
3. be able to articulate the facts in a coherent manner
4. report solely to the corporate body with decision-making authority in the criminal matter.

As we enter the post-TARP era, we need to reconsider the methods by which corporate cooperation is judged. The days of simply expecting a corporation to waive privilege and voluntarily turn over protected materials is over. At the same time, the government cannot be expected to give corporations a “pass” without getting the facts it needs to prosecute wrongdoers. As such, the development of a mechanism by which corporations can cooperate with the government and give the facts it requires is necessary. By adopting a rule akin to Fed. R. Civ. P. 30(b)(6), corporate criminal defendants will be treated analogously to natural ones and will gain the benefits of full cooperation or face the detriments of non-cooperation, thus creating an efficient and legitimate means for two adverse parties to work toward a mutually beneficial end.

ENDNOTES

1. Elken Abramowitz and Barry Bohrer, Targeting Law Enforcement to Improve the Economy, N.Y. L.J. (March 3, 2009), available at www.maglaw.com/publications/data/00184/_res/id=sa_File1/070030909Morvillo.pdf.
2. “If the persons designated by the corporation do not possess personal knowledge of the matters set out in the deposition notice, the corporation is obligated to prepare the designees so that they may give knowledgeable and binding answers for the corporation.” United States v. J.M. Taylor, 166 F.R.D. 356, 361 (M.D.N.C 1996) (citing Dravo Corp. v. Liberty Mut. Ins. Co., 164 F.R.D. 70, 75 (D. Neb. 1995).

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