why record retention/destruction is important ?

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Why Record Retention/Destructionis Important?

• Bar Association ethical obligations• Maintain confidentiality and attorney-client privilege• Record advice given to clients• Surrender the client’s property upon termination• Keep records for sometime after termination• Obtain client consent before destroying records• Responding to government requests for information


IRS Treasury RegulationSection 1.6011-4(g)

• Taxpayers must retain a copy of all documents and other records related to the transaction that are material to an understanding of the tax treatment or tax structure of the transaction

• Reportable transactions only


The Government May Obtain Your Attorney-Client Privileged Materials

• Thompson memorandum requires waiver of the attorney-client privilege

• Crime fraud exception requires attorney-client materials to be produced

• Administrative summons• Federal grand jury subpoena (forthwith)


Will the Corporation be Prosecuted?• Thompson Memorandum

– Corporations are “legal persons,” capable of suing and being sued, and capable of committing crimes. Under the doctrine of respondeat superior, a corporation may be held criminally liable for the illegal acts of its directors, officers, employees, and agents. To hold a corporation liable for these actions, the government must establish that the corporate agent’s actions (i) were within the scope of his duties and (ii) were intended, at least in part, to benefit the corporation.


Factors to Determine if a Corporation will be Prosecuted

1. the nature and seriousness of the offense, including the risk of harm to the public, and applicable policies and priorities, if any, governing the prosecution of corporations for particular categories of crime;

2. the pervasiveness of wrongdoing within the corporation, including the complicity in, or condonation of, the wrongdoing by corporate management;


Factors to Determineif a Corporation will be Prosecuted

3. the corporation’s timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents, including, if necessary, the waiver of corporate attorney-client and work product protection;

4. the corporation’s history of similar conduct, including prior criminal, civil, and regulatory enforcement actions against it;


Additional Benefits of A Record Retention Policy

• Backup to the client’s set of files• Protect the firm from liability• Reduce storage costs or charge clients• Reduce cost of responding to government

subpoena/summons


Preliminary Questions• Consideration must be given to:

– What the client’s foreseeable need for any of the documents in the file may be

– Which specific documents the client has retained– What the client has actually kept or can actually find– What documents does the firm need to keep for loss

prevention and ethical compliance– What are statute of limitations periods for relevant potential

claims– Cost of storing closed/inactive files


Elements of a Record Retention Program

• A written policy• Retention schedules• Implementation procedures• Follow-up and monitoring compliance procedures


Scope of a Record Retention Program• Client and/or administrative records.• Physical and/or electronic records• Retroactive or going forward


Steps In Implementing ARecord Retention Policy

• Form a record retention committee• Review the current document management system• Develop a document collection policy • Determine document retention needs• Develop a document retention policy• Publish a records retention manual• Develop an employee training program• Review and update the record retention policy


The Record Retention Committee• Top management• Finance• Records Manager• Articulate the firm’s retention policy and implementation

procedures• Define legal obligations of firm• Designate records coordinator for each practice group or

department• Collect policies of each department and prepare a manual• Develop the training program• Review performance on an annual basis and report to

management


Review Current Record Management System

• What stays in the file when the file is closed?• Attorney handwritten notes and internal memoranda.• At conclusion of matter, which documents are returned to the

client?• Identify number of boxes in storage and their contents.• Gather indexes prepared by individual lawyers for their files in

storage.• Review procedures used for maintaining current files and closed

matters.• Are drafts retained in the file?• Are any documents destroyed before a files is sent to storage?• Does your firm have a written document policy?


Record Collection Policy• Develop a document collection policy by

determining what belongs in the file, and what does not. For example, drafts or closing documents

• Design forms and document a step-by-step process for routine attorney review of a file at the close of a matter

• Assign accountability and responsibility for each step in the process


Determine Record Retention Needs• What types of documents do clients need to

defend claims?• Are there statutes of limitations that may affect a

client’s right to pursue or defend a claim?• Are original or official records maintained in the

file or returned to the client?• Are client provided documents kept in files or

returned to the client?• When are matters considered inactive?


Determine Record Retention Needs

• When are matters considered closed?• When should specific documents be returned to

clients? For example, at the close of a matter or at the end of a defined storage period?

• Which documents should be returned?• Should the firm retain copies of any returned

documents?• How should drafts be handled?


Elements Of ARecord Retention Policy

• Define the firm’s ethical obligations regarding retention of client records.

• Explain how the records are managed and stored.

• Explain retention periods.• Discuss when documents are eligible for

destruction.• Explain how document destruction occurs.


Key Components Of ARecord Retention Policy

• In the engagement letter create a record retention/destruction agreement between the firm and the client.

• Describe specifically what must be removed from the file when it is closed.

• Determine what part of the file belongs to the client and the law firm.

• Outline the extent of lawyer/CPA judgment and/or client participation in the decision to destroy or return to the client.

• The classification system should establish categories of documents such as correspondence, legal research, pleadings etc.


Three Phases To ARecord Retention Policy

• Active phase - on-going use and maintenance of documents in the file.

• Inactive phase – documents are stored offsite and rarely examined.

• Final disposition – documents are destroyed, returned to the client, or permanently retained.


Client File Retention Schedule

RetentionArea of Law Period Comment

Tax MC + 10Y Retain OpinionLetters 15Y


Administrative Records Retention Schedule

Record Description Office Off-Site Comment

1 Billing Ltr 2Y 5Y


Records Retention Policy forClient Files

• General Statements– Statement of Purpose– Scope– Statement of Responsibility– Terms and Definitions– Confidentiality– Exceptions



• General Records Management– Definition of “Record”– The Records Management System– Records Creation– Records Maintenance– Records Storage



• Specific Records Retention Procedures– Basis for client records retention schedules– Retention schedules– Ownership issues– Notice requirements– Preparing client files for storage– Returning client-owned materials– Storage costs– Final disposition– Suspension of final disposition– Release of client records



• Lawyers Beginning/Terminating– Incoming Lawyers– Departing Lawyers– Firm Dissolution


What If The Records Are Electronic?• Identify the body of digital information that needs a

separate retention period, decide how long to retain the records, and then express the retention and disposition periods in a manner that makes implementing them practical.

• Collect appropriate data that describe existing computer applications.

• Conduct interviews with information technology group and end-users.

• Solicit data from information technology group by questionnaire

• Determine retention periods


What If The Records Are Electronic?• Construct “total life cycle” retention periods• Determine whether data migration and deletion

occur automatically• Determine the need for consistent retention

periods where redundant data exist on multiple media

• Be highly selective about appraising electronic records as “permanent”


Reconciling Record Retention Policies With Federal Obstruction of Justice Statutes

• Record retention policies destroy documents• Obstruction of justice laws are designed to protect

documents from being destroyed


Main Reason for Improper Destruction• Poorly designed record retention programs• Record retention program not administered properly• Record retention program not audited properly


When Should Record DestructionBe Suspended?

• The record retention policy must contain specific directions about when and to what degree the record retention program should be suspended

• Compliance with the record retention policy should be documented

• Regular auditing of the record retention policy will assure that records are actually being destroyed/retained pursuant to the policy


Process for Destroying Records

A record retention policy should provide specific guidanceon the process for destroying records.

• Including the time of file reviews• A description of circumstances in which records can be

discarded or shredded• Identification of individuals who have authority and

responsibility for destroying records


Procedures for Destroying Records• Notice of intent to destroy• Monitor transfer records• Monitor destruction of records


Obstructing the Due Administration of Justice Under 18 U.S.C. § 1503 - Elements• A judicial proceeding must be pending• The defendant must know that the judicial proceeding is

pending• Defendant must act “corruptly” with the specific intent to

impede the due administration of justice


Anticipatory obstruction• If you know that a subpoena will be coming, you may

violate the obstruction of justice statute


Arthur Andersen timeline• October 12, 2001: Temple e-mail says remind Enron

engagement team of the retention policy• October 16, 2001: Enron press release states that losses are

massive• October 19, 2001: Enron informs AA of SEC inquiry into “SPE”• October 23, 2001: AA meets to coordinate destruction of

documents• October 31, 2001: SEC sends AA a subpoena• November 8, 2001: SEC serves AA with subpoena• November 9, 2001: AA stops destroying documents


Elements of 18 U.S.C. § 1512 (b): (Victim and Witness Protection Act)

• There is no need to show that a judicial proceeding is pending

• Corruptly persuading another person to destroy or conceal the documents from use in an official proceeding

• The government had to prove two elements beyond a reasonable doubt to convict Arthur Andersen

1. AA corruptly persuaded another person; and2. AA intended to cause another person to withhold a

document from an official proceeding, or destroy or conceal an object with the intent to impair the object’s availability for use in an official proceeding.


AA Indictment• On October and November 2001 . . . Partners

corruptly persuaded persons to destroy documents to impair the documents integrity and availability for use in an official proceeding.


AA Jury Instruction• . . . .[I]f an agent/partner acted within the scope of

employment (even if the agent’s act was illegal or contrary to the firm’s policies), the partnership is still responsible for the agent’s act.


Solution for avoiding Arthur Andersen problems

• The record retention program must be routinely followed and not just when there is a problem.

• Non-destruct memoranda should be sent to employees if an investigation is anticipated

• Create a record retention policy at a neutral time• Managing and auditing the record retention policy to insure compliance must

be done regularly (e.g. issue periodic reminders)• The Arthur Andersen jury foreman stated that “the shredding showed that AA

had not trained its people very well”.


18 U.S.C. Section 15.19 Sarbanes-Oxley

• Whoever knowingly destroys or conceals a document with intent to impede an investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States may be imprisoned up to 20 years.


Government Requests Information

• Produce documents and data• Select a records custodian• Develop a process for producing documents• Produce the responsive documents• Preserve and assert attorney-client/work product

privileges• Avoid improper destruction


Benefits of a Legal Freeze• Preservation of key facts necessary to advise the

company• Prevent obstruction of justice allegations


Implementing a Legal Freeze• Send a “non-destruct” memorandum• Formal communication to all employees that have

relevant documents


Contents Of A “Non-Destruct” Memorandum

• Clearly identify the types of documents to be preserved• Memorandum comes from high-level officials• Identify all recorded information, such as electronic data• Identify a person who employees can contact with

questions


Select A Records Custodian To Gather Requested Records

• Send memorandum to records custodian documenting her/his tasks

• Non-Lawyer• No knowledge of facts


Send Memorandum ToThe Records Custodian

• Identify all departments, offices and employees with potentially responsive documents

• Identify former employees who may possess responsive documents

• Consult with information technology personnel to develop a search protocol for responsive computer data

• Segregate all documents produced so that they can be identified by source


Send Memorandum To The Records Custodian (continued)

• Keep all documents in a locked room with limited access

• Bates-stamp all documents with control numbers• Copy and produce the copies if possible


Records Custodian Sends Memorandum To Employees

• Paraphrase the specific language of the subpoena so that the employees can identify relevant records

• Instruct employees to thoroughly search all files and computer records within their possession, custody or control

• Instruct employees to identify documents that may contain attorney-client privileged information

• Identify a specific date for the employees to produce the documents


Send Questionnaires To Employees• Ask each employee to identify the types and categories

of responsive documents in their possession or that they are aware of

• Employees identify responsive documents that are off site

• Use questionnaire to develop a strategy


Benefits Of Questionnaires• They identify persons who have knowledge of particular

transactions• They can reduce costs by eliminating persons who do

not have relevant information


Contents Of The Questionnaire• Questions should require a “yes” or “no” answer• The questions should ask whether employees have

knowledge of particular transactions• Whether the employee participated in the transaction• Whether the employee has documents that could be

relevant to the subpoena


Reviewing Records Collected From Employees

• Identify objective factors that all team members can use for selection, such as information sent to a particular person or within a particular time period


Record Review• Segregate and classify documents• Preassembled documents (e.g. minutes of meetings)• Employee files (e.g. e-mail and memoranda)• Raw corporate data (e.g. receipts, checks and bank

statements)• Third party documents


The Attorney-Client PrivilegeMaintaining Confidentiality

The attorney-client privilege prevents an attorney fromdisclosing information to anyone other than his client if theInformation is “privileged.”


Attorney-Client Privilege Defined

• Communications made in confidence• Between a person who is or is about to become a

client• To a lawyer• For the purpose of obtaining legal advice or

assistance


Attorney-Client Privilege Log

• Identify all privileged documents• Compile a privilege list• The privilege list will contain date, document and

subject• All documents will be bates stamped

why record retention/destruction is important ?

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