Called into Account

RAY SUAREZ:

Yesterday, federal prosecutors announced the indictment of the accounting giant on a single count of obstruction of justice for destroying thousands of documents related to the Enron investigation. Deputy Attorney General Larry Thompson spoke at the Justice Department in Washington.

LARRY THOMPSON, Deputy Attorney General:

The indictment catalogs allegations of widespread criminal conduct by the Arthur Andersen firm charging that the firm sought to undermine our justice system by destroying evidence relevant to the investigations. It alleges that at the firm's direction, Andersen personnel engaged in the wholesale destruction of tons of paperwork and attempted to purge huge volumes of electronic data or information. The indictment further explains that at the time, Andersen knew full well what — that these documents were relevant to the inquiries into Enron's collapse. The indictment alleges that Andersen partners and others personally directed these efforts to destroy evidence. Obstruction of justice of justice is a grave matter and one this Department takes very seriously. Arthur Andersen is charged with a crime that attacks the justice system itself by impeding investigators and regulators from getting at the truth.

RAY SUAREZ:

Responding in a statement released later, Arthur Andersen said: "A criminal prosecution against the entire firm for obstruction of justice is both factually and legally baseless."

For more on the indictment, we're joined by Floyd Norris, chief financial correspondent for The New York Times; and Jennifer Arlen, a visiting professor of securities law and business crime at Yale University.

Well, Floyd Norris, we heard the federal government describe what sounded like a vast enterprise and a lot of individual violations of the law. How did that result in one count of obstruction of justice? What is the fed saying that Andersen did?

FLOYD NORRIS:

Well, what happened is, to some extent, undisputed. Andersen executives did order the destruction of documents and a lot of documents were destroyed. It is not as clear how damaging that was to the prosecutors in many cases these documents have been recovered — if they were electronic documents and often other copies of paper documents existed. Andersen had hoped that the person who directly ordered this the partner in their Houston office who they fired would be held responsible and the firm would not be. And they still believe if they go to trial, they can convince the jury that the whole firm should not be held responsible for these actions.

RAY SUAREZ:

Is this a novel approach to prosecuting this crime? Instead of going after Mr. Duncan who has said that he participated in this destruction of documents, the going after the whole company?

FLOYD NORRIS:

It is unusual to charge an entire company in a case like this without charging the individuals as well. I assume at some point the individuals will be charged. But justice was clearly quite upset with Andersen, and they seemed to have set an example by going after them, despite the fact that this may well result in the death of Andersen, although, to be fair, Andersen's survival was looking dubious even before this.

RAY SUAREZ:

Jennifer Arlen, what does it mean to charge a company with a crime? We associate criminal acts as the work of individuals.

JENNIFER ARLEN:

Crimes are the work of individuals, but for a long time now, the law has held corporations liable for crimes their employees commit as long as the employees commit them while on the job.

RAY SUAREZ:

And how do you punish a company as opposed to a person if you prove that a crime has been committed?

JENNIFER ARLEN:

Well, the standard punishment is a fine, although the U.S. sentencing guidelines now impose additional punishments, including probation, which allows the court to force a firm to have, let's say, a compliance program or to do adverse publicity, to publicize its wrongdoing, or community service or other things like that.

RAY SUAREZ:

So, and looking at this case, do you think that that's part of the government's intention; that this isn't just a question of a quick investigation and wanting to move ahead and secure evidence, but really wanting to make an example out of them?

JENNIFER ARLEN:

I think it's clear the government wants to make an example of out of Arthur Andersen. This indictment reflects a change in the government's approach to corporate crime. Instead of viewing the corporation as itself the wrongdoer, the government has been using the threat of criminal sanctions to get corporations to report wrongdoing and to help the government investigate. And the government has a policy now as to when it prosecutes and when it doesn't, which says that if you cooperate fully, and you report the wrong, and you identify the wrongdoers, and you turn over documents, they will by and large not indict you. And I would say this indictment is partly the result of the shredding of the documents but partly a result of Arthur Andersen failing to fully cooperate.

RAY SUAREZ:

Floyd Norris, in these kinds of cases, do they normally go to trial, or is this unusual? Is there usually a deal worked out before we get to this point?

FLOYD NORRIS:

Well, what's very unusual in this case is that it's not clear that an accounting firm can withstand a criminal conviction; many companies can. But what Arthur Andersen or any other accounting firm is selling is their certification that your financial statements can be trusted. And buying that certification from a convicted felon is a little bit different than buying a used car from a used car dealer who has previously gotten in trouble for turning back an odometer or something like that. Andersen's legal strategy is not clear to me. If they want to fight this, and were unable to cut a deal, there may be something to be said for them demanding an immediate trial and trying to prove that the firm itself is not guilty, even if its individual officers are. Whether they can do that, whether they will try to do that I don't know.

RAY SUAREZ:

Well, you talk about the companies needing these financial reports. What about companies that still retain Andersen as their accounting firm? Is the SEC, the Securities and Exchange Commission accepting reports from Andersen now at face value?

FLOYD NORRIS:

Yes, they are. Andersen is going to have to certify, in a way they haven't had before, that they did this audit responsibly. But obviously they'll be willing to do that. In the past, when we've had financial scandals and bad auditing, the auditing firms have never really paid a price. And I don't think Andersen expected to pay anything like the price it is paying now for this scandal. What you're seeing is, with Andersen having become something of a national joke, certainly a company that is being mocked on the late night TV shows, many companies, and of course now having been indicted, many companies that have used Andersen as an auditor are moving to other auditing firms as fast as they can. And Andersen, if it is going to survive, needs to stop that flow or at least slow it down. And so far there's no evidence they're succeeding in that.

RAY SUAREZ:

Jennifer Arlen, do you agree with Floyd Norris about Andersen's interest in speed, and what about the federal government's interest in speed? This has all been moved from investigation to indictment rather quickly, hasn't it?

JENNIFER ARLEN:

Yes, very quickly. One suspects that the federal government is trying to signal to other participants in this, Enron itself, Vincent and Elkins that they should fully cooperate or the government will indict. On the trial, I can't imagine how Andersen could have an interest in going to trial. Legally, a company is criminally liable if an employee– you don't even need a partner– has committed a crime, even if it's a crime involving intent. Andersen has conceded that a partner in the Houston office did this shredding. If this satisfies the requirement for obstruction of justice, the entire firm is criminally liable even if the top management of the firm itself did not order the wrongdoing, or did not know about it. So, if anyone in the Houston office committed obstruction of justice, so did Arthur Andersen.

RAY SUAREZ:

Is there a tactical advantage for the federal government in moving to indictment quickly, stopping the flow of documents, being able to get their hands on some things?

JENNIFER ARLEN:

Well, moving to indictment quickly does a number of things. In particular, I think it signals to every other firm involved in this, and also to the various individuals, that they should cooperate and cooperate fully and quickly. The government has had a policy recently of not only asking you to cooperate, but to turn over other– to turn over people within the firm, to identify wrongdoers, and even ask firms to give up their attorney/client privilege with respect to materials they learn about in their course of investigation. This indictment, I believe, is a strong signal to both Arthur Andersen itself, to Enron, to Vincent and Elkins and a variety of other players, that when the government says "we wanted you to cooperate" they mean it and will use every weapon they have to induce that.

RAY SUAREZ:

Jennifer Arlen and Floyd Norris, thank you both.