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Thu, Dec 14, 2006 - Page 10 News List

US government puts new limits on fraud probes

HARD CORE Critics charge that the old rules, devised by former deputy attorney general Larry Thompson in 2003, were too harsh on genuinely compliant firms

AP , WASHINGTON

The US Justice Department put new limits on prosecutors seeking confidential data from corporations on Tuesday after critics lobbied the government to back off tough tactics authorized during the Enron-era scandals.

Deputy Attorney General Paul McNulty said the new guidelines will not hinder prosecutors from aggressively going after companies accused of fraud and other white-collar crimes. Whistle-blowers called the changes a setback for shareholders and employees who risk losing billions in pensions and savings if scandal-tainted corporations aren't fully investigated.

A coalition of allies who had demanded the changes offered only lukewarm support. The new rules bar the government from charging businesses solely on the basis of their refusal to hand over corporate attorney-client communications or their continuing to pay lawyer's fees for employees under investigation.

Announcing the changes in a New York speech that was closed to the media and public, McNulty said they aimed "to strike a balance between the central concerns of those who have raised questions about the policy ... and continue our aggressive efforts against corporate criminals."

The text of his speech was released in Washington.

The policy should help companies curb fraud internally by encouraging open talk between corporate attorneys and their clients, McNulty said in an interview with reporters.

"It, in no way, slows down the ability to prosecute these cases successfully," he said.

Under the new guidelines, US attorneys and their trial prosecutors:Must obtain written approval from the deputy attorney general before demanding confidential information or communications between attorneys and their clients; Must consult with the assistant attorney general who oversees all Justice Department criminal cases before seeking results of corporations' internal investigations or other factual information; Cannot consider as uncooperative any firms that pay attorneys' fees for employees, however, the deputy attorney general could approve harsher charges in cases where the payments result in blocking the government's investigation; Cannot bring charges against corporations simply because they refuse to hand over confidential and so-called "privileged" attorney-client information.

The new rules replace guidelines issued in 2003 to coordinate prosecution tactics among the 94 US attorneys' offices nationwide following scandals at Enron Corp, WorldCom Corp and other firms.

Critics charged that those tactics, devised by former deputy attorney general Larry Thompson, were too harsh on corporations trying to avoid being branded as uncooperative. They feared that could lead to indictments that publicly scarred even innocent businesses forever.

A coalition that includes former Attorney General Ed Meese, the US Chamber of Commerce, the American Bar Association and the American Civil Liberties Union has fiercely lobbied for changes to the policy they termed coercive. Additionally, a federal judge in New York criticized the old guidelines in June as unconstitutional as they were used in a 2004 case against accounting firm KPMG.

Last week, outgoing Senate Judiciary Chairman Arlen Specter introduced legislation to bar prosecutors from pressuring corporations against paying legal fees or demanding attorney-client information.

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