Capitalism is often presented as an economic system that has lifted millions of poverty. While this is true, it should be noted that capitalism has also had some adverse impacts. Encouraging firms to engage in illegal, unethical, immoral and questionable practices is among the negative effects. For example, today, companies continue to charge customers unfairly high prices for low quality products while others mislead their customers about the features of their products. When caught engaging in these activities, it is not uncommon for the firms to erase all traces of evidence of their wrongdoing. The Arthur Andersen v United States case represents how firms destroy evidence in a bid to limit exposure to legal action and liability. In this case, the US Supreme Court overturned the conviction of Arthur Andersen. A review of this decision reveals that the Supreme Court erred and essentially endorsed illegal and unethical business practices. Therefore, the case should be re-examined.
Significance and Social Need
The issues that the Arthur Andersen v United States raised are indeed significant. As will be made clearer in a later section, this case placed the spotlight on business corruption. It highlighted how technicalities in the interpretation of the law can be used to shield business against legal and ethical responsibility (Hasnas, 2005). The case is indeed significant as it underscores the need for the legal system to rein in on business corruption. In the US, the criminal justice and legal systems have faced criticisms for being rather lax and forgiving of businesses which engage in illegalities. The systems tend to issue fines instead of demanding accountability from big business (Eisinger, 2014). Therefore, in addition to highlighting judicial failures, the Arthur Andersen v United States case underscores the need for harsher and more punitive action against businesses that engage in illegalities. The issue is also important because there it relates to a social need. Every year, the American public loses billions to business corruption. For example, following the 2008 financial crisis, thousands of Americans lost their savings, jobs and houses (Raptopoulos, 2018; Hurd & Rowhwedder, 2010). By holding businesses accountable, the judiciary can help to protect Americans.
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Background and Competing Perspectives
Further insights into the issue of business corruption and judicial complicity can be gained through an examination of this issue’s background. For decades, the US has grappled with the problem of business corruption. As a result of such issues as ineffective regulation and poor enforcement of laws, businesses have been able to conduct unethical and illegal operations. In some cases, the courts have intervened to demand accountability and punish the executives behind these operations. However, in an unacceptably high number of cases, the courts have been lenient and forgiving. This was true for the Arthur Andersen v United States case. There are a number of competing perspectives regarding the actions that should be taken against firms which violate the law. On the one hand, there are those who feel that the country should act firmly in its response to business corruption (Pahis, 2009). Those who support this position would argue that technicalities should not stand in the way of punishing corrupt businesses. On the other hand are those who believe that even as they pursue businesses which engage in corruption, courts must limit themselves to legal standards and provisions (Hasnas, 2005). Given the deep divide between the two sides, it is nearly impossible to establish consensus. However, what is clear is that the courts cannot continue to issue judgments which absolve business whose operations are clearly and indisputably illegal.
Arthur Andersen v United States
The Arthur Andersen v United States case exemplifies business corruption and judicial complicity. This case made its way from lower courts which had ruled that in instructing its employees to destroy files related to its dealings with Enron, Arthur Andersen had committed obstruction of justice ( Arthur Andersen LLP v United States, 2005). Focusing on the instructions issued to the jury in the trial court, the US Supreme Court set aside the court’s ruling. It determined that the jury was not properly instructed regarding the law that applies to obstruction of justice ( Arthur Andersen LLP v United States, 2005). The instructions issued to the jury formed the primary foundation of the Supreme Court’s decision to reverse the conviction of Arthur Andersen. According to the Supreme Court, a party is said to have committed obstruction of justice if they knowingly perform corrupt activities or induce others to do so. In addition, the court determined that obstruction of justice can only be said to have occurred if a party destroys what could be used as part of an ongoing proceeding. Since proceedings had yet to be instituted against Enron on Arthur Andersen, the court ruled that Arthur Andersen had not obstructed justice ( Arthur Andersen LLP v United States, 2005). This ruling is indeed controversial and raises important questions about how courts should balance serving public interest and honoring the letter of the law.
Facts
There are various important facts that are relevant to the Arthur Andersen v United States case. Enron’s troubles are among these facts. Arthur Andersen served as the auditor for Enron and through this relationship, it was required to scrutinize Enron’s books. In 2001, law enforcement authorities, led by the Securities and Exchange Commission (SEC) initiated investigation into Enron after it learnt of the company’s financial improprieties. As part of the investigation, the SEC issued subpoenas, asking both Enron and Arthur Andersen to supply it with documents. Apparently concerned about being implicated, Arthur Andersen instructed its employees to be strict in their compliance with its document retention policy. Essentially, this policy stipulated that the employees should only retain documents which have a direct and immediate relevance to the company’s operations. While it did not explicitly ask the employees to destroy documents related to its audit of Enron, it is fair to suppose that this was the purpose of the instruction.
The facts related to the Arthur Andersen v United States case extend beyond the activities of Enron and Arthur Andersen. In addition to this case, the enactment of the Sarbanes Oxley Act and the 2008 financial crisis are other facts which present implications for the issue of business corruption and the role that the judiciary plays. Enacted in 2002, the Sarbanes Oxley Act was a direct result of the Arthur Andersen case. This act established stringent guidelines to govern the operations of auditing and accounting companies (Bauer, 2009). The purpose of this law was to prevent the commission of such fraudulent activities as those perpetrated by Arthur Andersen. The 2008 financial crisis is relevant because it shed light on the damage that can result when firms violate laws and engage in corruption. Thanks to this crisis, the US has gained a deeper understanding on the need for stricter business regulation.
Important Issues
From the Arthur Andersen v United States case emerges a number of critical issues. Business corruption and the need for the judiciary to adopt a tougher stance is among these issues. As has already been stated, in the case, the Supreme Court reversed the conviction of Arthur Andersen. It determined that contract to the rulings of the lower courts, the company’s actions did not amount to obstruction of justice. The importance of this ruling lies in the fact that it could encourage firms to flagrantly violate the law. To avoid prosecution, the companies could simply leverage loopholes and technicalities in the law as Arthur Andersen did.
Applicable Law
There are various laws which apply to the Arthur Andersen v United States case and the larger issue of business corruption. 18 U.S.C. § 1512(b)(2) is among these laws. In fact, this is the primary law that the Supreme Court relied on to inform its decision. At its core, the law prohibits witness tampering and the release of documents or records that are crucial to official proceedings (DOJ, n.d). This law is relevant because it concerns the efforts by Arthur Andersen to destroy documents which could be used to show that it concealed Enron’s illegal activities. Another applicable law is the Sarbanes Oxley Act. Since it was enacted in 2002, this law could not have been applied in the Arthur Andersen v United States which was concluded in 2001. However, since a review of the case has been recommended, the law is applicable today. The main provision of the Sarbanes Oxley Act is that firms should take all necessary steps to ensure the accuracy of accounting records (Engel, Hayes & Wang, 2007; Coates, 2007). More importantly, this act established guidelines designed to safeguard the interests of shareholders and the general public. The act’s relevance to the case lies in the fact that it highlights Arthur Andersen’s accounting failures and its desperate efforts to conceal its fraudulent activities.
Analysis
When the Supreme Court decision is assessed against the applicable laws, it fails the test of public interest and faithfulness to the spirit of the law. When considering a case, courts should be guided by precedent, the law and the need to safeguard public interest (Perelman, 2012). The Supreme Court gave too much focus to the letter of the law. In particular, the court sought to implement the standards established in 18 U.S.C. § 1512(b)(2). Among other things, this code requires that for obstruction of justice to be determined, it should be shown that one has willfully, consciously and corruptly destroyed evidence that could form part of an official proceeding. Given how clear the provisions of this code are, it is surprising that the Supreme Court chose to reverse the conviction. There is no doubt that Arthur Andersen’s actions were willful, conscious and corruption and the firm’s conviction by the lower courts was well founded. Public interest and the Sarbanes Oxley Act are other considerations that would result in an over-ruling of the Supreme Court. Had it been guided by the need to secure public interest, the Supreme Court should have found that by participating in fraud and destroying evidence, Arthur Andersen threatened the interest of both shareholders and the wider public. Additionally, if it had consulted the Sarbanes Oxley Act, the Supreme Court would find that Arthur Andersen’s actions were unacceptably fraudulent and therefore warrant the firm’s conviction.
Conclusion and Implications
Business corruption is among the issues major issues that continue to plague American society. Unfortunately, as the Arthur Andersen v United States case revealed, the judiciary is either unwilling or too slow to act against firms that participate in fraud and break other laws. Despite clear and overwhelming evidence pointing to the guilt of Arthur Andersen, relying on a technical interpretation of the law, the US Supreme Court overruled lower courts which had convicted Arthur Andersen. This case presents implications for the US as it struggles with business corruption. The main take-away is that the judiciary has a critical role to play in compelling businesses to act ethically and legally. In particular, by issuing stern warnings and imposing heavy penalties, the courts can help to create an environment of compliance and ethics-driven business.
References
Arthur Andersen v United States (2005). 544 U.S. 696 (US Supreme Court).
Bauer, A. (2009). The Enron Scandal and the Sarbanes Oxley Act . Munich: GRIN Verlag.
Coates, J. C. (2007). The goals and promise of the Sarbanes-Oxley Act. Journal of Economic Perspectives, 21 (1), 91-116.
Eisinger, J. (2014). Why only one top banker went to jail for the financial crisis. The New York Times. Retrieved September 26, 2019 from https://www.nytimes.com/2014/05/04/magazine/only-one-top-banker-jail-financial-crisis.html
Engel, E., Hayes, R. M., & Wang, X. (2007). The Sarbanes-Oxley Act and firms’ going-private decisions. Journal of Accounting and Economics, 44 (1-2), 116-45.
Hasnas, J. (2005). The significant meaninglessness of Arthur Andersen LLP v United States. Cato Supreme Court Review. Retrieved September 26, 2019 from https://www.cato.org/sites/cato.org/files/serials/files/supreme-court-review/2005/9/aandersenvus.pdf
Hurd, M., & Rowhwedder, S. (2010). Effects of the financial crisis and Great Depression on American households. RAND Corporation. Retrieved September 26, 2019 from https://www.rand.org/content/dam/rand/pubs/working_papers/2010/RAND_WR810.pdf
Pahis, S. (2009). Corruption in our courts: what it looks like and where it is hidden. The Yale Law Journal, 118 (8), 1900-43.
Perelman, C. (2012). Law, philosophy and argumentation. In Justice, law, and argument: essays on moral and legal reasoning. New York: Springer.
Raptopoulos, L. (2018). Weathering the financial crisis: how seven lives were changes. Financial Times. Retrieved September 26, 2019 from https://ig.ft.com/financial-crisis-voices/
U.S. Department of Justice (DOJ). (n.d). 1729. Protection of government processes- tampering with victims, witnesses, or informants—18 U.S.C. 1512. DOJ. Retrieved September 26, 2019 from https://www.justice.gov/jm/criminal-resource-manual-1729-protection-government-processes-tampering-victims-witnesses-or
