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An accusation of destroying records during a federal investigation or bankruptcy is a serious charge. Someone accused of such a crime is facing a possible lengthy jail sentence and a fine. In addition, he or she is facing financial ruin, disrupted family life, and isolation from friends and neighbors.
If you are facing a federal charge of destroying records during an investigation, call us now. Your situation is serious; our lawyers are serious.
The Sarbanes-Oxley Act
In 2002, Congress passed the Sarbanes-Oxley Act, also known as SOX.
SOX significantly increased the penalty for destroying and falsifying records during a federal investigation and or bankruptcy.
Penalties for Violating The Sarbanes-Oxley Act
Under SOX, someone convicted of destroying records during a federal investigation or bankruptcy can go to jail for up to 20 years and be assessed a fine.
More specifically, the statute states that anyone who alters or destroys any “record, document, or tangible object” with the intent to, obstruct a federal investigation or hamper bankruptcy may be fined or sent to jail for 20 years.
In other words, the law is that owe may not touch records related to a federal investigation during the investigation.
Destroying Evidence “In Contemplation” of a Federal Investigation.
SOX states that it is a crime to destroy evidence when there is a “contemplation” of a federal investigation. This means that there need not be an ongoing investigation for the law to be relevant; if there might be an investigation at a later time and documents are destroyed then you might still be criminally liable.
This legislation came about during the Enron investigation in 2001. After Enron’s collapse, federal investigators requested that Arthur Andersen, the company auditing Enron, turn over certain documents related to Enron’s finances. Arthur Andersen refused. Evidence later suggested that Arthur Andersen falsified and destroyed documents, creating an impetus for Congress to pass new legislation for destroying the document.
What Does It Mean to “Destroy Records” During A Federal Investigation or Bankruptcy?
Suppose you work for a company that keeps meticulous records. The company has a system where it stores all records in the cloud. This allows the company to go back and check all correspondence, both internal and external. The company’s audit team constantly utilizes the records to make sure that the employees are complying with company policy and the company is complying with regulations.
One day, the company CEO calls a meeting and informs the employees that the Feds are investigating the company. Because the investigation is high profile, the CEO creates an internal group tasked with taking and responding to media inquiries. The CEO instructs all other employees not to speak with the media. If contacted by the media, an employee should refer them to the company’s media group.
After the meeting, you go to your computer to see what is going on. Through a Google search, you discover that there is a full-blown federal investigation against your company. You read that your company is being investigated for fraud.
You start considering your position.
You have been at the company for a number of years and were hoping to get a retirement package if you stick around for another 5 or 6 years. Now, however, you feel that your retirement package is in jeopardy. Will the company survive the investigation? You are not sure because the charges are serious. Even if the company survives, will they keep you? If this investigation costs the company millions of dollars to fight and millions more in fines, they may not keep you.
Moreover, you start considering whether you are a target of the investigation. Perhaps you unknowingly did something illegal, which makes you a subject of the investigation. You have been at the company for some years, and your responsibility has grown. Did you do something that is against the law?
You feel nervous and edgy.
Your future feels very uncertain. When you get home after work, you try to eat but have no appetite. You try to sleep but spend most of the night tossing and turning in your bed.
The next day is a rough day at work. Company morale is low; you are exhausted; you cannot concentrate on your work. You barely speak to your coworkers. You go through the motions and leave as soon as you can.
When you get home in the evening, you head straight for bed. You fall asleep immediately. You get up in the middle of the night, and an idea comes to your head.
You are feeling much better the following morning.
When you arrive in the office, you implement your plan. You have seniority in the company and therefore have full access to stored documents. Using your access, you go into the company records and make changes in places where you think it is possible that you will be implicated in the investigation. In some places, you remove certain facts and replace them with other “facts.” In other places, you just remove an entire paragraph. You know that the feds have a number of investigators who will comb the documents. By doing this, you feel that you have no concern about keeping your good name with the company.
This is an example of destroying documents during an investigation.
The law was created specifically for such a situation. Federal investigators will rely heavily on the information in these documents. While it may seem innocent and you have not been charged or even implicated in any crime, your actions are obstructing a federal investigation.
Furthermore, and as mentioned above, destroying documents during a mere contemplation of a federal investigation is sufficient to be guilty. Therefore, if you think that your company might come under federal investigation and you destroy documents, then that may be enough to get you into trouble.
Does The Law Only Apply To Documents?
Does It Apply to Other Forms of Evidence? How About Fish?
In 2015, the United Supreme Court issued a ruling in the case of United States v. Yates. The Yates case dealt with this very issue.
In that case, federal agents were conducting searches of fishing boats in the Gulf of Mexico. Federal Agents found undersized red grouper in a container on one of the boats. Catching undersized red grouper is a violation of federal conservation laws.
The Agent told Yates, who was the boat’s captain, to keep the container of red grouper separate from the other containers. After the agent left, Yates directed crew members to throw the catch of red grouper overboard.
What is a “Tangible Object?”
Prosecutors charged Yates with the destruction of records during a federal investigation by throwing red grouper overboard. The prosecution reasoned that the language in the statute is “tangible object,” which includes undersized red grouper.
Lower Court’s Ruling
Yates countered that Congress passed SOX in 2002 in the aftermath of the Enron scandal, so the law should only apply to financial and business documents, not to fish. Both the trial and appellate courts agreed with the prosecution. Yates appealed the ruling to the Supreme Court.
Supreme Court Ruling
The Supreme Court agreed with Yates and reversed the ruling. The Supreme Court looked at the construct of a “tangible object” as part of a record and document. In the context of the law, a tangible object is something similar to a record or document. Therefore, fish is not included.
As such, destroying a tangible object during an investigation, according to this law, only applies to items that are used to retain records or similar items. Simply destroying tangible evidence in the course of an investigation does not necessarily invoke this law.
Who Can Be Found Liable For Destroying Evidence During a Federal Investigation or Bankruptcy?
Anyone can be liable. Whenever there is or might be a federal investigation or an active bankruptcy, someone who destroys records related to that investigation or bankruptcy can be prosecuted under this law.
How do you avoid this issue?
This issue can be avoided by creating an effective document retention policy wherein documents are stored electronically for a long period of time. To create a comprehensive document retention policy, cooperation is required between various groups within a company.
Specifically, the following groups should be involved:
- Administrative staff;
- Legal counsel; and
- Internal auditors.
Management. Company management will determine a long-term plan that retains documents for an extended period of time. Management will balance the cost of keeping documents versus the risk that destroying documents will run afoul of SOX.
Administrative staff. In general, the company’s administrative staff is charged with filing and organizing documents. They often have the most access to those documents. To that end, it is imperative that management explains to the administrative staff how they will retain documents and its importance with respect to SOX.
Legal counsel. Legal counsel will provide guidance of legal requirements for retention and will offer opinions detailing the parameters for document retention.
Internal auditors. Internal auditors will perform checks with respect to document retention to determine if documents have been destroyed. It will present its findings to management and legal counsel. Management and legal counsel will consider options if certain documents are being destroyed against company policy.
Destruction of Documents During a Federal Investigation or Bankruptcy in the News
- Hillary Clinton
Hillary Clinton allegedly used a private server for her emails while she was Secretary of State. Investigators claim that she knowingly destroyed those emails. According to investigators, many of those emails relate to actions in Iraq and other parts of the world.
The House Select Committee was investigating the Benghazi attacks at the time, and the information on the Secretary of State’s emails was vital to the investigation. Investigators were unable to obtain those emails because the emails were on Hillary Clinton’s private server and were deleted. It seems that she committed the destruction of records during a federal investigation.
Disclaimer: Hillary Clinton has not been charged with a crime under SOX
- Conrad Black
Conrad Black owned Hollinger International, a company that was a major newspaper publisher. The company owned The Daily Telegraph, the Chicago Sun-Times, The Jerusalem Post, and the National Post. Prosecutors accused him of stealing $60 million from the company.
In 2005, surveillance video caught Black and three associates taking boxes in Toronto and loading them into a car. An indictment requested that Black surrender those records to the SEC.
Eventually, Black received a sentence of 42 months in prison and a $285,000 fine.
How to defend against a charge of destruction of records during a federal investigation or bankruptcy
First, to be guilty, the prosecution must prove that you destroyed or otherwise altered the document. If someone else destroyed a document, you are not liable under SOX.
Second, the statute criminalizing the destruction of documents during a federal investigation or bankruptcy is clear that the destruction of documents, by itself, is not a crime. Instead, case law tells us that there must be a nexus between the destruction of documents and the federal investigation.
To create a nexus, the prosecution must demonstrate that the accused defendant destroyed the document while it was foreseeable that a federal investigation would involve this document.
If it is not foreseeable that a federal investigation will result, the defendant has not committed a crime by destroying a document. This is applicable even if the destroyed document was the most important document to the investigation.
Note further that because this is a criminal investigation, the prosecution is tasked with proving beyond a reasonable doubt that an investigation will take place. If the prosecution cannot prove foreseeability up to that standard, it cannot garner a conviction.
Looking for an Attorney to defend you against a charge of a federal crime? – Call Us Now
Charges of destroying records during or in contemplation of a federal investigation or bankruptcy can have a devastating impact on your family, your business, and your future in the profession.
That is why you need an experienced federal criminal defense attorney.
Our attorneys understand the seriousness of federal prosecutions and can help you understand the charges that are being brought against you. We can accompany you to interrogations and ensure that your rights are not violated. Ultimately, our goal is to help you establish a legitimate defense.
We have the knowledge and background to successfully defend anyone prosecuted for destruction of records during a federal investigation and bankruptcy in federal court. We represented industry and corporate clients in cases like these.
If you or someone you love has been charged with a federal crime, call our attorneys for a free legal consultation.