Andersen Faces Shredding By Criminal Investigation

Joseph Berardino, the chief executive of Arthur Andersen, recently issued a mea culpa emblazoned in full-page ads in US newspapers after the Enron collapse.

The massive document shredding that occurred in connection with Enron's demise was a rogue operation, Mr Berardino argued, and not something that came from the top. But Andersen's damage limitation exercise has failed and now it faces the lash of the US justice department, which yesterday indicted the company on criminal obstruction charges.

The indictment marks the first criminal charges filed in connection with the Enron scandal as well as the first ever indictment against one of the big five accountancy firms.

The US government does not issue criminal charges against corporations lightly, and this is the most high-profile case since Washington accused Drexel Burnham Lambert, the employers of junk bond king Michael Milken, of securities fraud. Drexel subsequently disappeared.

Andersen might well describe itself as appalled by the indictment, as the consequences of the government action could spell doom for one of the world's mightiest accountancy firms.

Even before the indictment, which is an allegation and not a conviction, as Andersen reminds us, the company was frantically trying to find a merger partner to ensure its survival.

But talks with rival firms such as Deloitte Touche Tohmatsu and PricewaterhouseCoopers went nowhere. The most likely outcome is a fragmentation of the firm into different national partnerships.

The non-US member firms of the Andersen worldwide network provide employment to 60,000 people in 83 countries outside America, and these member firms will probably go their own way.

Quite apart from affecting the fate of tens of thousands of employees, the likely disappearance of Andersen as a global player will have serious repercussions for the global accountancy business, as the Big Five will shrink to the Big Four.

This should be a lesson for US regulators, who allowed such consolidation to occur in the first place. America likes to boast of the virtues of competition, and yet allowed the number of competitors in the global accountancy business to dwindle to a handful. With Andersen heading towards extinction, the already small number of competing firms is about to diminish further.