International records retention

Stephens, David O

We depart from our usual survey of the status of records management in various countries to discuss an issue never before addressed in Records Management Quarterly -- the international aspects of records retention. Our main focus will be to present a methodology for multinational corporations to extend the coverage of their records retention programs from their domestic operations to their international ones, so that the programs will be worldwide in scope. We will consider the benefits of an international records retention program and how to develop one, and we conclude with some strategies for implementing the program. Although the article is written primarily from the perspective of a U.S.-based multinational corporation, the concepts presented here should be generally applicable to any large multinational business.

WHY RECORDS RETENTION WORLDWIDE?

For a multinational corporation with business operations in countries outside the U.S., records retention for these overseas business units is just as important as it is for the company's domestic operations. Unless the company's overseas business units have a well developed and aggressively implemented records retention program, they cannot control the growth of their records, ensure compliance with records retention laws and regulations, or reduce the legal liabilities that can sometimes be associated with document retention and disposal. Moreover, with the rapidly increasing integration of the global economy (due largely to international trade agreements such as NAFTA and GATT), international records retention is sure to grow in importance as a business practice.

There are, however, certain major differences between records retention in the U.S. as compared to other countries, and records managers of multinational companies need to be aware of them as they develop a strategy for expanding the scope of their retention programs abroad. For one thing, the legal framework for records retention is different in other countries as compared to the United States. Further, because records retention is not as well established as a business practice in other countries as it is here, the concept of systematic and timely disposal of business records may not be as enmeshed in the culture of organizations as it is here. We will discuss these and numerous other issues -- and ways of dealing with them -- as we progress.

COMPLIANCE WITH INTERNATIONAL RECORDS RETENTION LAWS

For business units of multinational corporations which are located outside the U.S., adherence to the laws of the country of domicile is usually required -- including records retention laws. The main difference is the fact that the records retention regulatory climate is such that compliance is often somewhat simpler than it is in the U.S. This is because most countries have enacted only a few laws relative to records retention; thus, locating these requirements and applying them to the organization's records is not such a burdensome task. This is in sharp contrast to the situation in the U.S., which has promulgated literally thousands of records retention statutes and regulations, thereby making compliance a difficult task.

As discussed below, except for the U.S., Canada, Australia and the United Kingdom, most countries have enacted only a few laws related to records retention; most of these laws apply to accounting and general business records and were imposed primarily for tax administration purposes. Ten years is the most common retention period.

REDUCING THE RISKS ASSOCIATED WITH RECORDS USED IN LITIGATION

Litigation is somewhat less onerous in other countries than in the U.S. The United States is a highly litigious society, one in which lawsuits are often the means of resolving business disputes. Companies which manufacture products that may be harmful to consumers or the environment are particularly vulnerable to liability lawsuits, but no company is immune from them. Because these lawsuits are often decided on the basis of documentary evidence, U.S.-based corporations have strong incentives to be very careful about what documents they retain and for how long. In countries which are not "litigation intensive," this problem is not so acute. Even so, records retention as a tool for minimizing the risks of the documents in litigation remains a valid strategy for multinational companies. For example, manufacturing operations conducted abroad do not necessarily render U.S.-based multinationals invulnerable to the risks of liability lawsuits. If products are made abroad and are shipped back into the U.S. for sale, and if their use causes harm to the user, the manufacturer can still be sued on account of the unsafe performance of the product. And, in the event of a lawsuit, records maintained in overseas jurisdictions are discoverable in the same manner as those stored in the United States, and failure to produce them may subject the multinational company to sanctions.

The best approach for multinational records managers to follow in reducing the risks associated with the use of records in liability lawsuits is to determine which records have the highest probability of being discovered for use in litigation and to apply a "short retention" posture to them based on the premise that, in the event of litigation, the fewer records the better. These short retention periods should be just long enough for the company to comply with the law and meet its business needs, but no longer. As a generalization, product development/design and engineering records, and product quality control/testing and inspection records have the highest probability of being discovered for use in liability lawsuits. Thus, multinational records managers should give very careful consideration to the retention of these records.

SPECIFIC PROVISIONS OF INTERNATIONAL RECORDS RETENTION LAWS

The following is an analysis of specific provisions of the records retention laws of various countries. Both common and unique features of these laws will be highlighted, in order to provide the reader with an understanding of the legal framework of records retention in a global context.

Retention of Accounting Records

Perhaps the most important reason why national governments throughout the world impose records retention requirements on business is to protect their ability to collect taxes. In order to do this, the government must have access to the accounting records of businesses. Thus, virtually every country known to impose records retention requirements has enacted laws which mandate the retention of ledgers, journals and other books of account, and other supporting documentation such as vouchers, balance sheets, records of goods bought and sold, inventories of stock, etc. Such laws are known to exist in 35 countries (see Table 1). A sample of typical requirements include:

* Argentina -- "Every merchant is bound to keep books of account [including] daybooks, stockbooks, and confirmed invoice books." Retention period -- life of business plus 10 years.

* Belgium -- Merchants must keep inventory books, official journals, sales and purchase journals, general ledgers, etc. Retention period -- 10 years.

* Botswana -- "Every company shall cause to be kept ... proper books of account with respect to ... all sums of money received and expended, all sales and purchases of governments, the assets and liabilities of the company...." Retention period not specified.

* France -- "Accounting documents and the papers supporting them are [to be] preserved for ten years."

* Germany -- "Every merchant is obligated to store ... commercial business records, inventories, balance sheets, as well as the instructions and other organizational documents necessary for interpreting such documents." Retention period -- 10 years.

* Iraq -- "Commercial books and paper should be kept for a period of fifteen years from the date of last entry of transaction ... commercial registers and documents should be kept for a period of six years for tax purposes."

* Italy -- "The enterpriser who exercises a business activity shall keep a journal and an inventory book. He shall, moreover, keep other accounting records ... and preserve in letters, telegrams, and invoices received as well as copies ... sent out...." Retention period not specified.

* Japan -- "Every trader shall prepare accounting books and balance sheets for making clear the conditions of business properties and profit and loss ... Every trader shall preserve his books of account and all important documentation relating to his business for a period of ten years."

* Malaysia -- "Every company ... shall cause to be kept such accounting and other records as will sufficiently explain the transactions and financial position of the company and enable true and fair profit and loss...." Retention period -- Seven years after the date of transaction or operations to which they respectively related.

* Mexico -- "A merchant must keep the original vouchers of his transactions ... for a minimum period of ten years."

* Singapore -- "Every person carrying on or exercising any trade, business, profession or vocation shall keep and retain in safe custody sufficient records to enable his income and allowable deductions under the Act to be readily ascertained." Retention period -- 7 years.

* South Africa -- "Every company shall keep ... records showing the assets and liabilities of the company; a register of fixed assets, records of all cash received and paid out, records of all goods purchased and sold." Retention not specified.

Retention of General Corporate/Legal Documents

Next to accounting records, international retention laws most frequently apply to general corporate/legal documents. These requirements mainly appear in the business corporation laws or commercial codes of the countries, and they typically apply to all businesses domiciled within the country, including units of foreign-owned, multinational corporations.

Although they vary in coverage and specificity, these laws typically mandate the retention of records such as minute books, articles of incorporation, shareholder registers, financial statements, deeds, and other documents serving as evidence of the legal status and ownership of the business. Some countries are very specific concerning which records are required to be retained, while others are very general. A good example of the latter is South Korea; Chapter 5 of the Code of Civil Procedure states that "every trader shall preserve his trade books and all important documents relating to his business for ten years."

Such laws are known to exist in the following countries: Belgium, Bermuda, Brazil, British Virgin Islands, Italy, South Korea, Lesotho, Libya, Mexico, Paraguay and the United Kingdom. As shown in Table 2, the retention requirements range from three years (for private companies in the United Kingdom), to life of the business plus four years (Costa Rica). Several countries (Brazil, British Virgin Islands, Italy and Lesotho) do not prescribe a specific period of retention.

Retention of General Business Correspondence

In addition to retention requirements covering general corporate and accounting records, a number of countries (mostly in Europe and Latin America) mandate the retention of letters, telegrams, and other general business correspondence. Some of these countries are:

* Bolivia -- "The merchant shall keep a file copy of correspondence relating to business negotiations by whatever means will assure the exactitude and durability of the copy. Also, he shall keep the correspondence he receives relative to his commercial activities, with notation of the date of receipt, reply or note of not having been answered." Retention period -- 5 years.

* Belgium -- "Copies of all correspondence must be retained." Retention period -- 10 years.

* Costa Rica -- "Correspondence must be carefully retained in the files. A copy of all correspondence mailed must be retained in the files." Retention period -- Life of business plus 4 years.

* Dominican Republic -- "Correspondence received and letters sent must be classified and kept for a period of 10 years."

* Germany -- "Every merchant is obliged to store ... incoming business correspondence ... copies of outgoing business correspondence." Retention period -- 6 years.

* Luxembourg -- "All books and correspondence must be kept for ten years."

* Paraguay -- "Any merchant ... must also keep his business correspondence." Retention period -- 5 years.

* Portugal -- "Every merchant is obliged to file the correspondence and telegrams he receives ... for a period of ten years."

* Uruguay -- "In the copy book merchants must copy unaltered and literally all letters written relating to their business." Retention period -- 20 years.

RETENTION LAWS SPECIFIC TO FOREIGN BUSINESSES

Several countries (e.g., British Virgin Islands, Peoples Republic of China) have enacted records retention laws applicable to foreign-owned businesses located within their country. In the British Virgin Islands, the International Business Companies Ordinance of 1984 requires foreign-owned companies to retain registers showing the names of persons owning shares in the business. In this type of law, the government is imposing this type of records retention requirement to give it the ability to know who owns the foreign-owned businesses within its borders.

Much more extensive records retention regulations on foreign-owned businesses have been imposed by the Peoples Republic of China. During the past ten or so years, this huge Communist nation has permitted large-scale business investment, particularly in its southern provinces. In an effort to regulate this investment, the Chinese government in 1985 promulgated certain accounting regulations applicable to joint ventures in which one party is a foreign business. Chapter 13 of these accounting regulations is entitled "Accounting Documents and Accounting Records." Its main records retention provisions are as follows:

* Annual accounting statements and all other "important" accounting files relevant to the rights and interests of all the participants of a joint venture such as agreements, contracts, articles of association, resolutions, etc. are required to be retained permanently.

* General accounting documents including books of account and monthly and quarterly accounting statements must be retained for a minimum of 15 years.

* If the joint venture wishes to destroy any general accounting documents after the 15 year retention period has lapsed, an itemized list of the destroyed records must be created and retained permanently.

RETENTION IMPLICATIONS OF INTERNATIONAL TRADE AGREEMENTS

The world's economy is almost certain to become more tightly integrated during the 1990s, due primarily to the implementation of regional and global trade agreements. These include EC'92, which formalized the European Union, a regional economic alliance consisting of the major industrialized nations of Europe; NAFTA, the North American Free Trade Agreement, consisting of Canada, Mexico and the United States; and finally GATT, the General Agreement on Tariffs and Trade, a global trade agreement among 108 nations, including the United States.

These international trade agreements have significance for records retention in multinational companies. Specifically, Article 505 of the NAFTA agreement establishes a retention period of five years for "all records relating to the origin of a good for which preferential tariff treatment was claimed." This provision would apply to certain records documenting the import/export of products of multinational companies doing business in Canada, Mexico and the United States.

This writer is not aware of any similar records retention provision promulgated by the European Union or by GATT and the World Trade Organization that administers it. Multinational records managers should consult Law and Practice Under GATT and European Community Companies Law to discover such requirements.

RETENTION ISSUES ASSOCIATED WITH QUALITY RECORDS

In developing a records retention program of worldwide coverage, multinational companies must consider the retention implications associated with records documenting the quality of their products and services. This issue has come to the forefront of records management in multinational companies because of an international standard known as ISO 9000. Issued by the International Organization for Standardization based in Geneva, Switzerland, ISO 9000 provides a minimum quality assurance system designed to ensure the quality of goods and/or services sold by businesses. ISO 9000 has been adopted by the European Union as a quality standard for products used in Europe, and this standard is rapidly spreading throughout the world. Today, virtually all multinational companies must obtain ISO 9000 registration in order to compete successfully in global markets.

In order to obtain and retain ISO 9000 registration, a business must prove it is following its own quality procedures for producing products and services. This requires the company to operate good recordkeeping systems for their quality records. Although the ISO 9000 standards do not prescribe any retention periods for quality records, they do state that "retention times of quality records shall be established and recorded." This means that, if a company has not established records retention schedules for its quality records, this fact may be noted by an auditor during an ISO 9000 registration audit. The audit would usually recommend or require that this deficiency be corrected in order for the business to retain its ISO 9000 registration.

In summary, multinational companies which desire to obtain and retain ISO 9000 registration must establish records retention schedules for their quality records, which would include a wide variety of records serving as evidence that the business operates a good quality control program.

CONDUCTING INTERNATIONAL RETENTION LEGAL RESEARCH

Earlier we outlined specific provisions of the laws of various countries that prescribe retention periods for certain types of general business and accounting records. While this discussion provides a good introduction to international laws related to records retention, multinational records managers will want to conduct more detailed research to ensure that they locate all records retention laws in every country in which their company has business operations or otherwise does a substantial volume of business. How does the multinational records manager accomplish this task? The several steps are outlined as follows:

(1) Consult International Legal Sourcebooks

The following sourcebooks are recommended; they may be consulted at large law libraries, especially those having a special section devoted to international law:

* Commercial Laws of the World

* Multinational Corporations Law

* World Tax Law

* International Environmental Law

* Customs Laws and Administration.

* European Community Companies Law

* Law and Practice Under GATT

* Geolex -- This is an on-line research service that publishes laws and regulations for most of the world's major industrialized countries.

(2) Conduct Research in Specific Areas of the Law

For most multinational companies, the records manager will need to research the following areas of international law: companies acts, commercial codes, contracts laws, labor laws, intellectual property laws, customs/trade laws, tax codes, civil procedures laws, and environmental laws. Consult the indices for entries such as "books," "records," "documents," "files," etc., as records retention requirements are likely to be found under these sections of the law.

(3) Perform Specialized Research for Specific Areas of Business

Some types of businesses may require specialized research, which may include consulting with legal counsel in particular countries or even contacting certain ministries of government. A good example is the petroleum business, a globalized and highly specialized industry that may be subject to special regulations (including records retention) in many countries. In some cases, it may be necessary to consult with legal counsel in specific countries in which the records retention situation is particularly problematic, or even to communicate with ministries of government which regulate the business of the multinational company in certain countries.

(4) Consider the Retention Implications of the Foreign Corrupt Practices Act

This U.S. law does not contain any records retention requirements, but the availability/retention of certain records may be construed as an "implied responsibility" on the part of multinational companies which must comply with its provisions. The FCPA was enacted in 1977 to control and regulate bribery payments to foreign officials by multinational companies for the privilege of doing business in a particular country. The FCPA recognizes that poor recordkeeping is an impediment to the detection and prosecution of offenses against this law. Thus, the statute requires companies to "make and keep books, records and accounts which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of the company." Again, no retention period is specified. In order to comply with this law, multinational records managers should establish reasonable retention periods for the accounting records maintained in their overseas business units. These retention periods should, of course, comply with all country-specific retention requirements and they should be generally conservative -- usually not less than seven years.

IDENTIFYING BUSINESS NEEDS FOR INFORMATION RETENTION

The preceding discussion has focused on the legal aspects of records retention in the overseas business units of multinational corporations. Of equal or even greater importance are the needs to retain these records for business purposes. Identifying these needs involves a process similar to that practiced everywhere: the multinational records manager must determine precisely what records are retained overseas by conducting an inventory of all records and files at these locations. Also, discussions must be held with the people in charge of departments in these business units to solicit their opinions as to the retention value of the information for business purposes.

Because these tasks are covered very well in the records management literature, we will not go into detail about them here. We will, however, offer some suggestions relative to the records inventory/interview tasks that are specific to performing them in the international arena:

* Inventorying Records in Registry Filing Systems. The records and files retained by overseas business units must be inventoried at the records series level. This may be difficult in some countries which maintain registry-type filing systems, because the records in these systems are not always organized into separate, discrete records series. Rather, the records may be organized into straight numerical/chronological sequence, according to the date they were processed into the registry system. In these cases, it will be necessary to review the registry indices and talk to the registry officers to determine each records series, so that a retention policy can be established to govern their retention and disposition.

* Dealing with the Cultural Factors During the Interviews. Here in North America, the systematic disposal of business records under authority of formal records retention programs is a widely known and accepted business practice. While some managers may be reluctant to agree to the disposal of their records, they understand the need for records retention. In many countries outside North America, these factors may not be present. The best method of dealing with this situation is to obtain a firm commitment from the senior executives of the multinational company, and then conduct management briefings for many or all employees at each overseas location. These briefings should emphasize that all records retention policies will be developed such that they comply with the law and meet the organization's business needs. The goal is to develop these policies so that they are reasonable -- not too long, not too short.

THE ISSUE OF CORPORATE CONSISTENCY IN RETENTION POLICIES OF MULTINATIONAL CORPORATIONS

Whether a company is multinational or not, it is a good idea to develop consistent retention policies (identical retention periods for the same types of records). If this practice is not followed, the organization may be placed in the uncomfortable position of explaining to legal authorities why a record exists in one location but not in another. On the other hand, there are frequently very valid reasons for developing the different retention policies for the same type of records in different locations. For one thing, the records may be used for different business purposes and thus have different retention values in various domestic and overseas locations. Also, both the legal requirements to retain them and the cultural factors may necessitate differing retention periods.

Multinational records managers should deal with this issue by documenting the reasons for the retention decisions contained in the retention schedules for various locations. Valid reasons would include: legal requirements, business needs and common business practices. For all retention decisions based on a legal requirement, the documentation should show a brief digest of the law, together with its citation. For business needs, a brief statement of these needs should suffice. For common business practices, any definition or explanation that supports and justifies the retention decision should be sufficient.

Non-Retention Recordkeeping Requirements of International Laws. There are a number of recordkeeping requirements contained in international laws that multinational records managers need to know about. These include: methods of records destruction, specifications for the location where records must be retained, legal provisions relative to the integrity of records (protections against falsification), language requirements, requirements for protecting records against disaster, and specifications relative to the form (media) of records. These will be addressed in a future column.

TABLE 1

INTERNATIONAL RECORDS RETENTION

Retention Periods for Ledgers, Journals and Other Accounting Records

Country -- Retention Requirement

Argentina -- Life of Business + 10 Years

Barbados -- Not Specified

Belgium -- 10 Years

Bermuda -- 6 Years

Bolivia -- 5 Years

Botswana -- Not Specified

Brazil -- Not Specified

British Virgin Islands -- Not Specified

China -- 15 Years and Life of Business

Costa Rica -- Life of Business + 4 Years

Ecuador -- Not Specified

France -- 10 Years

Germany -- 6 and 10 Years

Ghana -- Not Specified

Guatemala -- Life of Business

Iraq -- 15 Years

Italy -- Not Specified

Jamaica -- Not Specified

Japan -- 10 Years

Korea, South -- 10 Years

Lebanon -- 10 Years

Lesotho -- Not Specified

Libya -- 5 Years

Luxembourg -- 10 Years

Malaysia -- 7 Years

Mexico -- 10 Years

New Zealand -- Not Specified

Paraguay -- 5 Years

Portugal -- 10 Years

Singapore -- 7 Years

South Africa -- Not Specified

Spain -- Not Specified

Sri Lanka -- Not Specified

Syria -- 10 Years

Turkey -- 10 Years

United Kingdom -- 3 or 6 Years

Uruguay -- Life of Business + 20 Years

Venezuela -- 10 Years

TABLE 2

INTERNATIONAL RECORDS RETENTION

Retention Requirements for Corporate Legal/Ownership Records

Country -- Type of Records -- Retention Period

Bermuda -- Minutes, Deeds -- 6 Years

Brazil -- Minutes, Shareholder Records -- Not Specified

British Virgin Islands -- Shareholder Records -- Not Specified

Costa Rica -- Minute Books -- Life of Business + 4 Years

Italy -- Minutes, Shareholder Records -- Not Specified

Korea, South -- All Important documents -- 10 Years

Lesotho -- Minute Books -- Not Specified

Libya -- Minutes, Shareholder Records -- 5 Years

Mexico -- Minutes, Shareholder Records -- 10 Years

Copyright Association of Records Managers and Administrators Inc. Apr 1995
Provided by ProQuest Information and Learning Company. All rights Reserved