Break-up of Andersen gathers pace as UK partnership fights for survival

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The UK division of the beleaguered Andersen accountancy firm was yesterday staging a desperate attempt to distance itself from the crisis engulfing the firm in the wake of the Enron scandal.

The rearguard action came as the US government suspended Andersen from undertaking government work after the indictment of the firm by a federal grand jury on charges of obstructing the course of justice.

Meanwhile, the Andersen global network began to break up, with the firm's practices in Spain and Chile saying they would split from the group. But other practices, including the Canadian and Swiss businesses, continued to hold out hopes that ongoing talks with rival auditors KPMG could lead to a rescue deal which would keep the group intact globally.

The UK practice issued an opaque statement saying the London practice was not to blame for the widespread shredding of documents related to the audit of the collapsed energy giant. This was despite admitting that Enron documents were destroyed in London last autumn.

It said: "No Enron-related documents connected with the work of the UK firm were disposed of inappropriately. The UK partnership is not at fault."

The key to the carefully phrased statement was the use of the word "inappropriately". Andersen later issued a clarification saying it was "common practice to dispose of documents that become irrelevant to an audit during and after the audit process". It said these might include draft documents and duplicates but all "core" material to the audit had been kept.

Andersen admitted that peripheral documents were disposed of in London. Initially it said this was done by three Andersen managers who were on secondment from the firm's office in Houston, where the main Enron work was undertaken. The disposals were made under instruction from the Houston office. Andersen could not explain why Houston would issue instructions to dispose of documents that were only peripheral to a client's audit.

Later the company indicated that it may not have been only the three American workers who destroyed documents. A London spokeswoman said the Enron team in London consisted of about 40 UK workers in addition to the Americans.

The comments came a day after the US government formally indicted the firm. Responding, Joseph Berardino, Andersen's managing partner, said: "We are appalled by this news. It appears to be the result of over-reaching on the part of prosecutors. An indictment in the United States is an allegation, not a conviction. Arthur Andersen LLP has indicated that it will vigorously defend itself against these charges."

The US government's decision to suspend Andersen from entering into government contracts was a further blow.

Sara Lee Corporation, the food and household goods group, and the drugs giant Abbott Laboratories yesterday became the latest American companies to sever their relationship with Andersen after the indictment.

Confirming the end of the 37-year relationship, Sara Lee's chairman, Steven McMillan, said: "Once it became clear that Andersen's viability as an audit firm was in great jeopardy, our audit committee took the necessary steps to end the audit relationship." Merck, Federal Express and Delta Air Lines have already dumped the firm.

Separately, Andersen affiliates in Spain and Chile announced plans to dissolve agreements with the worldwide organisation. But other partnerships helped fuel speculation of an imminent deal that would see KPMG buy all or part of Andersen. A spokesman for the Swiss business said the they were waiting for KPMG to make a statement about a global deal, while the head of the Canadian practice, said "at this point" he was still committed to a global solution.

Rescue talks with Deloitte Touche Tohmatsu and Ernst & Young foundered earlier this week on concerns about the extent of the US practice's liabilities.