Documents the 'smoking gun' to reveal illegal acts

Comment: A person who destroys documents can never be certain destruction will remain undetected and e-mails are a fertile source of evidence, writes Roddy Bourke

The Enron saga and downfall of the company's auditors show that destruction of records can destroy reputations and companies. Even if those responsible can show that the shredding was innocent, or that the documents were not relevant, the damage done by appearing to destroy evidence may be irreversible.

Management needs to think about this issue and set down clear policies to guide employees.

Regulators such as the Competition Authority know that a company's documents often provide the "smoking gun" that will reveal illegal behaviour. Documents often record what a person thought and communicated at a relevant time. They may reveal evidence to support or challenge a witness's recollection, or point to further evidence.

E-mails, in particular, are a fertile source of evidence. Some written by Bill Gates were discovered in US antitrust litigation. These revealed motives that weakened Microsoft's case. Some of his recorded comments were also personally embarrassing. People writing e-mails tend to forget that they are creating evidence, and a lasting record.

For these reasons, parties in litigation are required to give their opponents "discovery" of documents, including electronic files. Regulators may be entitled to see a company's files, and suspicions will be raised if documents are missing.

A person who destroys documents can never be certain that the destruction will remain undetected. For example, a copy may exist in a colleague's file, or an "erased" e-mail may languish on a back-up disk. Investigators may be able to reconstitute shredded material. Severe penalties may be inflicted if the documents were destroyed deliberately to frustrate an investigation or to stop evidence coming before a court.

The law does not set down general rules for the retention of records, although companies are obliged to retain minutes of board and general meetings indefinitely.

Clearly a company cannot store every document that it creates for ever. Most companies apply some guidelines to specific types of documents. For example companies tend to preserve documents that may be relevant to contractual disputes for a minimum of seven years. This is because the statute of limitations in most contract cases is six years and it is prudent to allow at least a year after that.

However, many companies have a hit-and-miss approach to document retention. Often departments within one organisation may have different approaches to retaining similar types of documents. Such erratic management could be embarrassing if exposed in litigation.

The best way of overcoming this difficulty is to have a company-wide document-retention policy, which sets down the length of time for which each category of document must be retained. For example, the policy might provide that e-mails relevant to contracts and other important activities should be printed and preserved in hard copy for seven years, but that all e-mails in electronic form would be routinely erased within six months. Software is now available that can do this automatically throughout a firm.

Those in charge of the document retention policy should always remember, however, that if litigation or an investigation is looming, destruction of relevant documents must be deferred indefinitely.

A key benefit of a document-retention policy is that a company can give a coherent and proper account to a court, to regulators and to the media about why certain categories of documents were destroyed.

Most importantly, however, companies must avoid activities that give rise to the creation of damaging documents. Truth will out and a company with a culture of law-breaking will inevitably get into trouble.

A company culture of compliance with competition law and other rules of doing business will help keep wayward executives in check. Virtue will not be the only reward. Companies that play by the rules will spend less time with regulators and in the Four Courts, and can concentrate on making money.

Roddy Bourke is a litigation partner in McCann FitzGerald, Dublin