Preserve and Protect: Sarbanes-Oxley Meets Environmental Law

03 November 2014 Publication
Author(s): Mark A. Thimke

Legal News Alert: Environmental

On November 5, 2014, the United States Supreme Court will address the scope of the Sarbanes-Oxley “anti-shredding” law. The interpretation of this somewhat mundane provision may significantly affect how environmental data and tangible objects are kept, stored and retained.

The issue at hand is whether the destruction of a tangible object that relates to a federal investigation is a violation of Sarbanes-Oxley. In the particular case — fish. But rather than fish, in the environmental world, the tangible object could be a data recorder, a piece of production equipment or maintenance items if relevant to a federal investigation.

The Sarbanes-Oxley “anti-shredding” provision arose out of the Enron controversy of the early 2000s when paper was extensively used and records were shredded. While many believed the focus was on document retention, the exact wording of the statute is:

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 … shall be fined under this title, imprisoned not more than 20 years, or both.

Thus, the scope is broader than records and documents and includes “tangible objects.” And it should be recognized that the scope of this provision is not limited to securities law or SEC investigations but applies to any federal investigation, including environmental investigations. Thus, U.S. EPA investigations, often initiated by an information request such as a Section 114 Request for Information relating to a Clean Air Act enforcement matter, can trigger the Sarbanes-Oxley “anti-shredding” requirements.

In many instances, the federal investigation may focus on certain production equipment and related monitoring devices. Issues can arise over the quality of the data or the effectiveness of the monitoring. Often times these investigations can take years to resolve. Given that, is it a violation of Sarbanes-Oxley to adjust or replace the data collector/ monitors or, if the dispute involves certain production equipment, part or all of the equipment itself?

The Supreme Court decision may well answer many of these questions, but in the interim, steps should be taken to assure that tangible items that may be the focus of a federal environmental investigation are retained or, alternatively, that agreements are reached with U.S. EPA as to the scope and reach of the Sarbanes-Oxley requirements. The techniques used to preserve evidence in litigation can serve as a useful guide for meeting the Sarbanes-Oxley requirements.

Federal environmental investigations, whether initiated by an inspection or a request for information, raise significant legal issues, not only under environmental law but related and often overlooked requirements. These issues are best addressed upfront to avoid unfortunate and potentially expensive traps for the unwary.

Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and colleagues. If you have any questions about this update or would like to discuss the topic further, please contact your Foley attorney or the following:

Mark A. Thimke
Milwaukee, Wisconsin

Related Services