United States: More than a Shred of Evidence: Further Lessons from Andersen

Last Updated: September 6 2005
Article by Tracy A. Miner and John Markey

Originally published in June 2005

The Supreme Court’s recent unanimous decision overturning the conviction of the now defunct Arthur Andersen accounting firm for obstruction of justice is an important milestone for prosecutions based on the execution of document retention programs in the corporate and professional setting. Andersen was prosecuted for "knowingly and corruptly persuading" the programmatic destruction of documents in Andersen’s possession relating to its client Enron, after receiving notice of an impending SEC investigation, but before the actual receipt of a subpoena. Subsequent to the conduct in Andersen, Congress added additional obstruction crimes in the Sarbanes-Oxley legislation to add to the prosecutor’s arsenal of charges on which to prosecute document destruction cases in the future.

Whether under prior or new obstruction statutes, the Supreme Court’s decision in Andersen will affect future prosecutions and should make prosecutors think twice about prosecuting corporations or corporate executives for document destruction done pursuant to pre-existing document retention programs.

Andersen Decision

The Andersen decision could be read narrowly as a case about a flawed jury instruction, i.e., the lower court’s erroneously substituting "impede" for "dishonestly" as an element of "corruptly persuading." Read more broadly, it is a cautionary tale that knowledge and criminal intent remain requirements that prosecutors will have to affirmatively prove in obstruction cases. Read even more broadly, it is a message to the Justice Department and the lower courts to scrutinize carefully prosecutions for ancillary crimes, particularly ones with serious collateral consequences. Although the Court declined to explore the "outer limits" of the requisite state of mind, it is clear that 1) negligent destruction, or 2) destruction without knowledge that such action will impact a pending investigation is not adequate to sustain a conviction.

The Andersen indictment was brought under 18 USC Section 1512 (b)(2)(A) and (B) which makes it a crime to "knowingly...corruptly persuade another person...with intent to...cause" that person to "withhold" documents from or "alter" documents for use in an "official proceeding." The Court found that the District Court failed to follow the Fifth Circuit’s pattern instruction which defined "corruptly" as "knowingly and dishonestly." The District Court, at the request of the prosecutor, erroneously added "impede" and struck "dishonestly" in the instruction. The Supreme Court held that simply impeding the Government was not enough for a conviction, unless it was done with the requisite criminal intent as well.

Sarbanes Legislation

Andersen was indicted under the existing obstruction statute. Sarbanes Oxley expanded the existing obstruction statutes to punish anyone who:

"corruptly alters, destroys...or conceals a record, document...with the intent to impair the object’s integrity or availability for use in an official proceeding," or
"knowingly altering, destroying...any record [or] document...with the intent to impede, obstruct, or influence the investigation or proper administration of any matter....or in relation or in contemplation of any such matter or case."

An analysis of the Court’s findings in Andersen suggests that lower courts would be unlikely to let prosecutors disregard proving criminal intent in future prosecutions based on document destruction pursuant to pre-existing document retention programs.

Key language from the Andersen decision which will influence future prosecutions:

"‘Document retention,’ policies which are created in part to keep certain information from getting into the hands of others, including the Government, are common in business."
"It is, of course, not wrongful for a manager to instruct his employees to comply with a valid document retention policy under ordinary circumstances."
"‘Knowledge’ and ‘knowingly’ are normally associated with awareness, understanding, or consciousness."
"Only persons conscious of wrongdoing can be said to ‘knowingly...corruptly’..."
"It is ...one thing to say that a proceeding 'need not be pending or about to be instituted at the time of the offense,' and quite another to say a proceeding need not even be foreseen."

A reading of both the pre- and post-Sarbanes obstruction statutes suggests that the Court’s language applies with equal force to both. Companies and corporate executives do not violate either set of statutes by routinely destroying documents to, among other things, keep them from government eyes. Indeed, the Court recognizes that this is one of the reasons for establishing a document retention program in the first place. "Ordinary circumstances" would include the routine scheduled destruction of documents, as well as documents which by custom and practice are not saved beyond a set period of time.

General rumblings about a possible investigation are not sufficient to trigger criminal intent. There has to be a specific awareness that an investigation of the corporate entity is about to be instigated, and documents must be destroyed to impede a particular case or matter in which the documents are known to be material. Thus, the new Sarbanes obstruction section which refers to obstruction which is done "in relation to or in contemplation of" an investigation, will require a showing of specific awareness on the part of the violator that the destruction of a record or document would in fact impede or obstruct the particular investigation or proceeding.

Companies should continue to implement and execute document destruction programs, as these programs have significant advantages. Corporations should also continue to suspend such programs upon notice of an investigation. However, the Andersen decision puts some reality back into what will constitute a criminal act. Time will now tell whether prosecutors understood the message .

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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