Arthur Andersen LLP v. United States (04-368)

Oral argument: April 27, 2005
Appealed from: 5th Circuit Court of Appeals

CRIMINAL PROCEDURE, WHITE-COLLAR CRIME, Witness Tampering, Jury Instructions, Enron Scandal, Obstruction of Justice, Subpoena, Document Destruction

Arthur Andersen LLP was convicted of witness tampering under 18 U.S.C. § 1512(b). The 5th Circuit upheld the conviction, despite Andersen's claims that prosecution did not enter evidence about the numerous documents Andersen did not destroy, that the judge allowed improper evidence of past SEC investigations of Andersen, and that the judge misrepresented the offense in the jury instructions with regards to actual knowledge that certain actions constituted a crime under the circumstances and timing of the commission of the actions. Andersen again challenges the conviction, this time before the U.S. Supreme Court.

[Question(s) presented] | [Summary] | [Analysis]

Question(s) presented

Whether Arthur Andersen LLP's conviction for witness tampering under 18 U.S.C. § 1512(b) must be reversed because the jury instructions upheld by the Fifth Circuit misinterpreted the elements of the offense, in conflict with decisions of the Supreme Court and the Courts of Appeals for the First, Third, and D.C. Circuits.



In June of 2002, Arthur Andersen LLP ("Andersen") was convicted in a jury trial in the U.S. District Court in Houston, Texas, of "corruptly persuading" employees to destroy Enron-related documents in anticipation of an SEC investigation (see indictment for details of the charges and 18 U.S.C. § 1512(b) for the applicable law). The judge ordered Andersen to pay $500,000 and serve an up-to-five year probation period.

Two years later, before the Fifth Circuit Court of Appeals, Andersen argued that the prosecution had, among other things, failed to include as evidence the large number of documents that the Andersen employees did not destroy. United States v. Andersen, 374 F.3d 281, 287 (5th Cir. 2004). The Fifth Circuit opinion noted that the district court had already observed that Andersen employees had not destroyed everything relevant to the Enron investigation and still found them guilty. See id. at 288.

Andersen also objected to the introduction in the district court case of information about previous SEC investigations of Andersen. See id. The Fifth Circuit decided the evidence was relevant to show that Andersen knew or should have known the SEC would open an investigation into Enron's accounting discrepancies. See id. at 291.

Most importantly for the purpose of the current appeal, Andersen also claimed that the district court judge's jury instructions misrepresented the elements of the offense and that Andersen would have been found not guilty given the correct jury instructions. See id. at 292. The district court judge told the jury that Andersen did not have to knowingly act illegally to be found guilty. See id. at 293–94. Andersen argued that corrupt behavior required evidence of an improper purpose. See id. Andersen contended that it was simply cleaning up Enron files and lacked the requisite improper purpose. See id. The Fifth Circuit, however, viewed the sudden enforcement of a lax document-retention policy in the face of an imminent investigation as an improper purpose. See id. at 295–96.

Andersen then pointed out that the document destruction primarily took place in October 2001, and that Andersen did not know of the investigation until November 8, 2001. See id. at 285–86. The district court judge instructed the jury that an official investigation did not have to be ongoing at the time of the offense. See id. at n.32, 298. The jury based their conviction on evidence that senior Andersen employees told coworkers to expect an SEC investigation. See id. at 298. Andersen argues that the correct instruction would indicate that concern about possible future proceedings is not enough, and that it did not know of the SEC investigation when the destruction took place. See id. The Fifth Circuit stated that "ignorance of the law is no defense," and concluded that Congress would have specified if a narrower standard were to apply in obstruction of justice crimes. See id. at 299.

The Fifth Circuit unanimously affirmed the conviction, rejecting Andersen's arguments and characterizing the firm as a member of Enron's "supporting cast," which fell in the wake of Enron's collapse "[l]ike a falling giant redwood." See id. at 284.

On Jan. 7, 2005, the U.S. Supreme Court granted Andersen's writ to review the case. (For more information see Carrie Johnson's article "High Court Will Hear Andersen Appeal" that appeared in the Washington Post on January 8, 2005.)


Although the issues of the Andersen case are fairly narrow, the Supreme Court's decision will have far-reaching effects on international, multi-disciplinary (MDP) firms, and potentially on secondary actors who rely on MDP firms. If the Court were to affirm the trial judge's jury instruction, accounting firms would be "chilled" into retaining and maintaining millions of pages of business records. The costs of document repository are almost always passed on to the clients of such firms, and would create new business for vendors.

On the other hand, if the Court agreed with Andersen's reading of the statute, such a ruling would not restore investor and insurer confidence to the level once held by this former member of the "Big Five" accounting firms. The now thinly staffed Andersen would continue its legal battles against shareholder litigants and its search for insurance coverage. The "chilling" effect of the Enron-Andersen debacle on international accounting firms would remain given the discretion of a trial judge to craft a jury instruction that falls within the meaning of the statute.



The issues in this case are classic questions of statutory interpretation with respect to § 1512(b). The statute reads:

[w]hoever knowingly uses intimidation, threatens, or corruptly persuades another person, or attempts to do so, or engages in misleading conduct toward another person, with intent to . . . cause or induce any person to (A) . . . withhold a record, document, or other object, from an official proceeding ; [or] (B) alter, destroy, mutilate, or conceal an object with intent to impair the object's integrity or availability for use in an official proceeding

is guilty of witness tampering. Id. The first issue is whether the term "knowingly . . . corruptly persuades" means "an intent to subvert, undermine, or impede the fact-finding ability of an official proceeding," as the trial judge instructed the jury, See Andersen, 374 F.3d at 297, or whether it requires unlawful means or inducements to violate the law, as Andersen argues. See Brief for Petitioner at 17, Arthur Andersen, LLP v. United States, U.S. (No. 04-368). The second issue is whether an informal SEC proceeding constitutes an "official proceeding." See Andersen, 374 F.3d at 299-98. If the Court sides with Andersen on either of these issues, it must decide whether the trial court's instructions sufficiently prejudice Andersen to warrant reversal. Pet'r Brief at 19.

With respect to the "knowingly . . . corruptly persuading" prong, Andersen first argues that there is nothing inherently "'corrupt' or wrongful about an intent to impede future government fact-finding within the bounds of the law." Pet'r Brief at 17. Petitioner claims that this is an inherent feature of the adversarial legal system, and that "Americans regularly engage in a wide range of conduct designed in part to influence or limit the information that reaches government proceedings." Id. Petitioner argues that impeding government fact-finding is in many ways an essential function of the lawyer. See id.

Furthermore, § 1512(b)'s mens rea element should lead "knowingly . . . corruptly persuading" to be interpreted to require that the prosecution prove that a defendant knows its conduct is wrongful -- especially if the provision is not interpreted to require that the acts themselves actually be unlawful. Id. at 28. The Court issued a similar holding in Ratzlaf v. United States, where it found that a federal statute that criminalizes behavior that is "not inevitably nefarious," should be interpreted to require either knowledge of the law, or knowledge of facts sufficient to render the conduct blameworthy. See Ratzlaf v. United States, 510 U.S. 135, 144 (1994). Ratzlaf was accused of violating the Money Laundering Control Act of 1986, which prohibited willfully structuring a financial transaction with one or more financial institutions in order to avoid federal cash transaction reporting requirements. See id. at 139. Noting several examples where tax payers "structure" transactions for the sole purpose of avoiding taxes -- examples that were not illegal -- the Court held that the willfulness requirement was not satisfied unless the defendant had knowledge of the illegality of the structuring. See id. at 145-46. Anderson bolsters this argument by reference to the structure of the statute: The term "corruptly persuading" is included with a list of actions that otherwise includes "killing, coercing, harassing, or intimidating witnesses." Pet'r Brief at 18. Andersen argues that because any of these other actions include an unlawful means or inducement, it does not make sense to interpret "corruptly persuading" not to include a similar unlawful means. See id.

With respect to the "official proceeding" prong, Petitioner argues that the district court went too far when it defined the prong to mean "all of the steps and stages in the agency's performance of its governmental functions, . . . extend[ing] to administrative as well as investigative functions both formal and informal." Andersen, 374 F.3d at 297. Petitioner argues that neither "interference with the fact-finding ability of law-enforcement or preliminary investigations" nor "an abstract desire not to retain documents because they might be relevant to some future proceeding" is enough; instead, there must be a nexus between the defendant's conduct and a particular official proceeding. Pet'r Brief at 18. Otherwise, Petitioner argues, the difference between an "official proceeding and impending possible proceedings simply collapses. Id. at 42.

Finally, Petitioner argues that the rule of lenity compels that both terms be interpreted in its favor. Id. at 37. The rule of lenity states that "a court, in construing an ambiguous criminal statute . . . should resolve the ambiguity in favor of the more lenient punishment." Blacks Law Dictionary 1359 (8th ed. 2004). Petitioner states that the lower court's interpretation of § 1512(b) would render illegal "the document retention policies in place at almost every American corporation or professional firm of any size." Pet'r Brief at 19. Moreover, Petitioner argues that the doctrine of constitutional doubt forbids an interpretation that would "criminalize a broad range of innocent conduct, including constitutionally protected free speech, without fair warning." Id.

The government responds, on the other hand, that "corruptly persuading" does not require an unlawful means. Brief for Respondent at 14, Arthur Andersen, LLP v. United States, U.S. (No. 04-368). It claims that the lower court's interpretation of the statute is consistent with the definition given the identical term in the statute that preceded § 1512(b), in other obstruction of justice statutes, and in other federal criminal statutes. Id. at 14. Respondent notes that the "corruptly persuades" provision was added to § 1512(b) by Congress after the statute's initial enactment to ensure "the same protection of witnesses from non-coercive influence that was found in 18 U.S.C. § 1503." See 124 Cong. Rec. S17, 369 (statement of Sen. Biden).

Furthermore, the Respondent maintains that acting with an improper purpose does not require that the defendant knowingly act impermissibly. Resp't Brief at 35. As a general rule, ignorance of the law is no defense. See id. at 35-36, citing Ratzlaf, 510 U.S. at 149. Respondent contends that "[i]ntentional actions to obstruct justice through persuading others to destroy documents are not undertaken innocently," Brief for Respondent at 14, United States v. Andersen, 374 F.3d 281, 287 (5th Cir. 2004), so there is no fear of criminal conviction under this statute for conduct innocently undertaken even with this interpretation.

With respect to the "official proceeding" prong, the Court of Appeals for the Fifth Circuit found no reversible error because the statutory language "does not require a defendant to know that the proceeding is pending or about to be initiated." Andersen, 374 F.3d at 298. It further found (in dicta) that Andersen's argument that this interpretation would render illegal the document retention policies of many large corporations was offset by the "corruptly persuading" requirement. See id.

Respondent argues that the proceeding in question for Anderson was the SEC's Enron Investigation. Resp't Brief at 16. Respondent claims that Andersen lost the ability to argue that this does not constitute an official proceeding when it failed to preserve the issue before the Fifth Circuit. See id. Respondent further notes that the "statute authorizing the SEC to conduct investigations treats all investigations as proceedings, and courts have consistently considered agency investigations, even preliminary ones, to be 'proceedings' for purposes of a companion statute, 18 U.S.C. § 1505." Id.

Respondent argues that the rule of lenity -- or any doctrine of constitutional interpretation -- is inapplicable here because the term "corruptly" is unambiguous. Id. at 39. It argues that this term has long been defined in other obstruction of justice statutes, and that Petitioner, therefore, had ample notice that it could be prosecuted for its conduct. See id. at 40.

While it is unclear with which interpretation of "corruptly persuading" or "official proceeding" the Court will side, if the Court sides with Petitioner on either issue, it would be forced to overturn the verdict. As Petitioner points out, and Respondent does not seem to dispute, if the Court adopts Petitioner's construction of the statute, none of these "errors" would be harmless. Pet'r Brief at 19.