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Jewish World Review June 9, 2005 / 2 Sivan, 5765 How do you send a corporation to jail? By Robert Robb
http://www.JewishWorldReview.com |
The U.S. Supreme Court decision in the Andersen criminal case
illustrates the important and vital role an independent judiciary plays in
our system of government.
The criminal conviction of Arthur Andersen in the Enron collapse was a
deathblow to the accounting firm.
It was already reeling from the market reaction to work it had done in
several cases in which its clients took quick stock market tumbles as a
result of financial and accounting irregularities. But it was trying to
reconstitute itself under the stern leadership of former Fed Chairman Paul
Volcker.
Volcker wanted the firm to rededicate itself to the auditing function,
eschewing the more high-flying consulting that was largely driving the
large accounting firms in those days. It was a time in which public
companies needed to reassure investors about the trustworthiness of their
numbers. So, a tough auditing firm rooted in Volcker's reputation for
integrity might have survived and even ultimately prospered.
The criminal conviction ended Volcker's rehabilitation project, and
Andersen today exists only as a shell sorting out lingering legal problems.
The whole idea of applying the criminal law to a business doesn't make a
lot of sense.
A business is a financial enterprise. Investors hope to make money from its
endeavors, so it makes sense for a business as an entity to be held
responsible, through the civil law, for financial harm the enterprise
causes. Andersen and its partners are still coping with a torrent of civil
suits seeking damages for its allegedly shoddy accounting and auditing
work.
The criminal law, however, isn't about compensation. It's about punishment
with the ultimate sanction being deprivation of liberty. But how do you
send a corporation or a partnership to jail?
Certainly no social utility has come from the government's decision to
prosecute Andersen. The market has been deprived of a large audit-focused
firm that might have been particularly useful under the Sarbanes-Oxley
regimen. The accounting industry has become even more consolidated.
The accountants at Andersen not implicated in Enron didn't become plumbers.
They are still accountants, just with other firms.
So, what has been gained by criminally prosecuting Andersen as a firm,
rather than going after individual Andersen employees for any criminal
wrongdoing in which they might have been engaged?
The criminal allegation against Andersen was that it illegally destroyed
documents to prevent them from being used in government investigations and
prosecutions regarding Enron.
Certainly, the record indicates that, after Enron's troubles became public,
Andersen got rid of a lot of documents. But this was in adherence to its
document retention policy. In other words, Andersen was putting its files
in the condition internal procedures said they should have been in all
along.
If this sudden attention to procedure was an illegal cover-up, then those
who ordered it should have been indicted, not the company.
The Supreme Court decision was decided on narrow legal grounds. The jury
instructions in the Andersen case said that jurors could convict even if
they decided that Andersen felt that what it was doing was legal. The court
found that the law in question required a finding of a consciousness of
wrongdoing — a common requirement for a criminal conviction.
But the unanimous decision, tersely written by Chief Justice William
Rehnquist, sent a broader message: The intensity of public outrage doesn't
dilute the fundamental protections against an overreaching government.
But that doesn't mean that government can bend the rules itself in pursuit
of retribution on behalf of the public, as it sought to do with the
Andersen criminal prosecution.
The court's enforcement of the rules doesn't have much practical effect.
Andersen cannot be put back together. But the role the court played in this
case should temper some of the reformist zeal directed at it.
Conservatives are correct that the courts generally play too much of a
policymaking role and are too unaccountable in that role. Reform is
necessary.
But ultimately only an independent judiciary can enforce the rules and
protect liberty against an overreaching government, particularly one fueled
by political passion. Reform should not jeopardize that independence.
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JWR contributor Robert Robb is a columnist for The Arizona Republic. Comment by clicking here.
© 2005, The Arizona Republic |
Arnold Ahlert | |||||||||
