The Hindu Business Line : It is a very mixed blessing to be brought back from the dead

DON'T go to the grave with life unused, advises Bobby Bowden, and professional firms normally don't end their life unsued, which is what happened in the case of Arthur Andersen. The firm got shuttered after a US court convicted it in June 2002 for obstructing the course of justice during the Enron probe by shredding documents related to its audit of Enron. Thus, everybody assembled at the funeral service of an accounting major and threw in a mound of sand without saying a kind word, and expected to project the tombstone as proof of having cleansed the profession of baddies.

"The previously 90,000 strong organisation swiftly collapsed, ushering in a new obsession with corporate governance and compliance, embodied most demandingly in the Sarbanes Oxley Act," as AccountingWeb would comment.

It is folly to punish your neighbour by fire when you live next door, admonishes Publilius Syrus. But none seemed to care less, nor was the grave supposed to stir. Till the US Supreme Court overturned Andersen's conviction about a week ago. And one can see `talk of rebirth' and the debate on `comeback' at www.chicagotribune.com, and similar such speculation in other news media too. Therefore, the case that you shouldn't miss reading this week is Arthur Andersen LLP vs United States, decided on May 31, 2005.

Knowingly ... corruptly persuades

18 USC {frac14}{frac14}1512(b)(2)(A) and (B) were the sections of the US Code under which Andersen was convicted. {frac14}1512 is titled `tampering with a witness, victim, or an informant' and sub-section (b) thereof reads: "Whoever 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 — (1) influence, delay, or prevent the testimony of any person in an official proceeding; (2) cause or induce any person to — (A) withhold testimony, or withhold a record, document, or other object, from an official proceeding; (B) alter, destroy, mutilate, or conceal an object with intent to impair the object's integrity or availability for use in an official proceeding... "

"Even `persuad[ing]' a person `with intent to ... cause' that person to `withhold' testimony or documents from the Government is not inherently malign," said the Supreme Court. "Under ordinary circumstances, it is not wrongful for a manager to instruct his employees to comply with a valid document retention policy, even though the policy, in part, is created to keep certain information from others, including the Government." The phrase, therefore, of utmost importance is "knowingly ... corruptly persuades", pointed out the court.

The Government had suggested that `knowingly' does not modify `corruptly persuades'; however, the court did not find merit in that argument, and said that is not how the statute most naturally reads. "It provides the mens rea — `knowingly' — and then a list of acts — `uses intimidation or physical force, threatens, or corruptly persuades'," informed the court.

The Government suggested that it is "questionable whether Congress would employ such an inelegant formulation as `knowingly ... corruptly persuades', but the Court responded: "Long experience has not taught us to share the Government's doubts on this score, and we must simply interpret the statute as written."

`Knowledge' and `knowingly' are normally associated with awareness, understanding, or consciousness, and `corrupt' and `corruptly' with wrongful, immoral, depraved, or evil, reasoned the court, citing United States vs Aguilar. "Joining these meanings together makes sense both linguistically and in the statutory scheme. Only persons conscious of wrongdoing can be said to `knowingly ... corruptly persuade'. And limiting criminality to persuaders conscious of their wrongdoing sensibly allows {frac14}1512(b) to reach only those with the level of culpability usually required to impose criminal liability."

`Corruptly' incorrectly

The apex court found that the jury aiding the district court was instructed incorrectly. "The jury was told that, even if petitioner honestly and sincerely believed its conduct was lawful, the jury could convict." Such instructions failed to convey the requisite consciousness of wrongdoing, said Chief Justice Rehnquist of the Supreme Court, and added, "Indeed, it is striking how little culpability the instructions required." A case of `diluted' meaning of `corruptly' to cover innocent conduct too!

While `corruptly' meant `knowingly and dishonestly, with the specific intent to subvert or undermine the integrity' of a proceeding, the Government had insisted on excluding `dishonestly' and adding the term `impede' to the phrase `subvert or undermine' so the jury was told to convict if it found that the petitioner intended to "subvert, undermine, or impede" governmental fact-finding by suggesting to its employees that they enforce the document retention policy, informs the judgment of Justice Rehnquist. "These changes were significant," he observed.

Thus, dishonesty was no longer necessary to a finding of guilt, and it was enough for the petitioner to have simply impeded the Government's fact-finding ability. `Impede' has broader connotations than `subvert' or even `undermine,' and many of these connotations do not incorporate any `corruptness' at all, reasoned the judge. Webster's defines `impede', as to interfere with or get in the way of the progress of or hold up or detract from, noted the court. "Under the dictionary definition of `impede,' anyone who innocently persuades another to withhold information from the Government `gets in the way of the progress of' the Government," he said.

There is a dangerous proviso in Section 1512 that the Government had relied upon. Accordingly, an official proceeding "need not be pending or about to be instituted at the time of the offence".

The judge remarked: "It is, however, quite another thing to say a proceeding need not even be foreseen." A "knowingly ... corrupt persuader" cannot be someone who persuades others to shred documents under a document retention policy when he does not have in contemplation any particular official proceeding in which those documents might be material, explains the judgment. This was another infirmity in the instructions given to the jury.

"For these reasons, the jury instructions here were flawed in important respects. The judgment of the Court of Appeals is reversed, and the case is remanded for further proceedings consistent with this opinion," ruled Justice Rehnquist.

Life after death?

Is Andersen the new phoenix? The firms site www.arthurandersen.com is silent but for a `Welcome'. It still employs 200 employees in Chicago, who remain to deal with aspects of the fallout from the conviction, as www.accountingweb.co.uk informs. Yet, it may be too early to predict the resurrection of the firm, or to label the judgment as a moral vindication of the accounting firm, opine experts. `Death sentence commuted — too late,' reads a headline on www.economist.com. "The Andersen ruling is a blow for a government pledged to rid the country of corporate malfeasance," it says. The ruling "cannot bring Arthur Andersen, once the world's biggest accounting firm, back to life," declares http://news.moneycentral.msn.com.

"It is a very mixed blessing to be brought back from the dead," said Kurt Vonnegut, the author of Slaughterhouse-Five. A sordid but practical thought, therefore, is that the dead may have to remain dead after all, more for the sake of the living.

AccountSpeak@TheHindu.co.in

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