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Preserving the paper (and electronic) trail: records and information management professionals will be key players in devising systems to meet the law's retention requirements. (Capital edge: legislative & regulatory update).

When Congress passed the Sarbanes-Oxley Act of 2002, it adopted a comprehensive approach to corporate reform. Sen. Paul Sarbanes (D-Maryland) authored provisions creating a new regulatory regime aimed at stopping fraud from occurring in the first place. I and other members of the Judiciary Committee added measures to restore accountability for those who break the rules. By enacting a law that contained not only new regulatory tools, but also tough punishment for wrongdoers, the U.S. Congress sent a clear message to corporate executives like those at Enron--"Don't do it."

In addition to creating a new federal crime of securities fraud and raising the penalties for existing fraud crimes, the enforcement scheme crafted in the Senate Judiciary Committee included new criminal provisions aimed at preserving evidence of fraud. The importance of these provisions is simple. As a former prosecutor, I know that no matter how egregious the crime, you can't prove a case without the evidence.

Unfortunately, the Arthur Andersen case demonstrated that corporations are well aware of this simple lesson. The most striking aspect of Andersen's Enron document shredding binge was that it was not the work of one or two rogue employees. The company itself was convicted. In fact, the Arthur Andersen document destruction policy was devised after another embarrassing case for the express purpose of hiding damaging documents from regulators and victims. Something is wrong with our corporate culture when the lesson learned from a previous case of corporate misconduct is not to change business practices but to destroy the evidence better next time.

The evidence tampering provisions of the Sarbanes-Oxley Act were aimed at changing that culture. Prosecutors and regulators need documents to assess corporate conduct. Retention of records also fosters a corporate culture that rewards honest conduct and deters fraud. Working with my colleagues on the Judiciary Committee, we crafted two new criminal provisions in Sarbanes-Oxley designed to preserve the integrity of key corporate records.

The act creates one new felony for destroying, altering, or falsifying a record with the intent to obstruct an investigation, which is found in Section 1519, Title 18 of the U.S. Code. The new crime closes loopholes in existing law, including provisions that make it a crime to persuade another person to shred a document but not to do it oneself. It also abolishes the requirement of a close link between the shredding and a pending court matter or official investigation. By contrast, the new crime covers record destruction or fabrication intended to obstruct informal as well as formal federal probes. It applies not just once the investigation starts, but also to obstructive conduct "in contemplation" of a matter. When a person tampers with evidence with the intent to obstruct justice, such technical distinctions should not be controlling.

The second records-related felony in the act is new Section 1520, Title 18 of the U.S. Code, which creates a special requirement that those who audit publicly traded companies retain for five years documents that are generated or discovered during an audit, including opinions, conclusions, or financial analysis. The statute applies to electronic records (such as e-mails and electronic copies) in addition to paper documents, and the willful violation of this provision is a felony. Through this type of records retention, auditors will serve as a central information clearinghouse for regulators and investigators probing financial irregularities at publicly traded companies. Those who audit publicly traded companies have a special responsibility to preserve evidence of not only the final decisions made by a corporation, but also the opinions and analyses that either support or cast doubt on the propriety of such decisions.

Significantly, the audit records provision requires the Securities and Exchange Commission (SEC) to write rules and regulations within six months to define precisely which records must be retained. Because archivists and information management professionals will be key players in devising systems to meet the retention requirements of the new law, the SEC would be well advised to heed their input in formulating these important rules. How will electronic records be properly maintained? What training needs to occur inside a corporation to educate business people as to the new requirements of the act? With the act requiring most corporations to reassess their document and record retention policies, the role of information management specialists in making these decisions is more important than ever.

The criminal provisions of the Sarbanes-Oxley Act are not intended to ensnarl well-meaning records management professionals. The tough criminal sentences provided in the new law are reserved for those who act with criminal intent. Information management specialists will play a key role in implementing the act, however. As the gatekeepers of corporate recordkeeping, it will be they who ensure that a corporation's policy and culture matches its legal requirements so that regulators, shareholders, and employees do not find themselves in the same stew as those involved in the Enron/Andersen debacle.

It only takes a moment to warm up the shredder, but it can take a lifetime to repair the damage done by a corporation that ignores the rules.

Sen. Patrick J. Leah), (D-Vermont) is Chairman of the U.S. Senate Committee on the Judiciary. Leahy is a senior member of the Agriculture and Appropriations committees, chairs the Appropriations Committee's Subcommittee on Foreign Operations, and also sits on its Defense, Interior, VA-HUD, Commerce-Justice-State, and Transportation subcommittees.
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Author:Leahy, Patrick J.
Publication:Information Management Journal
Geographic Code:1USA
Date:Jan 1, 2003
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