Shaiking up records management policy

Recent legal cases highlight the fact that the retention and destruction of records (whether paper or electronic) can have severe legal consequences if not properly managed.

In the local Schabir Shaik case, Judge Squires stated that he and his assessors found much of the corroborating proof sought by the state in thousands of documents seized from Shaik`s businesses. Most of these would appear to be types of documents not required to be kept by statutory law, and as such they could have been destroyed years ago.

Additionally, one of the alternative charges in the Shaik trial claimed the accused committed an offence in terms of the Companies Act for failure to keep proper accounting records. It is apparent that prosecutors and regulators are now more inclined to pay attention to record-keeping laws.

In terms of various laws, ordinary businesses must keep up to 160 types of records for certain minimum periods (ranging from 48 hours to 40 years to indefinitely), while certain industries must keep more than 350 types of record. Punishment for neglecting to do so include fines, suspension of licences or imprisonment.

In the American case, the US Supreme Court overturned the 2002 conviction of Arthur Andersen for obstruction of justice charges due to document shredding. The case originated from an e-mail sent to employees by an in-house lawyer, as Enron`s collapse became public, reminding employees of the company`s policy of routine document shredding. The Supreme Court overturned the trial court`s conviction on a technicality, by holding that the trial judge should have instructed jurors only to convict if the evidence showed Andersen had "guilty knowledge" that the shredding was unlawful.

What makes the Andersen ruling important is its formal acceptance that organisations destroy records in the ordinary course of business and courts should take this into account. The US Supreme Court placed a premium on the fact that Andersen had a documented policy on record retention and destruction.

The perceived motive for destruction of records will be critical in civil or criminal proceedings. The US Supreme Court said that "under ordinary circumstances" it is not wrongful for management to instruct employees to comply with a valid document destruction policy. It is only when such an instruction is given with a "corrupt motive" (such as thwarting an investigation) that a crime would be committed. The same principle would apply in South African law.

The perceived motive for destruction of records will be critical in civil or criminal proceedings.

Paul Mullon, divisional director of marketing at Metrofile

In general, record-keeping considerations should include business operational requirements, compliance with record-keeping laws, retaining evidence for legal reasons and corporate governance. Legal guidelines provided to Metrofile by Mostert Opperman Goodburn, a law firm specialising in information management law, states that organisations should at least consider the following general legal criteria before records are disposed of:

* Do not destroy records that are subject to regulatory retention periods until the period has expired.
* Do not destroy records that may be relevant to legal proceedings or statutory investigations once such proceedings are instituted or reasonably expected.
* Records that may be important as evidence to prove or enforce your rights should only be destroyed once the relevant authority has been received.
* It is advisable that the disposal of records should only take place after the organisation has adopted a formal record retention and destruction policy. (Because the law does not look at the form of a record, policies should include e-mail and, where appropriate, business related instant messaging and SMS.)
* Destruction of physical source documents after scanning or microfilming should take place only after establishing whether, in respect of the record in question, the law would permit imaged or microfilmed records in place of the physical source document.
* Digital imaging and microfilming should be documented in a procedures manual outlining the specific processes to be followed by personnel or service providers.

Compliance with statutory record-keeping requirements is not optional. While it is unlikely that lawmakers will hunt down those without a credible records management practice, a company can be called to account for its lack of policy in multiple situations. And non-compliance due to weak corporate governance and regulatory risk management measures can lead to fines or imprisonment, suspension or revocation of licences, qualified audit reports and the danger of reputational damage, which can even lead to the destruction of a company - as in the Andersen case.