Four Republican Senators urged the Justice Department to turn over non-public reports prepared by Deputy Attorney General nominee James Cole during his time as an independent monitor to American International Group (AIG).
Cole, a former public corruption prosecutor and longtime friend of Attorney General Eric Holder, worked as an independent consultant for AIG from January 2005 until earlier this year as part of a deferred prosecution agreement between Justice Department and the insurance giant.
In a letter to Assistant Attorney General for Legislative Affairs Ronald Weich, Senate Judiciary Committee Ranking Republican Jeff Sessions of Alabama along with GOP Sens. Charles Grassley of Iowa, John Cornyn of Texas and Tom Coburn of Oklahoma requested copies of all reports submitted by Cole to DOJ while he worked for AIG.
“We understand the confidential treatment of Mr. Cole’s reports… and his recommendations to AIG stem from the deferred prosecution agreements between the Department and AIG,” the senators wrote. “The Judiciary Committee cannot, however, fully and properly evaluate Mr. Cole’s nomination without this documentation.”
A Justice Department spokeswoman defended Cole’s role at AIG and said he made “significant progress in implementing critically-needed reforms” in the areas he was charged with overseeing.
“Critics who suggest that Mr. Cole was somehow too close to AIG misunderstand his relationship with the company,” said spokeswoman Tracy Schmaler. “His presence was imposed on the company by a federal court. In fact, as the [Congressional Research Service] report notes, AIG executives tried to have him removed.”
“[Cole] was never a general overseer or monitor of AIG’s entire operation nor was he assigned to examine many of the issues involving AIG’s near collapse, such as credit-default swaps or retention bonuses,” Schmaler added.
Sessions only briefly brought up Cole’s work for AIG at a confirmation hearing last Tuesday and focused his questions mainly on a 2002 opinion piece written by Cole about the use of civilian trials for terrorism suspects. Grassley and Coburn did not attend the hearing.
In his opening statement at the hearing last week, Cole defended his work on AIG. “The company resisted some of my efforts, but I insisted on tough measures,” Cole said.
Cole’s reports on AIG were confidential, but the Justice Department sent the reports to the House Oversight and Government Reform Committee last year. The panel asked the Congressional Research Service to issue a report on Cole’s oversight of the company.
President Barack Obama nominated Cole to be Deputy Attorney General last month. He would replace acting Deputy Attorney General Gary Grindler, who has held the post since David Ogden stepped down in February.
The letter and the full statement from the DOJ is reprinted below.
June 23, 2022
Assistant Attorney General
Office of Legislative Affairs
Department of Justice
Washington, D.C. 20530
Dear Mr. Weich:
We write regarding the nomination of James Cole to be Deputy Attorney General. Mr. Cole served as independent consultant to American International Group (AIG) for a number of years prior to that company’s near collapse and government-sponsored bailout in 2008. Numerous questions persist regarding Mr. Cole’s role in monitoring AIG in view of the company’s recent history. Such questions could not adequately be addressed at Mr. Cole’s June 15 hearing, however, because Mr. Cole appears to be prohibited from disclosing the nature of his work as an independent consultant and because the underlying documents apparently remain confidential. These documents include the deferred prosecution agreements, his recommendations to AIG, and his reports to the Department of Justice (Department), Securities and Exchange Commission (SEC) and the New York Attorney General’s Office (NYAG).
As a result of these claims of confidentiality, we have been unable to verify a number of reports that have questioned Mr. Cole’s activities as the independent consultant to AIG. For example, it has been reported that Mr. Cole “allowed AIG management to revise his quarterly reports to the SEC.” According to these same reports, Mr. Cole also made recommendations that there be independent review of all derivative transactions, but he expressly exempted derivative transactions made by the AIG-Financial Products group (AIG-FP). AIG-FP is the subsidiary of AIG that was responsible for the derivative transactions that ultimately led to a $182 billion taxpayer bailout. We understand Mr. Cole’s recommendation for derivative products by AIG-FP went even farther to state that “the appropriate independent review of the proposed derivative transactions or programs should be conducted by AIG-FP.” This recommendation raises serious questions about the thoroughness and independence of Mr. Cole’s review of these transactions. It was the devaluation of those high-risk transactions that led to AIG’s demise, and ultimately, the economic collapse.
If true, these reports about Mr. Cole’s deference to AIG and its subsidiaries would raise serious concerns regarding his performance as independent consultant. Due to the unknown nature of Mr. Cole’s work and the secrecy surrounding his recommendations and reports to the Department and the SEC, the Committee remains unable to verify or dismiss these reports.
We understand the confidential treatment of Mr. Cole’s reports to the Department, the SEC and the NYAG, and his recommendations to AIG stem from the deferred prosecution agreements between the Department and AIG. The Judiciary Committee cannot, however, fully and properly evaluate Mr. Cole’s nomination without this documentation. Accordingly, we request copies of all reports submitted by Mr. Cole in his role as independent consultant to the Department. To the extent the Department received such materials, we further request copies of Mr. Cole’s reports to the SEC and NYAG, as well as copies of all recommendations made to AIG by Mr. Cole. Finally, we request all responses submitted by AIG to the Department related to, or responding to, any report or recommendation issued by Mr. Cole as the independent consultant to AIG.
Thank you for your attention to this matter, which will help us to discharge our constitutional obligation to consider this nomination. To avoid any unnecessary delay, we respectfully ask you to provide this information as soon as possible so the Committee can consider Mr. Cole’s nomination.
Very truly yours,
Statement from Tracy Schmaler, Justice Department spokeswoman:
“James Cole was assigned by a federal court order to serve as an outside independent consultant to AIG as the result of two specific lawsuits the company settled charging it with engaging in bid rigging, helping its clients to falsify their financial condition, and violating accounting rules. Mr. Cole was never a general overseer or monitor of AIG’s entire operation nor was he assigned to examine many of the issues involving AIG’s near collapse, such as credit-default swaps or retention bonuses.
“For those areas of the company that the court did give Mr. Cole authority to address - fraudulent transactions and the company’s compliance with applicable laws and regulations - Mr. Cole made significant progress in implementing critically-needed reforms by making sure the company improved its reporting lines and the independence of compliance staff so that they could not be pressured by the company’s business managers.
“Critics who suggest that Mr. Cole was somehow too close to AIG misunderstand his relationship with the company. His presence was imposed on the company by a federal court. In fact, as the CRS report notes, AIG executives tried to have him removed.”
A group of companies and advocacy groups have asked Congress to update the law that guides government access to electronic communications, and two former Justice Department lawyers who advised prosecutors on dealing with digital information have joined in the push.
The Digital Due Process coalition is taking aim at the Electronic Communications Privacy Act (ECPA), a 1986 law that governs law enforcement access to things such as e-mail and private files stored on the Internet.
The group maintains the law is outdated and argue it should be updated to take into account new technological innovations and to clarify conflicting legal interpretations.
The coalition includes organizations such as the liberal American Civil Liberties Union and the conservative Americans for Tax Reform, along with tech companies Google, Microsoft and AT&T.
Over the course of the past month, members of the coalition have met with the Department of Justice officials from the Office of Legal Policy, Office of Legislative Affairs, the Federal Bureau of Investigation and the Computer Crime & Intellectual Property Section (CCIPS) of the Criminal Division.
“They’ve been respectful, substantive and engaged,” Digital Due Process coalition spokesman Jim Dempsey said. “But they made it clear there’s no DOJ position yet on the proposal and haven’t indicated whether they will have counter proposals.”
Dempsey said the Justice Department is aware of the coalition’s concerns and said the group will continue to communicate with the DOJ. The Justice Department does not comment on meetings it has with various organizations, but spokeswoman Tracy Schmaler said DOJ is reviewing the group’s principles.
The main target of the Digital Due Process coalition’s efforts to change the law is not the Justice Department, but Congress. Senate Judiciary Committee Chairman Patrick Leahy (D-Vt.) said in a statement Tuesday that the committee will hold hearings on updating ECPA.
“While the question of how best to balance privacy and security in the 21st century has no simple answer, what is clear is that our federal electronic privacy laws are woefully outdated,” Leahy said. “In the coming months, I plan to hold hearings on much-needed updates to the Electronic Communications Privacy Act. I appreciate the coalition’s ideas in this area, and I encourage others in Congress to work with me to address these important privacy and law enforcement issues.”
One change advocated by the organization would require the government to obtain a search warrant before it could ask an Internet service provider to turn over a user’s private communication. That requirement was first proposed by Leahy and then-Sen. John Ashcroft, who later became the Attorney General during the Bush administration. The coalition believes the search warrant criteria is consistent with recent appeals court decisions that e-mails and SMS text messages stored by communications providers are protected by the Fourth Amendment, which prohibits unreasonable searches.
Former DOJ Lawyers Say Law Isn’t Clear
Several former Justice Department lawyers are also in agreement that the law should be updated, saying their experiences in government demonstrate the need for Congress to clarify the law.
Marc Zwillinger of Zwillinger Genetski LLP, is a former Justice Department lawyer in the CCIPS, where he helped train prosecutors on digital policy. He said evolving technology has made things more difficult for prosecutors since he left the Justice Department in 2000.
“Cloud computing is a game changer,” Zwillinger said in an interview. “In some ways it’s made it easier, and in some ways it’s made it harder. But it’s been very unclear what the rules of the road are.”
“Cloud computing” refers to resources, such as software and documents, stored online by Internet companies and accessed through a browser rather than maintained on-site. Because online storage capacities are generally large, people now have a tendency to store e-mails and other communications for long periods of time.
Zwillinger said that having more clarity would help prosecutors do their jobs.
“Some prosecutors are well versed in the nuances of the statutes, some less so,” said Zwillinger. As the role of electronic information in society continues to grow, most prosecutors — not just those specially trained in ECPA — will have to deal with the law in their everyday work, said Zwillinger.
Paul Ohm, now an associate professor of law at the University of Colorado Law School, also served in the CCIPS — from 2001 through 2005. He agreed that an update is overdue.
“So much more of our behavior is now captured online, and it seems like the ability for the police to be able to tell what you’re doing has just increased with time,” Ohm said. “It just cuts in the direction of a slow decrease in privacy over the course of time.”
During his time at the Justice Department, Ohm said there was constantly a debate within CCIPS on exactly what is allowed under the ECPA.
“At least when I was there, there were people who cared a lot about law enforcement but who were also civil libertarians,” said Ohm. “So we had great principled debates about what a statute means, what it might mean, how hard we should push on the ambiguities, etc. … [Lawyers] were constantly engaging in the same ‘liberty versus security’ or privacy versus security debate that happens in the broader public.”
“I’m not comfortable with a statute where the personnel of the department literally determines how much privacy we have,” he added.
Ohm said he expects prosecutors might oppose any changes to the law that would place restrictions on their ability to obtain electronic information.
For example, he cited a 2004 case before the 9th Circuit Court of Appeals, Theofel v. Farey-Jones. In that case, the court ruled that prosecutors must issue a warrant to obtain electronically stored information. A 2009 DOJ manual (PDF) called the 9th Circuit’s decision “expansive” and told law enforcement officials outside of the 9th Circuit to continue applying the previous method for obtaining electronically stored information.
“For five years now, they’ve required a warrant to read e-mail in those jurisdictions, and as I said, it hasn’t been the end of the world, it hasn’t caused DOJ to lose the fight against computer crime,” said Ohm. “I’m sure the field first panicked when they heard of it, but they’ve learned to live with it, and they’ll be able to learn to live with what Congress may do if they embrace these proposals as well.”
Google created a short video explaining its support for the campaign, which is embedded below.
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For the second time in a year, the Justice Department is facing criticism from gays rights leaders for the language the DOJ used in a lawsuit defending a law on the books that the Obama administration said it wants overturned.
The latest flap came Monday when, according to Politico, the Justice Department cited Colin Powell’s 1993 opinion in favor of “Don’t Ask Don’t Tell,” a position he has since reversed. Among other points, DOJ argued that the presence of gays in the military increases sexual tension and invades the privacy of service members.
Justice Department Tracy Schmaler told Politico that the administration still wants to repeal “this discriminatory law” but has to defend any act of Congress in court.
“In this case the department is defending the statute, as it traditionally does when acts of Congress are challenged,” she said. “The department does not pick and choose which federal laws it will defend based on any one administration’s policy preferences.”
DOJ cited Powell’s opinion in response to a lawsuit from the Log Cabin Republicans.
Gay rights supporters have criticized the DOJ, saying the arguments the department marshaled to defending the statute were offensive. Lawyer John Aravosis also argued on AMERICAblog that the Justice Department has previously declined to defend laws passed by Congress.
In June, the Justice Department came under fire after it filed a brief defending the Defense of Marriage Act. DOJ lawyers later filed an amended brief clarifying the administration’s position on DOMA, but argued that they had the responsibility to defend it in court.
In October, a gay DOJ employee told Main Justice the Justice Department has made considerable progress on the issue of gay rights, but that the gay community was outraged by the DOMA brief.
The Justice Department’s response to the lawsuit from the Log Cabin Republicans is embedded below.