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Tuesday, 14 May, 2002, 05:43 GMT 06:43 UK
Star witness turns heat on Andersen
David Duncan, Andersen's disgraced partner
David Duncan is the star witness
The star witness in the criminal case against US accountancy firm Arthur Andersen took the stand on Monday to tell the court he knew he was breaking the law by destroying documents about disgraced energy company Enron.

Former Andersen auditor David Duncan was fired by the firm but is now a key prosecution witness after pleading guilty to his own obstruction of justice charge in April.

He told the court that he had followed Andersen's own document retention policy, the rules governing what paperwork can be destroyed from any given account.

But damagingly, he said that he was well aware that under the circumstances, with Enron facing a federal probe into its accounts, the policy itself was illegal.

"I obstructed justice," he said. "I instructed people on the (Enron audit) team to follow the document retention policy, which I knew would result in the destruction of documents."

His team and others shredded or otherwise destroyed a mountain of paperwork relating to Enron after the official investigation had begun.

Now, by saying that the firm's standard document retention policy was by definition an obstruction of justice, his testimony casts doubt on evidence given earlier in the day by serving Andersen staff.

Contradictions

The appearance of Mr Duncan - former head of the Enron auditing team in Houston - as a witness is in itself damaging to Andersen, which sacked him in the hope of containing the damage.

He refused to speak before congressional hearings, but pleaded guilty to obstructing the course of justice in an unexpected u-turn in April.

That u-turn infuriated his former employers who said that he had completely changed his story after months of protesting innocence.

This week's courtroom appearance is the first time the 43-year old accountant has explained his side of the story since the scandal erupted.

In Monday's testimony he outlined a plea bargain he agreed with prosecutors - sparing him the maximum 10-year prison term.

As part of that bargain, he signed an agreement requiring him "to tell the truth" about his time at Andersen .

He began testimony late in the day, and is expected to detail what went wrong at Enron and why his team approved their misleading accounts later this week.

Under the counter

Andersen was Enron's auditor throughout the time in which it was hiding losses in off-the-books, offshore vehicles.

Enron admitted it had overstated its earnings by more than $1bn in October 2001.

Unsurprisingly, soon afterwards staff were furiously trying to work through Enron's books - not least because earlier scandals involving Andersen's auditing of Waste Management Inc had been settled with Andersen promising not to repeat its mistakes.

One senior auditor involved, Amelia Ripepi, told the court earlier on Monday that she had seen a 9 October e-mail from Andersen lawyer warning of an impending Securities and Exchange Commission (SEC) investigation into Enron.

Another email from the same lawyer, Nancy Temple, sent after the SEC probe was under way, advised staff to follow document retention policy.

Ms Ripepi said that did not mean there was any discussion of destroying documents relating to the case.

"I don't recall that was said or wasn't said," she told the court.

"I don't recall that conversation."

Citing her right not to incriminate herself, Ms Temple has refused to give evidence.

 WATCH/LISTEN
 ON THIS STORY
Andersen's lawyer Rusty Hardin
"Do you think you've heard much about document destruction yet? - I don't think so"
The BBC's Mark Gregory
"He [David Duncan] actually said yes he had obstructed justice by ordering this cover-up"
The BBC's Patrick O'Connell
"The international partnership is disintegrating"
See also:

06 May 02 | Business
Q&A: Andersen in court
06 May 02 | Business
The Andersen trial at-a-glance
05 May 02 | Business
Shredding for gold
02 Apr 02 | Business
Andersen-KPMG merger on the rocks
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