United States: Reversal of Arthur Andersen Conviction Highlights New Sarbanes-Oxley Witness-Tampering Provisions

Originally published August 4, 2005
When the Supreme Court overturned accounting firm Arthur Andersen's conviction for obstruction of justice by destroying documents, it clarified and narrowed the application of one witness-tampering statute to the destruction of documents. However, the Sarbanes-Oxley Act of 2002 added additional witness-tampering provisions that may diminish the effect of the decision. Accordingly, in structuring and enforcing document retention policies, companies should consider not only the witness-tampering provision used in the Andersen prosecution, even if narrowed, but also the new provisions added by Sarbanes-Oxley.

Among the actions that Arthur Andersen took in response to the gradual discovery of Enron's accounting improprieties was that Andersen partners and in-house counsel instructed employees on the Enron engagement team to comply with Andersen's document retention policy. Andersen's policy was unremarkable, calling for retention in Andersen's central engagement file of only such information as is relevant to supporting Andersen's work, but providing that document destruction should stop once litigation is threatened. Andersen personnel complied with the policy by destroying documents related to Enron, even though some members of the Andersen engagement team considered a government investigation probable. Andersen personnel were instructed to terminate document destruction only after Andersen was formally served by the SEC with a subpoena for its records relating to Enron.

Andersen was indicted in March 2002 for violating 18 U.S.C. §1512(b), which makes it a crime to "knowingly us[e] intimidation or physical force, threate[n], or corruptly persuad[e] another person . . . with intent to . . . cause" that person to "withhold" documents from, or "alter" documents for use in, an "official proceeding." Andersen was convicted, after a jury trial, of corruptly persuading its personnel to withhold documents from government proceedings by destroying its Enron-related documents while it knew that an SEC proceeding was probable. The conviction was affirmed by the Fifth Circuit Court of Appeals. However, the Supreme Court reversed the conviction, holding that the jury instructions failed to properly convey the elements of a "corrup[t] persuas[ion]" conviction.

The Supreme Court focused on what it means to "knowingly . . . corruptly persuad[e]" a person to withhold documents. The Court held that merely persuading a person to withhold documents or testimony from a government proceeding is insufficient to meet the elements of the crime, since there are many situations in which a person may lawfully persuade another to withhold documents or testimony from an official proceeding. (The Court cited as an example a mother who persuades her son to invoke his Fifth Amendment right against compelled self-incrimination.) For a crime to be committed, the persuasion must be knowingly corrupt. Interpreting the meaning of the words "knowingly" and "corrupt," the Court found that to be guilty under §1512(b) a person must be "conscious" of "wrongdoing" when persuading a person to withhold documents.

While declining to explore the outer limits of what this means, the Court found that the jury instructions as given to the Andersen jury failed to convey the requisite consciousness of wrongdoing. The Court stated that it is not wrongful for a manager to instruct employees to comply with a valid document retention policy under normal circumstances. However, the jury was told that "even if Andersen honestly and sincerely believed that its conduct was lawful, you may find Andersen guilty." Moreover, the jury was not instructed that some type of "dishonesty" was necessary to a finding of guilt; in fact, the jury was instructed that it was enough that Andersen merely "impeded" the government. The Court held that this was overbroad, since a person who innocently persuades another to withhold information from the government also would impede the government. Finally, the Court also found that a jury must find a nexus between the corrupt persuasion to destroy documents and a particular proceeding, and that the instructions in the Andersen case led the jury to believe that such a nexus was not necessary. Accordingly, the Court reversed the conviction.

The Court's decision narrows the application of §1512(b) considerably. To be found guilty under this statute, it is now clear that a defendant must be conscious of wrongdoing. That is, a defendant cannot be held guilty under §1512(b) if the defendant "honestly and sincerely believed that its conduct was lawful." Moreover, for a violation of §1512(b) to occur, there must be a nexus between the corrupt persuasion to destroy documents and a particular proceeding.

While the Supreme Court narrowed the application of §1512(b) for document destruction cases, the Sarbanes-Oxley Act of 2002 added two additional criminal provisions relating to document destruction. New §1512(c) imposes criminal sanctions on any person who

"corruptly (1) alters, destroys, mutilates, or conceals a record, document, or other object, or attempts to do so, with the intent to impair the object's integrity or availability for use in an official proceeding; or (2) otherwise obstructs, influences, or impedes any official proceeding, or attempts to do so."

This provision requires a finding that the act was done "corruptly," similar to §1512(b). However, rather than requiring a finding that the defendant has corruptly "persuaded" another person to destroy documents, §1512(c) applies to document destruction by the defendant himself.

The Sarbanes-Oxley Act also added 18 U.S.C. §1519, which makes it a crime if a person

"knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States or any [bankruptcy case], or in relation to or contemplation of any such matter or case."

This provision is much more comprehensive than §1512(b). In particular, it does not require a finding that a person corruptly engaged in document destruction. Instead, to be guilty under this provision, a person who destroys documents merely must have intent to "impede, obstruct, or influence" a government investigation, or even just "in relation to or contemplation of" such an investigation. This seems to capture much of the conduct that the Supreme Court held §1512(b) did not cover and which the jury instructions in the Andersen case erroneously captured.

It seems likely that in the future prosecutors will use §1519 in prosecuting document destruction cases rather than the narrower §1512(b). Companies may want to reevaluate their document retention policies, given that document destruction with an intent to impede an investigation, even where the investigation has not begun but an investigation is contemplated, is prohibited by §1519. It is advisable to emphasize that document retention policies be followed regularly rather than only when issues arise. Companies may want to establish procedures for determining when it appears likely that a subpoena may be served, as part of their policy of determining when routine document destruction should be stopped.

Michael Margulis is based in the New York office and David Kaufman is based in the Chicago office.

This article is for general information and does not include full legal analysis of the matters presented. It should not be construed or relied upon as legal advice or legal opinion on any specific facts or circumstances. The description of the results of any specific case or transaction contained herein does not mean or suggest that similar results can or could be obtained in any other matter. Each legal matter should be considered to be unique and subject to varying results. The invitation to contact the authors or attorneys in our firm is not a solicitation to provide professional services and should not be construed as a statement as to any availability to perform legal services in any jurisdiction in which such attorney is not permitted to practice.

Duane Morris LLP, among the 100 largest law firms in the United States, is a full-service firm of more than 600 lawyers. In addition to legal services, Duane Morris has independent affiliates employing approximately 100 professionals engaged in other disciplines. With offices in major markets, and as part of an international network of independent law firms, Duane Morris represents clients across the nation and around the world.

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