The 2001 collapse of the energy giantEnron Corp. and the subsequent downfall of its accounting firm,Arthur Andersen, sent shockwaves through corporate America. Notonly did the infamous scandal involve the largest bankruptcy inhistory at the time, but it also centered on a massive auditfailure and the destruction of documents in an attempt to cover upcorporate transgressions.

As a response to Enron and other corporate and accountingscandals, Congress created the now well-known Sarbanes-Oxley Act(SOX), which seeks to prevent future similar egregious misconductand increases the penalties against companies and auditors that tryto defraud shareholders or federal investigators.

Although SOX became law a decade ago, corporate lawyers arebecoming increasingly concerned with one of its particularly potentprovisions, 18 USC Section 1519, which states that “whoeverknowingly alters, destroys, mutilates, conceals, covers up,falsifies, or makes a false entry in any record, document, ortangible object with the intent to impede, obstruct, or influencethe investigation or proper administration of any matter within thejurisdiction of any department or agency of the United States … orin relation to or contemplation of any such matter or case, shallbe fined … imprisoned not more than 20 years, or both.”

In other words, the provision criminalizes anticipatoryobstruction of justice.

“It gives prosecutors the ability to prosecute someone forobstructing justice, even though the person who was engaging in theobstructive conduct at the time didn't realize that there was anyfederal investigation going on,” says Perkins Coie Partner T.Markus Funk.

Experts say inside counsel should be worried about Section1519's broad language and the authority it gives to thegovernment.

“The statute eliminates the obligation on the part of thegovernment to prove that there's an actual pending matter,” saysMark Biros, a partner at Proskauer Rose.

Overlooked and Ominous

Despite Section 1519's immense power, Funk says prosecutors havelargely overlooked the provision. As a result, most in-houselawyers are unaware of its danger.

“Attorneys become aware of statutes primarily when governmentofficials start to prosecute,” Funk says. “The Foreign CorruptPractices Act comes to mind. If you would have asked 15 years agowhat the Foreign Corrupt Practices Act was, nine out of 10attorneys working in-house or at law firms in white-collarpractices probably would not be able to tell you. Now that thegovernment is starting to prosecute those cases, everyone knowsabout it. This is very similar. It's just a question of time untilthe government really starts relying on this statute moreheavily.”

Biros agrees that Section 1519 could soon wreak havoc withincompanies. “[The Department of Justice] hasn't opened thefloodgates on this, but the jurisprudence of the statute isevolving such that it is as broad as one would think it is.”

Careful Criminals

Some recent Section 1519 cases should have in-house counsel ontheir toes. The archetypal one, according to Funk, is UnitedStates v. Alexander Wolff, et al.

In September 2010, prosecutors indicted 11 corporate executivesand half a dozen corporations in a massive food fraud and customsscam. The German food company Alfred L. Wolff Co., a global honeysupplier, purportedly sought to avoid $80 million in U.S. dutiesand tariffs by illegally importing mislabeled Chinese honey, whichcosts more to import than honey from elsewhere.

“The company came up with this big scheme where they would takehoney from China, send it to Russia, and then send the shipments tothe U.S. and claim it was Russian honey,” Funk explains. Theconspirators also erased emails and destroyed documents tied to theplot before there was ever an investigation into themisconduct.

The dozens of charges the government lobbed at the scammersincluded violations of Section 1519. Wolff is stillpending in an Illinois district court.

In-house counsel also should be aware of recent Section 1519charges against lawyers (see “Cornered Counsel” below). InUnited States v. Russell, a 2007 case out of a Connecticutdistrict court, a church hired a lawyer when it found childpornography on its choirmaster's computer. After the internalinvestigation and dismissal of the choirmaster, the lawyer tookapart the computer, thus destroying the contraband material. Thegovernment prosecuted the lawyer for impeding its subsequentinvestigation into the matter.

Staying Safe

Experts say lawyers must stay abreast of Section 1519 cases asthey make their way through the courts. In addition, in-houselawyers should review their companies' document policies.

Kenneth Julian, a partner at Manatt, Phelps & Phillips, sayscompanies should limit document deletion. “What corporate officersand in-house counsel are doing potentially could be the innocentdestruction of a document, but some federal agency later couldcontend that they recklessly destroyed these documents because theyknew the company could be the subject of an investigation,” hesays. “All of a sudden you have this huge sweep of potentiallyinnocent conduct crossing the line into a felony violation.”

Biros says Section 1519 is “sufficiently broad that it easilycould result in abuse” on the part of the government, and Julianagrees. “Imagine the selective prosecution danger here,” he says.“You have an agency that's upset with a company because it's nottoeing the line. All the government has to show is that the companydestroyed some documents that might be relevant to somecontemplated investigation, even though there hasn't been oneongoing. It's a very dangerous statute.”

Julian says he doesn't believe Congress intended Section 1519 togive the government unbridled prosecutorial power, but because ofthe way the courts are interpreting the provision, companies mustbe careful about document destruction. “Unfortunately, theredoesn't even appear to be a split [among the circuits],” he says.“This just appears to be the new reality.”

Cornered Counsel

In November 2010, Lauren Stevens, a former in-house lawyer atthe pharmaceutical company GlaxoSmithKline (GSK), was indicted forallegedly obstructing a Food and Drug Administration (FDA)investigation and violating 18 USC Section 1519 by falsifying andconcealing documents (see “GlaxoGC Accused of Obstructing Investigation”). Luckily for Stevens,a Maryland district court dismissed the charges against her sixmonths later. Nonetheless, Proskauer Rose Partner Mark Biros saysthe Stevens case is an example of how the government can abuse itspower under Section 1519.

“The federal government charged an in-house lawyer withcommitting a felony for not turning over records as part of an FDAinvestigation, but her company hired an outside law firm to give itadvice on how to respond,” he says. “It's one thing to have adisagreement with a company and a lawyer and say, 'You should havegiven me this and that.' But charging her with a felony for whichthe penalty is 20 years? That's absolutely outrageous. The judgefinally ruled in her favor, but it is a travesty of justice thatshe was even prosecuted.”