NEW YORK (CNN/Money) -
Embattled accounting firm Arthur Andersen is facing steep fines to settle obstruction of justice charges related to the destruction of Enron Corp. documents, a source familiar with talks between Andersen and Justice Department officials told CNNfn Tuesday.
The talks between the two sides are nearing a Thursday deadline, when Andersen executives are expected to meet with the chief of Justice's criminal division. The source said that while nothing has been agreed upon and talks could break down, Justice is taking a hard line in the talks.
"If a lesser charge is agreed upon, Andersen wouldn't be able to walk away without paying a price," the source told CNNfn. "In cases like this -- dealing with fraud, or drug dealers, or money launderers, or informants -- you still have to pay the piper."
Andersen has admitted that its employees shredded Enron documents, but has tried to blame fired partner David Duncan, who in turn has said he was advised by an in-house lawyer at Andersen to destroy the documents.
The talks with Justice come at a crucial time for the accounting firm.
A source close to the situation confirmed Andersen is in talks with several accounting firms to sell or merge portions of the company, adding it is possible a deal could be struck this week.
Only Deloitte Touche Tohmatsu would confirm it is talking with Andersen.
"We've had some discussion with Andersen about their future," James Copeland, Deloitte Touche CEO, told Lou Dobbs Moneyline.
"We continue to believe the best answer of them would be to remain independent," Copeland said. "If that is not possible, then some sort of orderly consolidation is important for the market."
According to the Financial Times, Andersen is also in talks with KPMG and Ernst & Young.
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On Monday former Federal Reserve Chairman Paul Volcker, appointed last month to lead an independent oversight board at the company, recommended that Andersen's accounting work be split from its higher-profit consulting business due to the potential for conflicts of interest.
The Chicago-based company also continues to lose high-profile business. On Tuesday oil and gas company Kerr McGee Corp. (KMG: Research, Estimates) became the latest company to drop Anderson, with FedEx Corp. (FDX: Research, Estimates) defecting on Monday.
Andersen does have insurance to help it cover some of the costs of fines or civil judgments awarded to Enron shareholders who are seeking damages for the collapse of the Houston energy trader. The Wall Street Journal reported Tuesday that Enron has $160 million in coverage from outside insurers; that will kick in after an Andersen-owned insurance company pays the $250 million limit of its own policy. Still, that is likely only a fraction of the money owed. The newspaper said the accounting firm has offered to pay up to $750 million to settle charges against it.
The Journal reported that insurance companies facing payments under policies it issued to Andersen are Swiss Reinsurance Co., XL Capital Corp. (XL: up $0.67 to $93.88, Research, Estimates), American International Group Inc. (AIG: up $0.51 to $73.92, Research, Estimates) and Germany's Gerling Group. It said Swiss Re has the largest exposure with $58.5 million in policies, according to unidentified sources knowledgeable about the policies.
Those insurers either didn't return calls or had no comment on Andersen policies, according to the Journal.