The 2001 collapse of the energy giant Enron Corp. and the subsequent downfall of its accounting firm, Arthur Andersen, sent shockwaves through corporate America. Not only did the infamous scandal involve the largest bankruptcy in history at the time, but it also centered on a massive audit failure and the destruction of documents in an attempt to cover up corporate transgressions.

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

Although SOX became law a decade ago, corporate lawyers are becoming increasingly concerned with one of its particularly potent provisions, 18 USC Section 1519, which states that “whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States … or in relation to or contemplation of any such matter or case, shall be fined … imprisoned not more than 20 years, or both.”

In other words, the provision criminalizes anticipatory obstruction of justice.

“It gives prosecutors the ability to prosecute someone for obstructing justice, even though the person who was engaging in the obstructive conduct at the time didn’t realize that there was any federal investigation going on,” says Perkins Coie Partner T. Markus Funk.

Experts say inside counsel should be worried about Section 1519’s broad language and the authority it gives to the government.

“The statute eliminates the obligation on the part of the government to prove that there’s an actual pending matter,” says Mark Biros, a partner at Proskauer Rose.

Overlooked and Ominous

Despite Section 1519’s immense power, Funk says prosecutors have largely overlooked the provision. As a result, most in-house lawyers are unaware of its danger.

“Attorneys become aware of statutes primarily when government officials start to prosecute,” Funk says. “The Foreign Corrupt Practices Act comes to mind. If you would have asked 15 years ago what the Foreign Corrupt Practices Act was, nine out of 10 attorneys working in-house or at law firms in white-collar practices probably would not be able to tell you. Now that the government is starting to prosecute those cases, everyone knows about it. This is very similar. It’s just a question of time until the government really starts relying on this statute more heavily.”

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

Careful Criminals

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

In September 2010, prosecutors indicted 11 corporate executives and half a dozen corporations in a massive food fraud and customs scam. The German food company Alfred L. Wolff Co., a global honey supplier, purportedly sought to avoid $80 million in U.S. duties and tariffs by illegally importing mislabeled Chinese honey, which costs more to import than honey from elsewhere.

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

The dozens of charges the government lobbed at the scammers included violations of Section 1519. Wolff is still pending in an Illinois district court.

In-house counsel also should be aware of recent Section 1519 charges against lawyers (see “Cornered Counsel”). In United States v. Russell, a 2007 case out of a Connecticut district court, a church hired a lawyer when it found child pornography on its choirmaster’s computer. After the internal investigation and dismissal of the choirmaster, the lawyer took apart the computer, thus destroying the contraband material. The government prosecuted the lawyer for impeding its subsequent investigation into the matter.

Staying Safe

Experts say lawyers must stay abreast of Section 1519 cases as they make their way through the courts. In addition, in-house lawyers should review their companies’ document policies.

Kenneth Julian, a partner at Manatt, Phelps & Phillips, says companies should limit document deletion. “What corporate officers and in-house counsel are doing potentially could be the innocent destruction of a document, but some federal agency later could contend that they recklessly destroyed these documents because they knew the company could be the subject of an investigation,” he says. “All of a sudden you have this huge sweep of potentially innocent conduct crossing the line into a felony violation.”

Biros says Section 1519 is “sufficiently broad that it easily could result in abuse” on the part of the government, and Julian agrees. “Imagine the selective prosecution danger here,” he says. “You have an agency that’s upset with a company because it’s not toeing the line. All the government has to show is that the company destroyed some documents that might be relevant to some contemplated investigation, even though there hasn’t been one ongoing. It’s a very dangerous statute.”

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