Possible Criminal Provisions Which May Be Implicated in the Events Surrounding the Collapse of the Enron Corporation

Possible Criminal Provisions Which May Be Implicated in the Events Surrounding the Collapse of the Enron Corporation

Order Code RS21177
Updated March 25, 2002
CRS Report for Congress
Received through the CRS Web
Possible Criminal Provisions Which May Be
Implicated in the Events Surrounding the
Collapse of the Enron Corporation
name redacted, name redacted and name redacted
Legislative Attorneys
American Law Division
Summary
On March 7, 2002, an indictment was filed in the United States District Court for
the Southern District of Texas against Arthur Andersen, LLP, (Andersen) charging
Andersen with an obstruction of justice violation under 18 U.S.C. § 1512 in connection
with events surrounding the collapse of the Enron Corporation. This report will briefly
summarize this statute and other federal laws carrying criminal penalties which may be
implicated in the events surrounding Enron’s collapse, depending upon the factual
circumstances involved.
On December 2, 2001, Enron Corporation (Enron) filed the largest corporate
bankruptcy in the history of the United States. The events surrounding the collapse of
Enron have been the focus of investigations by the Congress and by the Executive Branch.
Among the issues under examination in those investigations are questions as to whether
Enron may have defrauded investors by deliberately concealing information about its
finances and whether it may have violated various federal laws. Arthur Andersen, LLP
(Andersen) performed both internal and external auditing for Enron. On March 7, 2002,
an indictment was filed against Andersen in the United States District Court for the
Southern District of Texas in connection with some of its activities regarding Enron.1 The
indictment alleges, among other things, that after the Andersen audit team had been
advised by Enron that the SEC had opened an inquiry into Enron’s “special purpose
entities” and the involvement of Enron’s Chief Financial Officer, Andersen partners and
others instructed Andersen employees to destroy documents related to Enron.2 The
indictment alleges that such destruction continued until Andersen was served with an SEC
subpoena. Based upon these allegations, paragraph 13 of the indictment states:
1 The Andersen indictment may be found at the following website:
[http://news.findlaw.com/wp/docs/enron/usandersen030702ind.pdf].
2 Indictment filed on March 7, 2002, in United States of America v. Arthur Andersen, LLP, CR
H-02-121, at pages 5-7 (hereinafter the Andersen indictment).
Congressional Research Service ˜ The Library of Congress

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13. On or about and between October 10, 2001, and November 9, 2001, within
the Southern District of Texas and elsewhere, including Chicago, Illinois, Portland,
Oregon, and London, England, ANDERSEN, through its partners and others, did
knowingly, intentionally and corruptly persuade and attempt to persuade other persons,
to wit: ANDERSEN employees, with intent to cause and induce such persons to (a)
withhold records, documents and other objects from official proceedings, namely:
regulatory and criminal proceedings and investigations, and (b) alter, destroy, mutilate
and conceal objects with intent to impair the objects’ integrity and availability for use
in such official proceedings.
(Title 18, United States Code, Sections 1512(b)(2) and 3551 et seq.)3
The factual allegations reflected in the Andersen indictment and in recent press
accounts of the events surrounding Enron’s precipitous decline suggest a number of
provisions of federal law carrying possible criminal sanctions that may be implicated.
Whether one or more of these provisions is deemed to be applicable to these events
depends upon the factual circumstances involved. The factual record is still being
developed through the ongoing congressional and criminal investigations. This report will
briefly summarize some provisions of federal securities, criminal, tax, and pension laws
carrying criminal penalties that may be of interest in this regard depending upon the facts
as they becomes apparent. The statutes will be presented in order by title in the United
States Code.
! 15 U.S.C. § 78u-1 (insider trading of securities based upon material
nonpublic information)–One who is in possession of information not yet
available to the public and who trades in securities about which this
information is pertinent can be fined up to $1,000,000 (up to $2,500,000
if other than a natural person) and/or imprisoned up to ten years.4 These
penalties are set out in 15 U.S.C. section 78ff(a).
! 15 U.S.C. § 78j(b) (securities fraud)–This provision is the general
antifraud provision of the Securities Exchange Act. It prohibits the use
of “any manipulative or deceptive device or contrivance” in connection
with the purchase or sale of securities. Violations include filing false or
misleading statements with the Securities and Exchange Commission.
Penalties for violating the general antifraud provision are found at 15
U.S.C. section 78ff(a) and permit fines up to $1,000,000 (up to
$2,500,000 if other than a natural person) and/or imprisonment up to ten
years.
! 18 U.S.C. § 371 (conspiracy to commit a federal offense)–Among other
things, this section applies to two or more persons conspiring to commit
a federal offense, where one or more of those persons does any act in
furtherance of the object of the conspiracy. Maximum criminal penalties
include imprisonment of not more than 5 years, and a fine under Title 18,
U.S.C. Under 18 U.S.C. § 3571, individuals convicted of a felony may
be fined the greater of either the amount set forth in the offense statute or
3 The Andersen indictment at pages 7-8.
4 In addition, 15 U.S.C. section 78u-1 allows the Securities and Exchange Commission to bring an
action which may result in civil penalties up to three times the profit gained or loss avoided.

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an amount not more than $250,000, while the maximum fine for an
organization convicted of a felony would be the greater of the amount set
forth in the offense statute or an amount of not more than $500,000. This
section also provides for an alternative fine based on pecuniary gain or
loss. If anyone has derived pecuniary gain from the offense or if the
offense results in pecuniary loss to any person, the defendant may be fined
not more than the greater of twice the gross gain or twice the gross loss,
unless the imposition of a fine under this subsection would unduly
complicate or prolong the sentencing process.
! 18 U.S.C. § 1001 (false statements)–Among other things, this covers, in
any matter within the jurisdiction of the federal Executive, Legislative or
Judicial Branches, knowingly and willfully falsifying, concealing, or
covering up by any trick, scheme, or device a material fact; making any
materially false, fictitious, or fraudulent statement or representation; or
making or using any false writing or document, knowing that it contains
a materially false, fictitious, or fraudulent statement or entry. Maximum
penalties include imprisonment of not more than 5 years, a fine under
Title 18, U.S.C.,5 or both.
! 18 U.S.C. § 1341 (mail fraud)–Among other things, Section 1341 applies
to use of the mail for the purpose of executing, or attempting to execute,
a scheme or artifice to defraud or for obtaining money or property by
false or fraudulent pretenses, representations, or promises. The maximum
penalties include a fine under Title 18, U.S.C.,6 or imprisonment of not
more than 5 years, or both.7
! 18 U.S.C. § 1343 (wire fraud)–Section 1343 covers use of wire, radio, or
television communication in interstate or foreign commerce to transmit or
to cause to be transmitted any writings, signs, signals, pictures, or sounds,
for the purpose of executing a scheme or artifice to defraud or for
obtaining money or property by means of false or fraudulent pretenses,
representations, or promises. Maximum penalties include a fine under
Title 18, U.S.C.,8 imprisonment of up to 5 years, or both.9
5 Under 18 U.S.C. § 3571, individuals convicted of a felony may be fined the greater of either the
amount set forth in the offense statute or an amount not more than $250,000, while the maximum
fine for an organization convicted of a felony would be the greater of the amount set forth in the
offense statute or an amount of not more than $500,000. This section also provides for an
alternative fine based on pecuniary gain or loss. If anyone has derived pecuniary gain from the
offense or if the offense results in pecuniary loss to any person, the defendant may be fined not
more than the greater of twice the gross gain or twice the gross loss, unless the imposition of a fine
under this subsection would unduly complicate or prolong the sentencing process.
6 Id.
7 If the violation affects a financial institution, the defendant, if convicted, may be fined not more
than $1 million or imprisoned not more than 30 years, or both.
8 For the possible criminal fines provided under Title 18, U.S.C., for a felony conviction, see the
discussion at fn. 5, supra.
9 If the offense affects a financial institution, conviction exposes a perpetrator to a fine of up to $1
million, imprisonment of up to 30 years, or both.

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! 18 U.S.C. § 1505 (obstruction of proceedings before departments,
agencies or congressional committees)–Among other things, this covers
corruptly impeding the due and proper administration of law under which
any pending proceeding is being had before a federal department or
agency, or due and proper exercise of the power of inquiry under which
any inquiry or investigation is being had in either the House or Senate or
any congressional committee or joint committee. Upon conviction, an
offender faces imprisonment of up to 5 years, or a fine under Title18,
U.S.C.,10 or both.
! 18 U.S.C. § 1512(b) (corruptly persuading another to withhold a
document from an official proceeding or to alter, destroy, mutilate, or
conceal an object to impair its integrity or to make it unavailable in such
proceeding)–Among other things, Section 1512(b) applies to corruptly
persuading or attempting to corruptly persuade another person, or
engaging in misleading conduct toward another person, with the intent to:
influence, delay, or prevent the testimony of any person in an official
proceeding; cause or induce any person to withhold testimony or withhold
a record, document, or other object from an official proceeding; or cause
or induce any person to alter, destroy, mutilate, or conceal an object with
intent to impair the object’s integrity or availability for use in an official
proceeding. This offense carries a maximum term of imprisonment of up
to 10 years, a fine under 18 U.S.C.,11 or both.
! 18 U.S.C. § 1956(a)(3)(A) (money laundering)–Among other things, this
provision covers those who, with intent to promote the carrying on of
specified unlawful activity (as defined in 18 U.S.C. § 1956(c)(7)), conduct
or attempt to conduct a financial transaction involving property used to
conduct or facilitate specified unlawful activity. It carries a maximum
penalty of 20 years imprisonment and a fine under Title 18, U.S.C.12 The
term “specified unlawful activity” means, among other things, any act or
activity constituting an offense listed in 18 U.S.C. § 1961(1) except an act
indictable under 31 U.S.C., ch. 52, subchapter II.. Both mail fraud under
Section 1341 and wire fraud under Section 1343 are among the offenses
listed in Section 1961(1).
! 18 U.S.C. § 1962 (racketeering)–Among other things, this section makes
it unlawful for any person who had received income derived, directly or
indirectly, from a pattern of racketeering activity to use or invest, directly
or indirectly, any part of that income, or the proceeds of such income, in
acquisition of any interest in, or establishment or operation of, any
enterprise engaged in interstate or foreign commerce or in activities
affecting interstate or foreign commerce. “Racketeering activity” is
10 For a discussion of the maximum fines available under Title 18, U.S.C., for a felony conviction,
see fn. 5, supra.
11 Id.
12 Id. In addition, 18 U.S.C. § 1956(b) provides for a civil penalty of the greater of the value of
the property, funds, or monetary instruments involved in the transaction or $10,000, for those who
conduct or attempt to conduct such a transaction.

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defined under 18 U.S.C. § 1961 to mean, among other things, any act
indictable as mail fraud under 18 U.S.C. § 1341 or wire fraud under 18
U.S.C. § 1343. Section 1962 also prohibits any person, through a pattern
of racketeering activity, to acquire or maintain, directly or indirectly, any
interest or control of any enterprise engaged in interstate or foreign
commerce, or whose activities affect interstate or foreign commerce. In
addition, this section prohibits any person employed by or associated with
any enterprise engaged in, or the activities of which affect, interstate or
foreign commerce, to conduct or participate in the conduct of that
enterprise’s affairs through a pattern of racketeering activity. Finally,
Section 1962 makes it unlawful to conspire to engage in any of the
activities prohibited in the section. Under 18 U.S.C. § 1963, a person
convicted of an offense under Section 1962 faces maximum criminal
penalties including imprisonment of not more than 20 years, a fine under
Title 18, U.S.C.,13 or both, plus forfeiture to the United States of (1) any
interest acquired or maintained in violation of Section 1962; (2) any
interest in, security of, claim against, or property or contractual right of
any kind affording a source of influence over any enterprise which the
person has established, operated, controlled, conducted, or participated
in, in violation of 18 U.S.C. § 1962; or (3) any proceeds of or derived
from racketeering activity in violation of Section 1962.14
! 26 U.S.C. § 7201 (attempted tax evasion)--Any person who willfully
attempts to evade or defeat any tax or payment of any tax imposed by the
Internal Revenue Code is guilty of a felony. Penalties include fines up to
$100,000 for individuals, $500,000 for corporations, and/or imprisonment
for not more than 5 years, plus the costs of prosecution. This is in
addition to any other penalties imposed by law. See 18 U.S.C. § 3571,
under which a larger fine may be imposed.
! 26 U.S.C. § 7206 (fraud and false statements/perjury)--Among other
things, any person who willfully signs a return or other document under
the penalties of perjury which he does not believe to be true and correct
as to every material matter; who willfully counsels or advises the
preparation of a return or other document which is fraudulent or is false
as to any material matter; or who simulates, fraudulently executes or
advises, aids in, or connives at such execution shall be guilty of a felony.
Penalties include fines up to $100,000 for individuals, $500,000 for
corporations, and/or imprisonment for no more than 3 years, plus the
13 Under 18 U.S.C. § 3571, individuals convicted of a felony may be fined the greater of either the
amount set forth in the offense statute or an amount not more than $250,000, while the maximum
fine for an organization convicted of a felony would be the greater of the amount set forth in the
offense statute or an amount of not more than $500,000. This section also provides for an
alternative fine based on pecuniary gain or loss. If anyone has derived pecuniary gain from the
offense or if the offense results in pecuniary loss to any person, the defendant may be fined not
more than the greater of twice the gross gain or twice the gross loss, unless the imposition of a fine
under this subsection would unduly complicate or prolong the sentencing process.
14 18 U.S.C. § 1964 also provides for civil remedies in specified circumstances.

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costs of prosecution. See 18 U.S.C. § 3571, under which a larger fine
may be imposed.15
! 26 U.S.C. § 7207 (fraudulent returns, statements, or other documents)--
Any person who willfully delivers or discloses to the IRS any list, return,
account, statement, or other document, known by him to be false as to
any material matter can be fined up to $10,000 (for individuals) or
$50,000 (for corporations), and/or imprisoned up to 1 year. See 18
U.S.C. § 3571, under which a larger fine may be imposed.16
! 29 U.S.C. § 1131 (ERISA § 501)--Any person who willfully violates any
provision of part 1 of subtitle B of Title I of ERISA, or any regulation or
order issued under any such provision can be fined up to $5,000 and/or
imprisoned up to one year. For corporations or other non-individuals, the
fine can be up to $100,000. The provisions referred to are the reporting,
disclosure, and retention of records requirements in 29 U.S.C. §§ 1021-
1031 (ERISA §§ 101-111). See 18 U.S.C. § 3571, under which a larger
fine may be imposed.17
15 Under 18 U.S.C. § 3571, individuals convicted of a felony may be fined the greater of either the
amount set forth in the offense statute or an amount not more than $250,000, while the maximum
fine for an organization convicted of a felony would be the greater of the amount set forth in the
offense statute or an amount not more than $500,000. This section also provides for an alternative
fine based on pecuniary gain or loss. If anyone has derived pecuniary gain from the offense or if
the offense results in pecuniary loss to any person, the defendant may be fined not more than the
greater of twice the gross gain or twice the gross loss, unless the imposition of a fine under this
subsection would unduly complicate or prolong the sentencing process.
16 18 U.S.C. § 3571 provides, for a Class A misdemeanor not resulting in death, that a fine of the
greater either of the amount set forth in the offense section or of not more than $100,000 may be
imposed upon an individual defendant, while a fine of the greater of the amount set forth in the
offense section or of not more than $200,000 may be imposed upon an organization. This section
also provides for an alternative fine based on pecuniary gain or loss. If anyone has derived
pecuniary gain from the offense or if the offense results in pecuniary loss to any person, the
defendant may be fined not more than the greater of twice the gross gain or twice the gross loss,
unless the imposition of a fine under this subsection would unduly complicate or prolong the
sentencing process. A Class A misdemeanor is defined in 18 U.S.C. § 3559(a)(6) as an offense
not specifically classified by a letter grade in the section defining it, for which the maximum
authorized term of imprisonment is “one year or less but more than six months.”
17 Id.

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