Destruction of Corporate Audit Records – 18 U.S.C. § 1520

Corporate records include a vast array of document types, but corporate audit records are subject to strict federal regulation.

18 U.S.C. § 1520 defines the federal crime of destroying corporate audit records as knowingly and willingly violating the laws regarding maintaining all corporate audits or reviewing paperwork for 5 years.Destruction of Corporate Audit Records - 18 U.S.C. § 1520

When the data contained in these records become outdated or moot, those in charge of managing the records might feel inclined to purge them. When you destroy corporate audit records, though, you could be implicated for violating laws covering their destruction.

Put simply, it’s a crime to knowingly destroy evidence when there might be a federal investigation, even if at a later time.

Any allegation of destroying corporate records during a federal investigation or bankruptcy is a serious matter. If you are indicted for this federal offense, you could be facing large fines and even incarceration in federal prison.

Our federal criminal defense attorneys will take a closer look at the laws below.

The Sarbanes-Oxley Act

To bolster protections for shareholders, the Sarbanes-Oxley Act (SOX) was enacted in 2002. This act imposes strict standards on publicly traded corporations and the way these companies audit their records.

Under Sarbanes-Oxley, codified at 15 U.S. Code § 7201, an audit is defined as:

  • “examining financial statements of any issuer by an independent public accounting firm in accordance with the rules of the Board or the Commission … for expressing an opinion on such statements.”

Put simply, this statute prohibits anyone from altering or destroying any record or tangible object with the intent to obstruct a federal investigation or hamper a bankruptcy proceeding.

SOX substantially increased the penalties for knowingly and intentionally destroying and falsifying records during a federal investigation. If convicted in a federal court, you could be facing 20 years in prison and assessed a large fine.

Federal Audit Requirements

Pursuant to the Securities Exchange Act of 1934, under 15 U.S. Code § 78j-1, those in charge of auditing corporate records must adhere to federal requirements. Those required to perform audits of the financial statements of an issuer should do so utilizing:

  • (1)“procedures that are designed to provide some assurance of detecting illegal acts having a direct and material effect on the determination of financial statement amounts;”
  • (2)“procedures that are designed to identify related party transactions material to the financial statements or require disclosure therein; and”
  • (3)“evaluating whether there is substantial doubt about the ability of the issuer to continue as a going concern during the ensuing fiscal year.”

Auditors, both internal and external, must maintain these audit records for a specified period, typically 5 years, and failure to do so can result in federal criminal penalties.

Destroying Audit Records

As noted above, the destruction of corporate audit records is a federal crime that violates 18 U.S. Code § 1520. Relevant portions of this statute include:

  • (a)(1)“Accountants who conduct an audit of an issuer of securities to which section 10A(a) of the Securities Exchange Act of 1934 applies, must maintain all audit or review work papers for 5 years from the end of the fiscal period in which the audit was concluded.”
  • (b)“Anyone who knowingly and willfully violates subsection (a)(1), or any regulation by the Securities and Exchange Commission under subsection (a)(2), will be fined, imprisoned not more than 10 years, or both.”

Other Federal Obstruction Crimes

Federal obstruction of justice crimes is serious, and federal law covers a variety of other actions within 18 U.S. Code Chapter 73, including:Federal Obstruction Crimes

  • 18 U.S.C. § 1501 – Assault on a process server,
  • 18 U.S.C. § 1502 – Resisting an extradition agent,
  • 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. § 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. § 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 – Destroying, altering, or falsifying records in federal investigations and bankruptcy,
  • 18 U.S.C. § 1521 – Retaliation against a federal judge or law enforcement officer by making a false claim.

Defenses to Allegations of Destroying Audit Records

If the federal government suspects you’ve destroyed corporate audit records, you may wake up one day and discover the FBI at your doorstep ready to arrest you on suspicion of obstructing justice in violation of the Sarbanes-Oxley Act and 18 U.S. Code § 1520.

These are very serious allegations, and in addition to possible prison time and fines, those accused will almost certainly face extreme difficulty finding future employment within their professional industry. Mounting an aggressive defense is paramount.

The destruction of corporate Audit records statute is violated when an auditor:

  • Acts knowingly,
  • Acts willfully,
  • Destroys audit records before the 5-year waiting period expires.

Accordingly, for federal prosecutors to evidence a violation of the statute, they must prove that you didn’t just destroy corporate audit records before the requisite period, but that you did so willingly and with the intent of destroying the records.Defenses to Allegations of Destroying Audit Records

Perhaps we can make an argument that the destruction of records was not related to a federal investigation. The prosecutor must be able to prove you destroyed the documents while it was foreseeable a federal investigation would involve the document.

This means the federal prosecutor must be able to prove, beyond a reasonable doubt, that an investigation would take place. If they can’t, then you could likely avoid a conviction.

If you are under investigation, or already indicted, for destroying records, then your reputation, job, and freedom are at stake. You will need to retain a federal criminal defense lawyer who understands how federal prosecutors will attempt to build their case against you.

We can protect your legal rights during an interrogation and could potentially negotiate with the prosecutor for a favorable outcome on the case.

Eisner Gorin LLP is based in Los Angeles County and severs people across the United States who are facing federal charges. You can reach our law firm for an initial case review by calling (877) 781-1570, or by filling out our contact form.