WASHINGTON – The Justice Department will defer prosecuting Arthur Andersen LLP on obstruction charges in a settlement that requires the public admission that officials at Andersen headquarters knew employees were wrongfully destroying documents related to the collapse of Enron Corp., people familiar with the matter confirmed Monday.
In the settlement, still being finalized, the Andersen accounting firm also must cooperate fully with government prosecutors investigating Enron's bankruptcy, these people told The Associated Press, speaking on condition of anonymity.
The most significant provisions of what was described as a "global settlement" on the criminal charge already have been resolved, though some details were still being worked out. The sides expected to announce the deal Wednesday here in Washington, these people said.
The agreement could result in a deferral from prosecuting Andersen for as long as three years. Andersen's lawyers were uncomfortable with a deferral lasting that long, but the Justice Department was concerned that its investigation into possible wrongdoing at Enron isn't close yet to filing any criminal charges, people close to the negotiations said.
The agreement comes after weeks of intense, secret negotiations between the Justice Department and Andersen in the wake of the firm's criminal indictment unsealed March 14. Talks intensified after last week's plea agreement with David B. Duncan, the former senior Andersen auditor on the Enron account.
The grand jury accused the firm of destroying "tons of paper" at its offices worldwide and deleting enormous numbers of computer files on its Enron audits.
Duncan pleaded guilty April 9 to destroying documents relating to Enron's collapse and agreed to cooperate with government prosecutors. He remains free until his sentencing in August. Duncan is prohibited under his plea from discussing what he tells prosecutors, but he is considered knowledgeable about Enron's most controversial deals preceding its failure in December.
By agreeing to defer any criminal prosecution of Andersen for up to three years, the Justice Department can require Andersen as a corporation to cooperate in its investigation of Enron and promise not to violate any laws during that period, although it was unclear whether the government could compel cooperation from Andersen employees, who still could be indicted individually.
Andersen also likely would require to show steps it will take internally to prevent any recurrence, such as updating its policies on destroying documents.
Duncan's defection last week was important "because it left Andersen with very limited options in terms of a viable defense," said Robert A. Mintz, a former U.S. prosecutor and expert on white-collar crime. "They had an opportunity to defend this case if they could have effectively circled the wagons and kept everybody on board, but once Duncan broke ranks that defense was essentially gutted."
Meanwhile, on another front, Defense Secretary Donald Rumsfeld said he remained confident in Army Secretary Thomas White despite a report in The Wall Street Journal that the FBI was investigating possible insider trading over his sale of Enron stock.
Citing lawyers close to the case, the Journal said FBI agents were interviewing White's friends and former colleagues to determine whether he sought insider information about Enron before selling the stock.
The Washington Post also reported March 25 that the FBI had talked to a former Enron employee whom White called during that period to determine whether White had sought inappropriate information to help him profit.
Army spokesman Col. Joe Allen declined comment Monday.
White made about $12 million from selling his Enron shares, the last of which he sold Oct. 30. He has told reporters that no sensitive information was exchanged during dozens of phone calls with former Enron colleagues, some of whom also have said they did not discuss Enron with White during those calls. Some of the phone calls took place while the company's stock prices were tumbling.
White wrote to a House committee in March detailing 55 calls or attempted calls to Enron officials made from his home telephone. In January, he disclosed 29 contacts with officials -- either meetings or calls he made from his Pentagon office.
"There's no question but that he's performing his job and performing it well," Rumsfeld said Monday. "There's also no question in my mind but that he has been forthcoming and responded to every inquiry that's been made.
In another Enron-related development, the top Democrat on the House Government Reform Committee has asked banking giant J.P. Morgan Chase & Co. for information about transactions that "may have allowed Enron to covertly borrow money without the loan appearing on its balance sheet as a loan."
The request was made in a letter dated Friday to William B. Harrison, president and chief executive of J.P. Morgan Chase, from Rep. Henry Waxman of California.
J.P. Morgan Chase was among nine investment banks named in a shareholder lawsuit last week. They were accused of helping Enron hide debt and inflate profits.