April 29, 2005
Arthur Andersen Update
Posted by Gordon Smith

I finally caught up with reports about the oral arguments on the Arthur Andersen case, and the conviction is looking more precarious than I had assumed. According to the NYT, Justice Scalia described the government's case as "weird"; Justice Kennedy described the government's argument as "a sweeping position that will cause problems for every business in this country," and added, "I just don't understand it"; Justice Breyer addressed the Deputy SG, "if I were a juror, I might think that what is missing here is dishonesty of purpose"; and Justice O'Connor wondered, "If this thing is so confusing, how is a businessperson supposed to know what to do? How's a lawyer to know?" (For another report on the argument, see Legal Times.)

What I think is most interesting about the reactions of the justices is not how they interpret the old version of the witness tampering statute at issue in the case -- those questions seem quite close and fairly technical -- but the sense of outrage that seemed to punctuate the oral argument, as if the government's prosecution were patently scandalous. Contrast this apparent sympathy for Arthur Andersen with the new standards contained in the Sarbanes-Oxley Act ("SOX") as a response to the AA prosecution. Two deserve special mention:

1. SOX expands criminal liability in situations like this, including not only those who "corruptly persuade" but also those who "corruptly" alter or destroy documents.

2. Anyone who "knowingly alters, destroys, mutilates, conceals, covers up, falsifies or makes a false entry in any record, document or tangible object with the intent to impede, obstruct or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States" is subject to fine and/or imprisonment. Under the prior statute, destruction of information was illegal only if done with the "intent to impair the object's integrity or availability for use in an official proceeding." SOX clearly expands the scope of the prohibition to include investigations or merely administration of matters within the jurisdiction of federal departments.

At least two of the justices quoted above (Kennedy and O'Connor) seem less concerned with the technical propriety of the prior prosecution than with the resulting burdens imposed by the government's proposed standards. That these standards have now been codified by SOX doesn't make them any clearer or less burdensome.

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