Complying with document-destruction provisions.

Nearly two years ago, Congress enacted the Sarbanes-Oxley Act of 2002, a comprehensive set of reforms designed to prevent corporate fraud. While many of the Sarbanes-Oxley reforms do not apply to associations, the act's whistle-blower features (discussed in the June "Legal" column) as well as stringent and far-reaching criminal prohibitions against document destruction do apply. This column discusses these prohibitions and suggests steps associations can take to avoid violating them.

EDITED BY JERALD A. JACOBS

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In recent corporate financial scandals, such as those involving Enron, Tyco, and other large corporations, businesses and individuals have paid a steep price for document destruction. Considered obstruction of justice, document destruction brought down Arthur

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Andersen, one of the world's largest accounting firms. And, only a few months ago, Frank Quattrone, a former investment banker who took some of the biggest technology companies public during the Internet boom, was convicted of two counts of obstruction of justice and one count of witness tampering based on an e-mail he sent to colleagues at Credit Suisse First Boston reminding them to "clean up" their files.

Section 802 of the Sarbanes-Oxley Act of 2002 imposes criminal penalties for knowingly altering, destroying, concealing, or falsifying any record or document "with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States, any case filed under Title 11 [bankruptcy cases], or in relation to or contemplation of any such matter or case." This statute is a significant expansion of the pre-existing obstruction of justice statute. Section 802's prohibition against document destruction is one of the two corporate reforms that apply to associations, the other being the whistle-blower provision described in last month's "Legal" column. The act applies not only when a federal agency has commenced an investigation, but also when an association has reason to believe that a federal investigation of its records is being contemplated. Moreover, this prohibition encompasses "any matter" within the jurisdiction of a federal agency, which would include everyday transactions with federal agencies.

Similarly, Section 1102 of Sarbanes-Oxley makes it a crime to knowingly intimidate, threaten, or corruptly persuade another person--or attempt to do so--with the intent to cause or induce any person to alter, destroy, mutilate, or conceal an object for the purpose of impairing the object's integrity or availability for use in an official proceeding. An official proceeding is defined as a proceeding before a court, Congress, or a federal agency. Penalties for violating Section 1102 include fines and imprisonment for up to 10 years.

Complying with document-destruction provisions

In light of the harsh criminal sanctions imposed by Sarbanes-Oxley's document-destruction provisions, it is wise for all associations to consider the following measures to avoid running afoul of these provisions:

1. Adopt a document-management policy. Adopt a written document-management policy setting forth intervals for periodic destruction of documents and describing guidelines for document retention. While there is no one-size-fits-all approach to formulating such a policy, certain general guidelines apply.

* Factor in the type of documents generated and type of work performed by the association. For example, associations that receive grants from federal agencies should take into account the type of documents that those agencies require them to retain.

* Take into account federal and state laws requiring retention of particular records and statutes of limitation for particular claims. Retention of personnel records is particularly important. For example, under the Fair Labor Standards Act (the federal law governing minimum wage and overtime requirements), the burden is on the employer to present evidence of the hours worked by employees. If an association fails to maintain adequate records of employees' compensable work periods, a plaintiff bringing a lawsuit for unpaid overtime may be deemed to have worked the hours claimed.

* Specify retention intervals for specific classes of documents, including e-mail, backup tapes, and paper files. Managing electronic documents poses a special challenge, in part because the documents are dispersed in many locations, including personal digital assistants and other hand-held communication devices--and the volume is staggering. Communication that until recently took place primarily during telephone calls or meetings is now captured in e-mails and instant messages. A sound and comprehensive document-management policy helps associations eliminate the unimportant documents while maintaining documents that must be kept under federal and state law.

Taking the time to formulate and enforce a document-management policy will save money in the long term by enabling an association to quickly track documents when they are needed for an audit, investigation, or litigation. For example, when an association gets document requests in litigation or a subpoena in an investigation, it will have a sense of the location and volume of relevant documents. In addition, a document-management policy can reduce storage costs.

2. Monitor policy compliance. Preferably, your association will monitor compliance with its document-management policy by conducting periodic audits. In addition, it is wise to periodically review and update the policy to ensure that it accurately reflects the association's current document-management practices.

3. Train employees on proper policy compliance. A document-management policy is effective only if it is consistently applied. If an association follows the policy's guidelines for periodic destruction only when it anticipates an investigation or a lawsuit, the policy will not be a valid defense to a charge of obstruction of justice or spoliation of evidence. Therefore, it is critical to ensure that employees understand the policy and consistently adhere to it. Teach employees how to comply with document-management policies and guidelines, inform them of revisions to the policy, and conduct refresher training periodically.

4. Suspend document destruction when an investigation appears imminent.

When an association learns that a government investigation or lawsuit is likely, senior management must promptly suspend all document destruction and issue a directive requiring all employees likely to have relevant documents to preserve those documents until further notice.

Note that, irrespective of Sarbanes-Oxley, when an association becomes a party to a lawsuit or anticipates a lawsuit, it must preserve documents relevant to the lawsuit. Failure to preserve documents, such as neglecting to suspend routine document destruction, can result in significant sanctions, including exclusion of evidence or an adverse inference instruction (the judge instructs the jury to infer that the destroyed documents would have been damaging to the party that destroyed them).

5. Avoid altering metadata. Most electronic files contain metadata that documents the origin of electronic data. This may include, for example, information on when a file was created, when it was altered, how it was altered, and who accessed it. When it becomes apparent that an electronic file needs to be preserved for a government investigation or for a lawsuit, take measures to avoid altering the metadata. For example, if an employee's e-mail account will be relevant in a lawsuit, create a mirror image of the account and do not access that copy. If an investigator or judge sees that an electronic file was accessed after an investigation or litigation commenced, he or she may suspect an attempt to alter the document. Moreover, the document may be inadmissible as evidence due to a lack of authenticity.

By formulating a policy for document-management that addresses the needs of your association, training employees to comply with the policy, and suspending document destruction when an investigation or lawsuit appears imminent, your association should be able to avoid violating Sarbanes-Oxley's stringent prohibitions against document destruction.

Jason M. Zuckerman is an associate in the Employment Litigation Practice of Shaw Pittman, Washington, D.C. Jerald A. Jacobs, a partner in the Nonprofit Organizations Practice at Shaw Pittman, edits this column and is general counsel for ASAE.