Corporate attorneys breathed a sigh of relief last week when the U.S. Supreme Court unanimously overturned the conviction of Arthur Andersen; the court ruled that the jury was wrongly told that the former accounting giant could be convicted even if it never intended to do anything unlawful.

Andersen was convicted of witness-tampering for conduct that took place when its client Enron was the target of a looming investigation by the Securities and Exchange Commission in the fall of 2001. A major component of the government’s criminal investigation involved an email that Andersen’s in-house counsel sent to employees working on the Enron account, reminding them to follow the accounting firm’s lawful document retention policy. As a result, numerous documents were destroyed—although apparently at least one copy of every key Enron document was preserved.

Many lawyers viewed the Andersen case as an example of prosecutorial zeal and feared that, if the Supreme Court had upheld the conviction, companies would be left in the dark about whether actions that are common practice today might be seen as unlawful tomorrow.

“Companies can relax," says Susan Hackett, senior vice president and general counsel of the Association of Corporate Counsel. "The court sent a message that companies won’t be convicted for things that can’t be proven in court,” she adds. Hackett notes that the concern in the business community wasn’t necessarily for Arthur Andersen, but for the idea that the government could change the rules in the middle of the game. “People thought, ‘Are we on such a witch hunt that the government will be allowed to do anything to get [a company] convicted?’”

While the case is being cheered by corporate lawyers, Todd Jones, a partner with Powell Goldstein in Atlanta, warns that the court’s decision should not be viewed as a "green light” for companies to destroy documents when charges may be imminent. However, Jones says the ruling does confirm that it's OK for companies to implement document retention policies. “In fact," says Jones, "companies have the right to establish document retention policies as long as they’re properly developed and consistently administered, and as long as companies have contingency plans for what to do if a government investigation is likely." Jones adds that it's equally important to alter that policy in the event of a regulatory probe. "The key is whether and how broadly to suspend the policy should an investigation loom,” he says.

According to Brian Chilton, a partner with Foley & Lardner in Washington, D.C., what’s "nice” about the opinion by Chief Justice William Rehnquist is that it says that "it’s a lawful purpose to have a document-retention program knowing that, under the policy, a company will destroy documents that might some day be helpful to the government." What's critical to culpability is not necessarily the policy, but the intent of those who follow it. "You have to have a specific intent to impede a government investigation [to be criminally liable],” says Chilton.

Requisite Consciousness Of Wrongdoing

The indictment of Andersen contained just a single count: that senior company officials violated the federal witness-tampering law by improperly persuading employees to destroy Enron documents by urging them to enforce a longstanding document retention policy. The conduct occurred before the SEC began a formal investigation into Enron.

Andersen was accused of violating a section of the U.S. criminal code [Title 18, Section 1512(b)(2)(A) and (B)] that makes it a crime to "corruptly persuade," intimidate, or even engage in "misleading conduct" toward another person with the intent of making that person withhold testimony or documents, or—more relevant here—causing that person to "alter, destroy, mutilate, or conceal an object with intent to impair the object’s integrity or availability for use in an official proceeding."

The judge initially told jurors: “[E]ven if [Andersen] honestly and sincerely believed that its conduct was lawful, you may find [Andersen] guilty.” Jurors were further told to convict if they found that Andersen intended to “subvert, undermine, or impede” governmental fact-finding by suggesting to its employees that they enforce the document retention policy.

The 5th Circuit, which covers Texas, upheld the jury’s conviction, finding that the judge’s instructions properly conveyed the meaning of “corruptly persuades” and “official proceeding.” The court also held that Andersen was criminally liable even if there was no consciousness of wrongdoing.

But the Supreme Court, in an opinion written by Chief Justice Rehnquist, disagreed, ruling that the judge’s instructions unfairly allowed the jury to convict Andersen even if it never meant to “corruptly persuade” employees to destroy documents.

Rehnquist

The jury instructions “simply failed to convey the requisite consciousness of wrongdoing,” Rehnquist wrote. “They [also] led the jury to believe that it did not have to find any nexus between the ‘persuasion’ to destroy documents and any particular proceeding. … A ‘knowingly … corrupt persuader’ cannot be someone who persuades others to shred documents under a document retention policy when he does not have in contemplation any particular official proceeding in which those documents might be material.”

The court acknowledged that document retention policies “are created in part to keep certain information from getting into the hands of others, including the Government, [and] 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.”

"Some Element Of Relief"

“In general there is some element of relief in the sense that the Supreme Court did agree with the notion that it’s fine to have document retention policies and to have people comply with them under ordinary circumstances—that it is not in-and-of-itself criminal,” says Jones of Powell Goldstein. “Had the ruling gone the other way, it might have caused some consternation and a sense that companies would have to keep more documents than they otherwise would keep, especially in light of the broader scope of Sarbanes-Oxley.”

Hackett, of the Association of Corporate Counsel, called the Supreme Court’s decision “emphatic,” adding that her members would be pleased that the justices made it clear that document retention policies are necessary in today’s business world.

“The court acknowledged that there are business reasons why companies establish document retention and destruction programs,” says Hackett. “The volume of material is so immense, and there are potential liabilities for having kept things that may end up having been produced that shouldn’t have been produced because they’re confidential. It is a very precarious situation for companies to be in to be told they can’t get rid of anything, but at the same time told they have to be able to retrieve everything, and at their expense.”

In the Andersen case, says Hackett, the government “clearly could make the case on civil grounds, but couldn’t get the case made on criminal grounds without working the system.”

Chilton at Foley & Lardner says that it would be a mistake to conclude that Arthur Andersen has been exonerated. “[Rehnquist’s opinion] makes it pretty obvious that he doesn’t think Arthur Andersen is lily white,” he says. Chilton also notes that the Justice Department could have won the criminal case without demanding an instruction that allowed Andersen to be convicted without a sufficient showing of intentional wrongdoing. “Rehnquist really hammered the Department of Justice on the jury instructions," he says. Adds Chilton, "The message is: ‘What were you thinking? You had the evidence and then asked for these ridiculous instructions that could have caused innocent people to be swept under.’”

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