18 U.S. Code § 1520 - Destruction of Corporate Audit Records
Title 18 U.S. Code 1520, the Corporate Audit Records Retention and Destruction statute, is a federal law regulating corporate audit records' handling and preservation.
The law requires that accountants auditing public companies retain those audit records for five years and comply with other rules imposed by the Security and Exchange Commission.
When the data in these records become outdated or moot, you might want to delete them. However, when you destroy corporate audit records, you could be implicated for violating laws covering their destruction.
In other words, it's a crime to knowingly destroy evidence when there might be a federal investigation, even if at a later time.
18 U.S.C. 1520 says, “(a)(1) Any accountant who conducts an audit of an issuer of securities to which section 10A(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78j–1(a)) applies shall maintain all audit or review work papers for a period of 5 years from the end of the fiscal period in which the audit or review was concluded.”
(b) Whoever knowingly and willfully violates subsection (a)(1), or any rule or regulation promulgated by the Securities and Exchange Commission under subsection (a)(2), shall be fined under this title, imprisoned….”
Allegations of destroying corporate records during a federal investigation or bankruptcy is a serious matter. If you are indicted for this federal offense, you could face hefty fines and incarceration in federal prison.
Violating this law is a federal crime punishable by up to 10 years in prison. Let's review this federal law in more detail below.
Background of the Law
Enacted as part of the Sarbanes-Oxley Act of 2002 (SOX), Title 18 U.S. Code 1520 was designed to protect investors by ensuring the accuracy and reliability of corporate financial information.
Congress passed SOX in response to numerous accounting scandals around that time, with Enron being perhaps the most notable company involved.
The law specifically targets the destruction of audit records that must be maintained by the Securities and Exchange Commission (SEC) or may be subject to an investigation by a federal regulatory authority.
What Does the Law Say?
18 U.S.C. 1520 encompasses two basic requirements:
Corporate Audit Records Retention
The statute mandates that any accountant who conducts an audit of a public company under the Securities Exchange Act of 1934, meaning any company that issues stock or other securities, must maintain all work papers, documents, and additional information related to that audit for a period of no less than five years from the end of the fiscal period in which the audit was concluded.
Rules Regarding Records Retention
The law also authorizes the Security and Exchange Commission to issue rules and regulations regarding the "retention of relevant records"—what those are and how they should be preserved. Accountants must also follow these rules.
What Constitutes the Destruction of Corporate Audit Records?
The law applies to intentional acts of destruction, alteration, or falsification of corporate audit records. This includes documents' physical destruction and electronic records' deletion or alteration.
Scope of records
The scope of records covered under Title 18 U.S. Code 1520 is quite broad, encompassing work papers, documents, communications, and other materials related to an audit or review of a company's financial statements. This may include emails, memos, drafts, and other records containing information about the audit process.
What is an Example?
EXAMPLE: John is a CPA tasked with doing a corporate audit of a mid-size corporation on behalf of its stockholders. The audit is relatively uneventful, revealing full compliance by the company.
Four years later, anticipating no issues or investigations, John deletes the files to make room for other clients. However, shortly after, the SEC requested the documents as part of an investigation, and John could not produce them. As a result, John can be charged with a federal crime under 18 U.S.C. 1520.
What Are the Related Federal Crimes?
Federal obstruction of justice crimes occurs in many forms.18 U.S. Code Chapter 73 has different statutes that are related to 18 U.S.C. 1520 destruction of corporate audit records, including the following:
- 18 U.S.C. 1501 – Assault on a process server,
- 18 U.S.C. 1502 – Resisting an extradition agent,
- 18 U.S.C. 1503 – Influencing or injuring officer or juror,
- 18 U.S.C. 1504 – Influencing jurors by writing,
- 18 U.S.C. 1505 – Obstruction of proceedings before departments,
- 18 U.S.C. 1506 – Theft or altering a record or process; false bail,
- 18 U.S.C. 1507 – Picketing or parading,
- 18 U.S.C. 1507 – Recording, listening to, or observing proceedings,
- 18 U.S.C. 1509 – Obstruction of a court order,
- 18 U.S.C. 1510 – Obstruction of a criminal investigation,
- 18 U.S.C. 1511 – Obstruction of state or local law enforcement,
- 18 U.S.C. 1512 – Tampering with a witness, victim, or informant,
- 18 U.S.C. 1513 – Retaliation on a witness, victim, or informant,
- 18 U.S.C. 1514 – Civil action to restrain harassment of a victim or witness,
- 18 U.S.C. 1514A – Civil action to protect against retaliation,
- 18 U.S.C. 1515 – Definitions for specific provisions,
- 18 U.S.C. 1516 – Obstruction of a federal audit,
- 18 U.S.C. 1517 – Obstruction of examining a financial institution,
- 18 U.S.C. 1518 – Obstruction of investigating health care offenses,
- 18 U.S.C. 1519 – Records in federal investigations and bankruptcy,
- 18 U.S.C. 1521 – Retaliation against a federal judge or officer.
What Are the Penalties for 18 U.S.C. 1520?
The penalties for violating Title 18 U.S. Code 1520 can be severe, depending on the circumstances and the individual's role in the offense. The law imposes:
- Fines: The statute allows for the imposition of substantial monetary fines up to $250,000 for those found guilty of violating its provisions; and
- Imprisonment: Individuals convicted under this law may face imprisonment of up to 10 years in federal prison, depending on the severity of the offense and the individual's role in the violation.
What Are the Defenses for 18 U.S.C. 1520?
If you're charged with a crime under 18 U.S.C. 1520, an experienced federal criminal defense attorney may implement one of several defenses to combat the charges. Some common defenses are discussed below.
Perhaps we can argue there was a lack of Intent. One of the essential elements of the crime is the intent to impede, obstruct, or influence a federal investigation or proceeding. If the defendant can demonstrate that they did not have the requisite intent, they may be able to defend against the charges successfully.
Perhaps we can argue that there is insufficient evidence. The prosecution must prove each element of the offense beyond a reasonable doubt. The defendant may be acquitted if the evidence presented does not meet this burden.
Perhaps we can argue involuntary destruction. If the defendant can establish that the destruction, alteration, or falsification of records resulted from an accident or another involuntary act, they may be able to avoid conviction.
Perhaps we can argue that the records are not relevant. Another defense often used in these cases is that the records in question were irrelevant to an audit or review of the company's financial statements, not requisite per SEC rules, or not subject to any federal regulatory investigation.
You can contact our law firm by phone or through the contact form. We provide experienced legal representation throughout the United States for federal criminal matters. Eisner Gorin LLP is located in Los Angeles, CA.