Fraud & The Law

Document retention in the wake of Andersen


By Juliana Morehead, J.D., Associate Member

In the wake of Arthur Andersen's demise after its involvement in the Enron case, and the subsequent U.S. Supreme Court ruling, we've all learned something about retaining (or not retaining) business documents. 

We all know that the purpose of a document retention policy is to manage business documents by retaining important information and discarding those that are insignificant for the proper functioning of a company. However, when and under what circumstances can a company shred documents under a valid document retention policy? Even if a company has such a policy that allows for the shredding of important business documents, it doesn't mean that the company is always legally entitled to follow its policy and shred.

There are certainly some instances when it's appropriate to withhold or dispose of business documents. The Supreme Court in Arthur Andersen LLP vs. United States(1) pointed out that it's not necessarily wrong for an attorney to persuade a client to withhold privileged documents even with the intent to prevent government access to those documents. Nor is it always wrong for a corporate manager to instruct employees to shred documents under a valid document retention policy. However, it's equally true that there are limits to a company's ability to dispose of documents, particularly when litigation or a government investigation is pending.

For three years, much of the world has viewed Arthur Andersen as having obstructed justice by shredding Enron documents. Yet, in May 2005, the U.S. Supreme Court overturned the guilty verdict of the District Court that led to the collapse of the accounting and auditing giant. This is not to say the former 89-year-old firm was vindicated for its actions. Rather, the Court reversed Andersen's guilt because improper jury instructions were used in Andersen's trial.

Because document retention policies play an enormous role in the preservation of evidence for litigation, and because it's currently difficult to decipher what a valid document retention policy means, this column will attempt to address several unanswered questions.

  • What exactly is an "official government proceeding"?
  • What is compliance under "ordinary circumstances"?
  • What effect does Sarbanes-Oxley have on document retention?
  • What protocols should companies take to ensure proper legal compliance with a valid document retention policy?

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