Honest Services Fraud – Past and Future

What attorneys and jurists refer to as “honest services fraud” has a complicated legal history that can be considered the foundation of white-collar crime as we know it.

Its origins can be traced to the mail fraud statute of 1872, a piece of legislation created at the behest of the Postmaster General, who sought to eliminate fraudulent activities carried out via the mail system. The statute applies to any plan to defraud via “false or fraudulent pretenses, representations, or promises” and was initially rather clear-cut. However, as the damages from such schemes became more abstract and less tangible, new legal definitions were needed to address the changing nature of fraud. The first case that established an expanded definition of the statute was the Supreme Court’s opinion in Shushan v. United States, in which the court upheld a decision against a public official who had accepted bribes from businessmen in exchange for encouraging city government actions and policies that benefited their businesses. In this case, the court found that the public had been deprived of their right to honest government. However, in McNally v. United States, a case involving kickbacks and patronage that benefited a private citizen, the Supreme Court found that the scheme did not violate the mail fraud statute. In response, Congress added language to an unrelated piece of legislation, stating that fraudulent activity covered by the law would include any “scheme of artifice to deprive another of the intangible right of honest services.”

The new legislation, which was likely crafted in response to the court’s decision in McNally, has received frequent criticism for the vagueness of “honest services,” a term previously untested in the American justice system. In the years since its passage, courts have generally held that this applies to activities like bribing a public official in exchange for some non-monetary action, or keeping a particular conflict of interest hidden in order to gain advantage. The Supreme Court only addressed the vagaries of the law in its 2010 decision in Skilling v. United States, a case concerning the activities of the former Enron executive. The result was a deliberate limitation of the honest services provision, which eliminated charges involving “undisclosed self-dealing by a public official or private employees,” leaving only kickbacks or bribery as the necessary components of honest services fraud.

A more recent case in the D.C. Circuit Court of Appeals, United States v. Ring, has modified this somewhat, however. Lobbyist Kevin Ring was originally convicted in 2010 of honest services fraud for providing various gifts to public officials. In the original trial, the district court judge maintained that the honest services statute could still be violated even if the government did not present evidence of an explicit “quid pro quo” arrangement. The D.C. Circuit Court agreed, finding that lobbyists can be guilty of honest services fraud when they offer something of value with the intention to influence an official act, even if no transaction actually takes place. Given that the Supreme Court denied Ring’s petition for certiorari in October, the D.C. Circuit’s ruling adds new complexities to the law, especially as they pertain to lobbyists.

Tim Broas

http://timbroas.com

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