Transcript Slide 1

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Why Record Retention/Destruction
is Important?
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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
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IRS Treasury Regulation
Section 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
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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)
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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.
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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;
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Factors to Determine
if a Corporation will be Prosecuted
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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;
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the corporation’s history of similar conduct, including
prior criminal, civil, and regulatory enforcement
actions against it;
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Additional Benefits of A
Record Retention Policy
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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
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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
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Elements of a
Record Retention Program
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A written policy
Retention schedules
Implementation procedures
Follow-up and monitoring compliance
procedures
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Scope of a Record Retention Program
• Client and/or administrative records.
• Physical and/or electronic records
• Retroactive or going forward
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Steps In Implementing A
Record Retention Policy
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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
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The Record Retention Committee
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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
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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?
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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
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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?
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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?
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Elements Of A
Record 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.
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Key Components Of A
Record 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.
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Three Phases To A
Record 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.
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Client File Retention Schedule
Area of Law
Tax
Retention
Period
Comment
MC + 10Y Retain Opinion
Letters 15Y
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Administrative Records Retention Schedule
Record Description Office Off-Site Comment
1
Billing Ltr
2Y 5Y
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Records Retention Policy for
Client Files
• General Statements
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Statement of Purpose
Scope
Statement of Responsibility
Terms and Definitions
Confidentiality
Exceptions
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Records Retention Policy for
Client Files
• General Records Management
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Definition of “Record”
The Records Management System
Records Creation
Records Maintenance
Records Storage
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Records Retention Policy for
Client Files
• Specific Records Retention Procedures
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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
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Records Retention Policy for
Client Files
• Lawyers Beginning/Terminating
– Incoming Lawyers
– Departing Lawyers
– Firm Dissolution
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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
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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”
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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
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Main Reason for Improper Destruction
• Poorly designed record retention programs
• Record retention program not administered properly
• Record retention program not audited properly
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When Should Record Destruction
Be 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
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Process for Destroying Records
A record retention policy should provide specific guidance
on 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
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Procedures for Destroying Records
• Notice of intent to destroy
• Monitor transfer records
• Monitor destruction of records
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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
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Anticipatory obstruction
• If you know that a subpoena will be coming, you may
violate the obstruction of justice statute
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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
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Elements of 18 U.S.C. § 1512 (b): (Victim
and Witness Protection Act)
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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; and
2. 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.
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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.
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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.
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Solution for avoiding
Arthur Andersen problems
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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”.
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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.
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Government Requests Information
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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
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Benefits of a Legal Freeze
• Preservation of key facts necessary to advise the
company
• Prevent obstruction of justice allegations
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Implementing a Legal Freeze
• Send a “non-destruct” memorandum
• Formal communication to all employees that have
relevant documents
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Contents Of A “Non-Destruct” Memorandum
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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
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Select A Records Custodian To Gather
Requested Records
• Send memorandum to records custodian documenting
her/his tasks
• Non-Lawyer
• No knowledge of facts
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Send Memorandum To
The 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
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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
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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
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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
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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
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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
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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
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Record Review
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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
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The Attorney-Client Privilege
Maintaining Confidentiality
The attorney-client privilege prevents an attorney from
disclosing information to anyone other than his client if the
Information is “privileged.”
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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
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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