You probably didn’t realize that Arthur Andersen LLP still exists. It’s a withered existence: a couple of hundred employees, one location, a small revenue stream from educational seminars, and a not-yet-finished trail of litigation. Today the most publicized of the legal cases, the firm’s June 2002 conviction for obstructing an SEC investigation, reached the Supreme Court.
According to reports on the oral argument (links usefully collected at SCOTUS Blog), six of the Justices spoke up, and every one of them expressed skepticism about the basis of the conviction. That really ought not to be a surprise.
The charge against Andersen was that it “corruptly persuade[d]” its employees to prevent the SEC staff from obtaining documents relating to its Enron audits. Its specific criminal acts began with (and consisted of little more than) an e-mail sent by an in-house lawyer to the firm’s Houston office (the one that audited Enron) that read, in its entirety: “Mike - 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. Let me know if you have any questions.” The recipient forwarded this message to the lead audit partner with the laconic note, “More help”.
This policy referred to was a standard one, well known to the SEC and indisputably legal, that required the retention of all material essential to supporting the firm’s audit conclusions. Once an audit was completed, drafts and other superseded materials, except for “source documents”, were to be discarded.
Employees in the Houston office later destroyed a great deal of documentation, in at least some cases violating the record retention standards. The government could have prosecuted the individuals who engaged in those acts for obstruction. Instead, it went after Andersen as an entity. The gist of the case was that the e-mail quoted above and follow-up actions were the proximate cause of the misdeeds and that Andersen’s headquarters had a “corrupt” motive in transmitting it. The decisive “proof” of corruption, according to a post-trial interviews with jurors, was a mid-level lawyer’s request that her name be left out of a memorandum summarizing a conference call, because she didn't want to increase the risk of having to appear as a witness in any future litigation. As the Wall Street Journal, in a news article generally favorable to the prosecution, summarized at the time,
What began as an indictment for massive illegal document destruction by the firm’s accountants ended with the finding, the four jurors said, of a lone instance of attempted illegal document alteration by a newly hired Andersen lawyer.
The guilty verdict was tantamount to a death sentence. The courts have since been considering post mortem appeals. An Andersen brief reduced the firm’s crime to simple terms:
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.
Yes, indeed, the government’s advocate reiterated at oral argument: If there was a “reasonable probability” that drawing attention to the retention policy would obstruct an official probe, doing so was “corrupt”. He conceded that acting in accordance with the policy was not a criminal act; the crime was urging someone else to follow it.
If reporters’ impressions are to be trusted, the Court will not agree, which will be a good decision, though only a small pruning of one of the great vices of modern American law. In what we now think of as the Bad Old Days, prosecutors had immense leeway in gathering evidence. They then, however, had to deploy that evidence to prove all of the narrowly delineated elements of a clearly defined crime.
Today, obtaining evidence that can be presented in court is a difficult, highly technical challenge, but definitions of criminal conduct have become so blurry and subjective that, as the Andersen case shows, not much is needed to win a conviction. The net effect is that, when an awful event occurs, it’s no harder now than it was fifty years ago to convict somebody of something. That the new regime of tough evidentiary standards and vague laws is an improvement is not blindingly obvious. Perhaps Andersen’s death throes will encourage reflection on where our notions of what constitutes a “crime” are going and whether we like that direction.