Paying the Legal Fees of Employees Under Investigation

Last week several U.S. business and legal trade groups, including the Association of Corporate Counsel (ACC) filed a brief in support of KPMG’s position in their tax fraud case that they should not be penalized for paying the legal fees on behalf of employees who are the target of a government investigation. The issue raised is one that has perturbed defense white collar criminal defense lawyers since the Justice Department so-called “Thompson Memo” was issued. The Thompson Memo warns that corporate payment of employee legal representation is viewed as an adverse factor in determining whether a company is considered to be cooperating with the government. (Full Story in Legal Times May 8, 2006)

One of the problems with the Thompson Memo on this issue is that, if companies were to follow this guideline, it may well leave many company employees without legal representation. Since oftentimes investigations by the government may result in protracted legal representation, coupled with the intense and complicated nature of the investigations, it is likely that legal fees will be substantial and the employee, unless they are the likes of Ken Lay, will have a hard time affording competent legal counsel. It seems that the corporate and white collar lawyer concerns on this one are well founded. Of course, the government opposes the payment of legal fees, among other reasons, since it potentially jades the impartiality and loyalty of the employee as a possible witness. It would seem that on balance, if an innocent, low paid corporate employee is targeted as a “small fish” for later use as an informant against higher level executives, the government will have an unfair advantage in pressuring the employee to cooperate or face substantial legal fees. Such a Hobson’s choice may help fight corporate wrong-doing, but it may have other, far reaching and possibly more damaging affects on corporate America.