The U.S. Supreme Court heard arguments last week in the criminal prosecution of Arthur Andersen—a case which many see as an example of prosecutorial zeal that leaves companies in the dark about whether actions that are common practice today might be seen as unlawful tomorrow.
Andersen was convicted of witness tampering for conduct that took place when its client, Enron Corp., was the target of a looming investigation by the Securities and Exchange Commission in fall 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.
Garre
Gregory Garre, a partner with Hogan & Hartson in Washington, D.C., said “there but for the grace of God go I” has been the reaction of many corporate lawyers. The conviction of Andersen “places U.S. businesses at peril for implementing document retention policies,” said Garre, who noted that corporate counsel have been left with “no bright-line rules to follow to avoid criminal liability, leaving each situation to be examined on a case-by-case basis to determine what corporate decision-makers knew and when.”
Hackett
Susan Hackett, senior vice president and general counsel of the Association of Corporate Counsel, agrees. The issue of “20/20 hindsight in trying to determine what’s criminal behavior” has many attorneys on edge about how to effectively counsel their corporate clients, Hackett said. “If it’s not clear what will constitute criminal behavior until someone smells it, it’s kind of hard to counsel around. You can’t counsel what you don’t know,” she said.
Chilton
But Brian Chilton, a former federal prosecutor, said such concerns were “a lot of sturm und drang about nothing.” Corporations “are rightly sensitive to the amount of heightened regulation they’ve gone under with Sarbanes-Oxley and things like that,” said Chilton, now a partner with Foley & Lardner in Washington, D.C.. “It’s the same syndrome as a puppy who’s been kicked 1,000 times. This one looks like [corporations] are about to get a swift kick from the government, this time the Supreme Court.”
But corporations should “take a deep breath,” said Chilton, and take reassurance in the fact that the Arthur Anderson prosecution is unique. “I don’t think very many corporations are doing anything like Andersen was accused of doing,” he said. “Corporate America is largely law-abiding—exercising and implementing their document-retention policies in a lawful manner. They’re not likely to be prosecuted. Even after the court issues its opinion, that’s not going to change.”
Altogether Another Matter
The indictment of Andersen contained just a single count: that senior company officials violated the federal witness-tampering law by improperly persuaded employees to destroy Enron documents. The conduct occurred before the SEC began a formal investigation into Enron.
Mahoney
“It is plain as day that the government did not charge Andersen with obstruction of justice for discarding documents during the relevant time period because no official proceeding of the SEC was pending,” Andersen’s attorney, Maureen Mahoney of Latham & Watkins in Washington, D.C., wrote in her brief to the Supreme Court.
The charge was based on the government’s contention that an “official proceeding” was ongoing, within the meaning of the witness-tampering law, because an informal SEC inquiry of Enron was taking place. But Mahoney argued that the statute “applies only when the defendant specifically intended to make documents or testimony unavailable to a particular official proceeding … Interference with the fact-finding ability of law enforcement or preliminary agency investigations is not sufficient. Neither is an abstract desire not to retain documents because they might be relevant to some possible future proceeding.”
But the government contends that Andersen has twisted the facts. “[Andersen] portrays its document-destruction campaign, in the face of a looming SEC investigation, as wholly legitimate conduct—as if American corporations routinely find it proper to instruct their employees to lay waste to vast troves of documents when a government investigation is viewed as highly probable,” the government’s brief argues. “[W]hen, after realizing that a government investigation is bearing down on it, a company seizes on a dormant or widely ignored document policy and uses it as a pretext to destroy evidence of its own or its client’s potential misconduct, it is altogether another matter. No responsible entity would engage in such conduct; [Andersen’s] own document policy prohibited it.”
An “intent to obstruct an informal investigation necessarily implies an ultimate intent to obstruct a formal investigation,” the government asserts.
“We’re All In Trouble”
The anxiety many corporate counsel have centers not on the fate of Arthur Andersen—which has already been pretty much sealed—but on the fear that the case will create a precedent that can be used against others in the future.
“What the court says is going to have significant implications for white-collar prosecutions,” said Garre, of Hogan & Hartson. “Under [the government’s] theory, it doesn’t matter if a company is aware of any particular proceeding when they discard documents. It doesn’t matter if the company is acting in what it perceives to be good faith. The company can still subject itself to potential criminal liability.”
Garre said he hoped the court would establish clear guidelines so corporations know how to comply with the law. “If you have a broad standard that can lead to criminal liability, that’s going to chill legitimate behavior, including providing legal advice.”
Hackett, of the ACC, told Compliance Week that she knows “a whole lot of people” who have said they’ve written an email like the one written by Andersen’s in-house counsel. “People say, ‘If this is the basis for the downfall of the entire organization, we’re all in trouble.’”
But former prosecutor Chilton said that, if a company does what Andersen did, “they should be popped for it.”
“What Arthur Andersen was indicted for was the perception that they all of a sudden started talking about the document retention program because they were concerned about stuff the government was going to find,” said Chilton, who called the factors of the Andersen case “unique and over-the-top as compared to everyday operations of corporate America.”
Companies are wrong if they “conclude that they are at risk of prosecution [in light of the Andersen case] merely if they follow their document-retention policy,” said Chilton, calling the reaction of some corporate counsel to the case “a lot of the emotion based on the misplaced sense of exaggeration.”
Chilton said a ruling in favor of Andersen could actually hurt companies because the SEC would be forced to open an official investigation “every time they’re mildly concerned about something” in order to prevent documents from being destroyed.
Garre said many corporate lawyers are nervous about the Supreme Court’s decision because the current justices have “not necessarily been known as … business-friendly.”
But, at oral arguments last Wednesday, several of the justices seemed sympathetic to Andersen’s plight. “It seems to me that [the government’s view] is a sweeping position that will cause problems for every business [and] small business in this country,” remarked Justice Anthony Kennedy, who is frequently a key vote in close cases.
And the Andersen case could well be decided 5-4. Chilton told Compliance Week “this is one of the closest calls that you could possibly come up with.”
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