Academic journal article Fordham Journal of Corporate & Financial Law

To Shred or Not to Shred: Document Retention Policies and Federal Obstruction of Justice Statutes

Academic journal article Fordham Journal of Corporate & Financial Law

To Shred or Not to Shred: Document Retention Policies and Federal Obstruction of Justice Statutes

Article excerpt

INTRODUCTION

For numerous business and legal reasons, business entities, both large and small, are developing complex document retention policies1 in order to protect themselves and their bottom line.2 While these policies may have both economic and legal benefits, a poorly developed or mismanaged policy may lead to violations of or eliminate protection from the obstruction of justice laws of the United States, particularly 18 U.S.C. sections 1503, 1505, 1512, and the newly enacted sections 1519 and 1520, legislating the procedure for destruction of documents.3 Such was the case for Arthur Andersen LLP ("Andersen"), formerly one of the Big Five4 accounting firms of the United States, after the firm was indicted on March 14, 2002, and subsequently convicted on June 15, 2002,5 on one count of obstruction of justice for destroying documents related to the firm's work for the Enron Corporation ("Enron").6

Wrongful destruction of documents can lead to penalties in both civil and criminal cases. In civil litigation, document destructioncan lead to an adverse inference before the jury as a penalty for spoliation.7 In the criminal context, and pertinent for the present discussion, destroying documents can lead to a charge of obstruction of justice.8 Penalties in both the civil and criminal contexts can have harsh effects on the party who destroys documents: losing a jury trial because of the adverse inference or being fined and imprisoned as a criminal punishment.

Corporate senior management must deal with many questions regarding whether the company may destroy documents, when the corporation is allowed to destroy the documents and how the destruction should occur.

To avoid legal problems resulting from the destruction of documents, a document retention policy must be routinely followed and diligently maintained.9 All employees must know what to do with their documents and how to eliminate unnecessary documents. Likewise, all supervisors must clearly state and remind their employees of how the policy works. These techniques will ensure that a properly designed policy will be consistently applied.

In Andersen's case, the accounting firm's document retention policy states that their employees are only required to retain final work papers supporting client audits and should destroy drafts, notes and memos.10 If litigation is anticipated, however, all documents related to such litigation are to be retained.11 Possible factors leading to the obstruction charge against the firm include the fact that the firm's employees did not adhere to this policy correctly, this policy's ambiguity or the employees simply chose to ignore it.12

Part I of this Article will discuss document retention policies and how they are established. Part II of this Article will present an overview of the three older federal obstruction of justice laws that are applicable to document destruction-sections 1503, 1505 and 1512(13)-and the two new obstruction laws that were drafted to combat document destruction itself.14 Part III will focus on Andersen's document retention policy and the firm's trouble due to the Enron bankruptcy. Part IV will analyze the competing purposes of document retention policies and federal obstruction of justice laws. Finally, this Article will conclude that document retention policies are necessary for business purposes and can be reconciled with the federal laws as long as the policy is clear, consistently applied, well maintained and suspended when the potential for litigation or a federal investigation arises.

I. DOCUMENT RETENTION POLICIES

Companies, firms, and partnerships produce a multitude of documents during their ordinary course of business. It is impossible to keep all of these documents because of space limitations and storage costs.15 Therefore in an effort to manage their paperwork and to deal with excess and unnecessary documents, companies have turned to document retention policies. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.