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Friday, 15 March, 2002, 22:58 GMT
US bans Andersen from official work
Andersen logo
Andersen is thought to have lost at least 30 clients
Arthur Andersen, the US accountancy firm embroiled in the Enron bankruptcy scandal, has been banned from US government work after being indicted by a federal grand jury on the charge of obstruction of justice.

The announcement came as US food giant Sara Lee joined a growing list of prestige clients dropping Andersen as auditor.

Analysts said it was a double blow to the accountancy firm, which is fighting for survival in the face of a loss of confidence by clients and potentially crippling lawsuits from disgruntled Enron shareholders.

Andersen's troubles
Charged with obstructing justice after "tons" of Enron-related documents shredded
Sacked partner in charge of Enron audit, denied corporate responsibility, vowed to defend itself "vigorously" against charges
If found guilty, faces banning from auditing listed firms, effectively putting it out of business
Clients including Merck, Sara Lee, FedEx, Delta drop Andersen as auditor

The US General Services Administration said Enron was suspended from new government business for a year while Andersen has been suspended for the duration of the indictment.

"Under law and regulation. the government may award contracts only to responsible contractors," the government agency said.

Former head of the US Securities and Exchange Commission, Richard Breedon, told the BBC that Andersen had put its clients in an impossible position.

Speculation is growing that Andersen may declare itself bankrupt as early as next week, but Mr Breedon said that might prove difficult for the firm to recover from such a move.

Clients flee

On Thursday the US Justice Department said it was bringing charges against Andersen for obstruction of justice.

It said the company tried to undermine the investigation of Enron by destroying "tons" of paperwork and tried to purge electronic data in order to avoid an investigation into the collapse of Enron, the largest bankruptcy in US corporate history.

Andersen said the prosecution was "a gross abuse of government power".

Analysts said the company could, if convicted, be barred from auditing stock market-listed companies. This would effectively put it out of business.

Already, several big-name audit clients including Delta Air Lines, the number three US carrier, Federal Express and pharmaceuticals giant Merck have abandoned the firm, and more are thought to be uneasy about continuing links with Andersen.

Merger talks with rivals have collapsed amid continuing doubts over whether Andersen's exposure to litigation can be contained.

'Unparalleled initiative'

The indictment alleges that senior Andersen officials told its employees to destroy thousands of documents within days of notice that the company would be investigated by the US financial regulator, the Securities & Exchange Commission.

The indictment called the destruction an "unparalleled initiative to shred physical documentation and delete computer files" which involved "tons" of documents.

"There is a serious matter which undermines the criminal justice system," said Department of Justice deputy Attorney General Larry Thompson.

"It shouldn't be a surprise to anyone that serious charges have serious consequences," he added.

The firm's executives could face fines of up to $500,000 and five-year probation terms if convicted.

The SEC has said it has contingency plans to ensure that, if Andersen collapses, other auditing firms will be able to take over its commitments.


Andersen has been trying to merge with another accountancy firm in order to stem the loss of its client base and avoid the legal cases from Enron investors.

Top accounting firms worldwide
Deloitte & Touche
KPMG International
Ernst & Young
It has come under close scrutiny for its part in last year's collapse of US energy giant Enron with huge hidden losses.

It could now face lawsuits from disgruntled Enron employees and people who owned Enron stock, which is now virtually worthless.

So far, Andersen is thought to have lost more than 30 clients who provided it with combined annual fees of about $100m.

Rivals Deloitte Touche Tohmatsu and Ernst & Young both walked away from merger talks with their beleaguered rival, saying it was unwise to pursue plans while Andersen's legal problems remained unresolved.

See also:

05 Feb 02 | Business
Audit giants called to account
29 Jan 02 | Business
Andersen on the defensive
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