Johannesburg, 09 Nov 2005
Is it time to Shaik up your records management policy? Recent judgments in South Africa and the US have turned a harsh legal spotlight on the importance of having effective document management policies in place. In particular, these 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 Schabir Shaik case, Judge Squires stated that the court 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, says Paul Mullon, divisional marketing director of Metrofile.
"Inadequate record-keeping on the part of Schabir Shaik means he exposed himself to undue risk," Mullon says. "One of the alternative charges in the Shaik trail 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 becoming serious about enforcing record-keeping laws."
In the first comprehensive survey of retention laws of its kind, a specialist law firm engaged by Metrofile reviewed more than 2 000 sets of laws and regulations. The findings of the survey are published in the MetroGuide (www.metrofile.com/retentionguide), the first South African online repository for record retention compliance. The survey found that most businesses (large or small) must keep up to 170 types of records for minimum periods ranging from between six months to 40 years, while some records must be kept "indefinitely". Certain industries such as financial services must keep in excess of 460 types of records prescribed by law.
"Non-compliance could lead to criminal offences that may subject an organisation to hefty fines and directors and officers to prison sentences ranging from six months to 10 years," says Mullon.
He says of the record types identified so far: 11% must be retained for between 48 hours to two years; 52% for three years; 25% for five years, 5% for between 10 and 15 years and 7% must be kept from between 30 years to "indefinitely".
The US Supreme Court recently 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," explains Mullon. "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.
It is becoming clear from new local and international corporate and accounting law reforms that a much higher premium is being placed by regulators on proper records management practices. "Records constitute the audit trails required by regulators and auditors to monitor and report on compliance. Recently promulgated laws require auditors to audit and report on compliance with record retention requirements," says Mullon.
"By understanding the legislative compliance requirements, organisations can determine which records to keep and which not - thereby reducing storage and archival expenses. According to Mullon, an understanding of the regulatory requirements could serve as a sound basis for an organisation to draw up a document retention policy. "Local and international courts have recognised and expressed approval for controlled destruction of records in terms of a documented retention and destruction policy," he says.
Share