April 26, 2005
Arthur Andersen in the High Court
Posted by Gordon Smith

Arthur Andersen (AA) is appealing its criminal conviction to the Supreme Court, and oral argument is tomorrow, the last day of the current term. (I think it is only coincidental that AA settled claims relating to its audit of Worldcom yesterday.) The Supreme Court granted cert in this case to examine two issues: (1) whether the federal witness tampering statute (18 U.S.C. 1512(b)) requires something more than an intent to subvert an official proceeding; and (2) whether the government should be required to prove that Andersen intended to interfere with a particular proceeding other than SEC fact-finding. Although the resolution of these issues will have important legal consequences, the case is more important for symbolic reasons.

According to AA, the fact that this case revolves around a witness tampering statute is itself suggestive of prosecutorial overreaching. The following is from AA's Supreme Court brief (pdf):

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. This Court has held for more than a century that “a person lacking knowledge of a pending proceeding necessarily lack[s] the
evil intent to obstruct.” United States v. Aguilar, 515 U.S. 593, 599 (1995) (citing Pettibone v. United States, 148 U.S. 197, 207 (1893)).

The United States attempted to evade that settled law by instead charging Andersen with “witness tampering,” on the remarkable theory that although it was perfectly lawful for Andersen to have a document retention policy that preserved only the final audit work papers, and perfectly lawful for Andersen’s employees and professionals to follow that policy, it was somehow a serious felony for Andersen’s in-house attorney and supervisors to remind its employees of the policy.

I think all of us were surprised at the time of AA's conviction that the case boiled down to an email from Nancy Temple to the Enron engagement team: “It might be useful to consider reminding the engagement team of our documentation and retention policy. It will be helpful to make sure that we have complied with the policy.” Whether the Supreme Court upholds AA's conviction -- and perhaps more importantly, how it does that -- may influence the debate about post-Enron reform efforts.

With respect to the merits of this case, here is the relevant text of that statute:

Whoever knowingly uses intimidation, threatens, or corruptly persuades another person, or attempts to do so, or engages in misleading conduct toward another person, with intent to ... cause or induce any person to (A) ... withhold a record, document, or other object, from an official proceeding; [or] (B) alter, destroy, mutilate, or conceal an object with intent to impair the object's integrity or availability for use in an official proceeding ... shall be fined under this title or imprisoned not more than ten years, or both.

On the first issue, AA makes a textual argument, which was rejected by the Fifth Circuit: the words "corruptly persuades" must connote something more than improper motive because the statute contains a separate intent provision. While the Fifth Circuit appears to agree with this point, the court held that the trial court had given "corruptly" a separate meaning when it defined the term as follows: "The word 'corruptly' means having an improper purpose. An improper purpose, for this case, is an intent to subvert, undermine, or impede the fact-finding ability of an official proceeding." According to the Fifth Circuit,

Acting with an intent to "subvert, undermine, or impede" an investigation narrowed the reach of the statute, insisting upon a degree of culpability beyond an intent to prevent a document from being available at a later proceeding. A routine document retention policy, for example, evidences an intent to prevent a document from being available in any proceeding. But it does not alone evidence an intent to "subvert, undermine, or impede" an official proceeding.

In its Supreme Court brief, AA contends that this is not only bad law, but bad policy: "There is nothing inherently 'corrupt' or wrongful about an intent to impede future government fact-finding within the bounds of the law." Criminal law isn't my area of expertise, but AA's argument looks like a truism run amok. As noted in the Solicitor General's brief (pdf):

Notwithstanding the facts that (1) petitioner had retained outside counsel; (2) Temple had concluded that “some SEC investigation” was “highly probable”; (3) Temple had designated the Enron matter as a “government/regulatory investigation”; and (4) petitioner’s work for Enron was ongoing, Temple and others embarked on a campaign to encourage Andersen employees to destroy Enron-related documents, under the guise of complying with the document policy.

With respect to the second issue, AA makes two arguments. First, AA contends that "an official proceeding" is something other than "the fact-finding ability of law enforcement or preliminary agency investigations." While there is some precedent in support of this view, it looks like a loser to me. The more interesting argument is AA's appeal to the rule of lenity:

Whether particular conduct is criminal should never be debatable, or a surprise. The theory of this prosecution criminalized conduct commonly understood to be lawful, including the document retention policies in place at almost every American corporation or professional firm of any size. And the jury may well have rested its verdict on an email from Nancy Temple which "offered such common legal advice that the chairman of the American Corporate Counsel Association wrote in a letter to his members: 'Who amongst us has not thought: There but for the grace of God go I.'"

As you might imagine, the SG offers a much different view of AA's conduct in this case:

Petitioner was validly convicted of corruptly persuading its employees with the intent to cause them to withhold documents from, or alter documents for, an official proceeding, in violation of 18 U.S.C. 1512(b)(2)(A) and (B). Petitioner 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.

In the end, I suspect that AA's conviction will be upheld, but this is a case worth watching for many reasons.

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