Andersen v. U.S.: Policy Implications and a Social Science Research Agenda

• Author: Brian T. O?Connell - Marc W. Patry
• Position: University of Colorado - Psychology Department, Saint Mary?s University
• Pages: 16-23

16 The Open Law Journal, 2009, 2, 16-23

1874-950X/09 2009 Bentham Open

Open Access

Andersen v. U.S.: Policy Implications and a Social Science Research Agenda

Brian T. O’Connell1 and Marc W. Patry*,2

1University of Colorado; 2Psychology Department, Saint Mary’s University

Abstract: The U.S. Supreme Court overturned the conviction of Arthur Andersen, LLP for its involvement in the Enron

scandal. The Court held that that the jury instructions did not accurately convey the meaning of the witness tampering

statute that Andersen was charged with. Since the original trial, relevant sections of the Criminal Code were updated with

the passage of the Sarbanes-Oxley Act (2002). Although Andersen was convicted under the pre-Sarbanes-Oxley statutes,

the Court’s ruling will likely affect enforcement of post-Sarbanes statutes, possibly limiting their scope. We discuss

whether Sarbanes was an appropriate response to corporate crime and consider some other methods of punishing corpora-

tions. We also raise a number of empirical questions related to this case.

Keywords: Corporate crime, jury decision making.

INTRODUC TION

According to FBI figures, there were over 200,000 white-

collar offenses1 committed between 1997 and 1999 (Barnett,

2000). Simpson (2002) reported that data from 178 corporate

offenses tried in U.S. courts in the 1980’s revealed that the

average cost per offense was $565,000. During that same

time period the average cost per burglary was $1,000 and the

average cost per larceny was $400. Additionally, there are

approximately 22,000 homicides per year, a figure that is

one-fifth the annual number of deaths that result from dis-

ease and injury related to work (Simpson, 2002). Thus,

white-collar/corporate crime is by no means rare and is po-

tentially the most damaging type of crime to society (Simp-

son, 2002). When Enron investors lost billions of dollars in

2001, the extensive media coverage of the event helped

thrust the issue of corporate crime into the national spotlight

(Bowman 2003). Enron’s declaration of bankruptcy was the

largest in U.S. history and the scandal destroyed the Enron

Corporation and its accounting firm Arthur Andersen LLP.

The Supreme Court decision in Andersen v. U.S. (2005) re-

focused the media and the American public on the issue of

corporate cr ime.

In this review of the case, the authors examine the U.S.

Supreme Court decision in the Arthur Andersen case in the

context of the culpability of a corporation v. an individual in

a criminal case. The authors examine the difficulty in prose-

cuting a corporate entity and the subsequent practical impli-

cations that result from prosecuting a corporation instead of

individuals. The decision is also examined in the context of

current research on jury instructions and future implications

for court decisions based on the Sarbanes-Oxley Act.

*Address correspondence to this author at the Psychology Department,

Saint Mary's Unive rsity, Halifax, Nova Scotia , Canada B3H 3C3;

Tel: (902) 491-8605; Fax: (902) 496-8287; Email: Marc.Patry@smu.ca

1 These offenses include fraud, bribery, counterfeiting/forgery, and embezzlement.

THE CASE AGAINST ANDERSEN

On March 7th, 2002, Andersen was indicted in the South-

ern District of Texas on one count of witness tampering. The

indictment charged that Andersen was in violation of 18

U.S.C. § 1512 (b) (2000) which defines witness tampering as

“Whoever knowingly…corruptly persuades another person,

or attempts to do so, or engages in misleading conduct to-

ward another person, with intent to cause or induce any per-

son to alter, destroy, mutilate, or conceal an object with in-

tent to impair the object’s integrity or availability for use in

an official proceeding…shall be fined under this title or im-

prisoned not more than ten years, or both”, (Table 1).

The government contended that Andersen was in viola-

tion of this statute between October 10th 2001 and November

9th 2001 due to the urgings of Andersen executives to follow

the company document retention policy. The government

accused Andersen of corruptly persuading its employees to

destroy documents to impair their availability for use in an

official proceeding.

The government supported its charge with the actions

taken within the Andersen firm between those dates. The

prosecution argued that the facts showed executives were

planning to face some litigation prior to their notification of

a U.S Securities and Exchange Commission (SEC) investiga-

tion of their Enron accounting, and they were certainly en-

forcing the document retention policy. However, Andersen

claimed that they had no knowledge of any official proceed-

ing until they were served with a subpoena for their docu-

ments. Andersen also claimed that prior to November 9th

they were simply following th e company document retention

policy.

AWARENESS OF THE SEC INVESTIGATION

The first public sign of irregularity at Enron occurred on

August 14, 2001 when the CEO, Jeffrey Skilling, suddenly

resigned (And ersen v. U.S., Brief for the U.S. 2005), (Table 2)

for a summary timeline of key dates. His resignation led to

speculation that the company may have been having finan-

cial difficulties. Two weeks later the Wall Street Journal