Below is a partial list of some of the key laws, regulations and standards that impact companies' records-retention policies.

Employment-Related Records

Failure to maintain required employment records can turn baseless employee lawsuits against the company into litigation nightmares: Agencies and courts may choose to find, or instruct juries, that missing records should or may be presumed to contain information damaging to the company.

Sarbanes And Consistency

Executives and lawyers beware: You need not destroy records yourself to incur personal criminal liability; merely giving orders or advice that causes others to destroy records in violation of law is enough to draw a 'Go to Jail' card.

Also, errors and miscommunications do not excuse violations. Correct instructions, precise execution and necessary training to achieve this result is critical.

Any destruction policy must be applied consistently at all times. If a department falls behind, and tries to catch up during the institution of a federal investigation or lawsuit it knows nothing about, but is known or expected elsewhere in the organization, the destruction will appear to be a knowing violation of law no matter what the real facts may be.

Public companies must be extremely careful of how and when they disclose information, and carefully coordinate and plan ahead. New SEC regulations now require extended and accelerated disclosure of material (including off-balance sheet) agreements on Form 8-K, and the clock starts to tick when the parties reach agreement, even before agreement signature. A knowing or reckless misstatement or omission of material fact by a corporate executive or other employee may constitute securities fraud punishable by up to 25 years in prison.

SEC Rule 17a-4

Rule 17a-4(j) provides that every member, broker, or dealer subject to this rule shall furnish promptly to a representative of the Commission such legible, true and complete copies of those records of the member, broker or dealer, which are required to be preserved under this Rule, as are requested by the representative of the Commission. The Commission has enforced Rule 17a-4(j) when broker-dealers have failed promptly to furnish records requested by the staff that are required to be maintained under Rule 17a-4. Just in March 2004, the SEC fined Banc of American Securities $10 million for alleged stalling on providing evidence in an investigation. Banc of American had claimed that it was too burdensome and would take too long to produce the required archived emails. The SEC found that by failing to promptly furnish the emails to the staff, Banc of America violated Section 17(a) of the Exchange Act and Rule 17a-4(j) thereunder.

This just represents the continuation of an alarming trend. In December 2002, the SEC fined five major Wall Street brokerage firms, Deutsche Bank Securities, Goldman Sachs, Morgan Stanley, Salomon Smith Barney, and U.S. Bancorp Piper Jaffrey, a total of $8.25 million ($1.65 million each) for failure to "preserve copies of electronic mail communications for three years, and/or maintain electronic mail communications for the first two years in an accessible place."

The Balancing Act

An example of the balancing act outlined in the first bullet point (under "Establish A Formal Information Retention Policy" in related column) might occur using the following analysis: Treasury Regulation Section 31.6001-1(e) requires record retention for at least four years after the later of: filing the return to which the records relate; or the date on which the tax is paid. The usual statute of limitations for a return audit is three years. Therefore, it may appear reasonable to adopt a general policy of destruction after four years.

However, if gross income is understated by over 25 percent reported income, the statute extends to six years after return filing. Therefore, some companies may choose to keep the records for six years, perhaps small companies or those experiencing high turnover in their tax department, in order to have the records to demonstrate that any gross income omission was an inadvertent mistake.

Task Coordination Example

The MIS and Records departments must act as a single entity (in this day and age they often comprise one department). If, for example, the law requires a particular entity only to retain a single document arising from a single event for a given period, then it would appear reasonable that the entity could comply with the law by adopting a policy of retaining an original of this document, or in the alternative, if the document is electronically generated in the first place, a print out. However, under circumstances where such a document originates in electronic form, someone must ensure that the document is printed, and someone must ensure the printed document is retained in a retrievable location—requiring some means of organization or indexing. If not, deletion of the electronic version of the document may well be found to be deletion of the "document" the law required to be retained.

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