What Did Arthur Andersen Do Wrong, Exactly?

[I found this in my drafts folder, written October 20, 2011 but never published.]

In July 2002, a jury found Arthur Andersen guilty of obstruction of justice after it had destroyed documents related to Enron Corp. Andersen claimed that the documents were destroyed as part of its housekeeping duties and not as a ruse to keep Enron documents away from the regulators.

After the guilty verdict, government lawyer Andrew Weissmann crowed, “When you expect the police, don’t destroy evidence.” “For Andersen, the police was the [Securities and Exchange Commission].”

Leslie Caldwell, head of the Enron Task Force, also led the investigation into Arthur Andersen. She said ominously after the guilty verdict, “We are not finished with Arthur Andersen.”

Actually, they were indeed finished with Arthur Andersen — but Arthur Andersen wasn’t finished with them. When Arthur Andersen took the case to the Supreme Court, the Supremes unanimously reversed the conviction due to flaws with jury instructions.

The Court found that the instructions were worded in such a way that Andersen could have been convicted without any proof that the firm knew it had broken the law or that there had been a link to any official proceeding that prohibited the destruction of documents. Chief Justice William Rehnquist wrote that “jury instructions at issue simply failed to convey the requisite consciousness of wrongdoing…Indeed, it is striking how little culpability the instructions required.”

Chief Justice William Rehnquist was also highly skeptical of the government’s concept of “corrupt persuasion”—persuading someone to engage in an act with an improper purpose even without knowing an act is unlawful.”

It was a pyrrhic victory. Having relinquished its right to act as CPAs, the company was effectively dead. It went away much like Enron, and the case was closed, and people moved on.

This was the official story – the one that was spoon-fed by CNN and the DOJ. But it isn’t the complete story.

Despite Weissman’s statement that one shouldn’t destroy documents when the police are on the way, the government did not charge Andersen with obstruction of justice for destroying documents during the relevant time period because no official proceeding of the SEC was pending. AA’s Supreme Court brief says:

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.

The government argued that Nancy Temple’s proposed edits to David Duncan’s draft memorandum constituted criminal “witness tampering,” because in its hindsight view the SEC would have wanted to see Duncan’s first draft. It invoked 18 U.S.C. § 1512(b)(2)(A), which criminalizes killing, intimidating, threatening, and “knowingly … corruptly persuad[ing]” any person with the intent to make evidence unavailable to an official proceeding.

Yet there is nothing inherently “corrupt” about an intent to impede future government fact-finding within the bounds of the law. Any defendant engages in a wide range of conduct to limit information; that is one of the reasons that our legal system is frequently described as “adversary” and not “Hello Kitty and Barbie Play A Happy Game Of Prosecution and Rainbows.”

The Court has recognized that there is nothing “obviously evil” or “inevitably nefarious” about acting “for the specific purpose of depriving the Government of … information”. (Ratzlaf v. United States).

Furthermore, 18 U.S.C. § 1512(b)(2)(A) applies only when the defendant intended to make documents or testimony unavailable to a particular official proceeding, defined as a judicial proceeding, “a proceeding before the Congress,” or “a proceeding before a Federal Government agency which is authorized by law.” 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.

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.’

All of Nancy Temple’s and David Duncan’s actions took place entirely in the open. Neither attempted to hide what they – or anyone else – was doing. The destruction of documents was never intended to be a conspiracy to keep information from the SEC. No witness at trial said they were told by the company that the purpose was to keep materials from the SEC.

No one at Andersen had the “evil-meaning mind” necessary to justify criminal punishment. This conviction was secured by creative lawyering on the part of government prosecutors, at the expense of sound statutory interpretation and the basic goals and values of the criminal law. It did a great injustice to the tens of thousands of Andersen partners and employees who were permanently harmed by the firm’s destruction.

Cara Ellison

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