Pressure Eases on Companies that Support Employees Under Federal Investigation

The Department of Justice (DOJ) softened its hard line on corporations whose employees are under investigation for federal crimes. The department has been accused of pressuring companies to share information that's generally protected under attorney-client privilege and also pressuring them to cease paying legal fees for employees under investigation.

The DOJ unveiled new internal guidelines, which have undergone multiple revisions since the department came under fire from Congress, attorneys, judges, and a broad swath of advocacy groups from the U.S. Chamber of Commerce to the American Civil Liberties Union (ACLU), for what they perceive to be draconian measures put in place after Enron's collapse. The tactics were intended to nudge company executives to cooperate in investigations into possible criminal actions rather than risk their company's indictment -- which could bring down an organization --at a time when high-profile white collar crime was shaking investors and markets.

Under the new rules, federal prosecutors will no longer be allowed to indict a company that pays employees' legal fees or protects their confidential communications with company lawyers.

The first beneficiaries of the new guidelines are former KPMG LLP executives. The same day the DOJ made its announcement, a U.S. appeals court upheld an earlier decision to throw out the indictment of 13 former KPMG executives, who were defendants in a tax fraud case, after determining that federal prosecutors violated their right to legal counsel. The executives had been accused of selling illegal tax shelters that allegedly cost the U.S. Treasury at least $2 billion, according to The New York Times. Charges against the accounting firm were dropped last year after it paid a fine.

But the new guidelines may not be enough to appease Congress. A bill relating to this issue passed the House of Representatives and is pending a vote in the Senate that would ostensibly prevent any future backslide at DOJ.