Honest Services Fraud
In 2019, dozens of individuals were charged in a nationwide conspiracy with cheating on elite college entrance exams and admission requirements. The Department of Justice charged more than 50 individuals, including actors, lawyers, and wealthy business owners, with conspiracy, mail and wire fraud, money laundering, racketeering, and something called "honest services mail." Honest services fraud is defined in the federal statute as "a scheme or artifice to deprive another of the intangible right of honest services."
The intent of this law was to curtail government corruption, but the language in the statute doesn't limit itself to government officials and can include private citizens. There's also no definition of "honest services", no limitation on the scope of the statute, and no provision for due process under the law. Rather, it's been left up to the courts to define and limit the statute. The following article examines the U.S. Supreme Court's interpretation of the honest services fraud statute, with examples of its application over time.
What is Honest Services Fraud?
Honest services fraud typically requires at least three people:
- someone who pays a bribe,
- someone who accepts the bribe, and
- someone who's harmed by the transaction.
The person who accepts the bribe owes some sort of duty to the third person and is typically an employee or an elected official. In the college scandal case, coaches owed a duty to their universities to find the best athletes for the school. They violated that duty by accepting bribes to promote students with no history of athletic ability.
As an example, Yale University coach Rudolph Meredith pled guilty to a violation of honest services wire fraud. He was charged with devising a scheme to obtain money and property by fraudulently contriving admission to Yale University through bribes and kickbacks, thereby depriving Yale of its right to his honest services.
Honest Services Fraud Through the Eyes of the Supreme Court
The interpretation of the honest services fraud statute had its birth in the Supreme Court case McNally v. United States. That case held that honest services fraud applied only to tangible property. However, Congress disagreed with that interpretation and changed the statute to specifically include "intangible property."
After McNally, prosecutors increased their use of honest services fraud. This new emphasis alarmed Supreme Court Justice Anthony Scalia. In Sorich v. United States, Scalia gave a scorching rebuke of the statute for its vagueness and expansive scope. He cited numerous examples such as the case where students schemed with a professor to turn in a plagiarized paper. Scalia believed that the court should tackle the scope and the meaning of the statute and reign in its abuses.
Finally, the Supreme Court, in Skilling v. United States, took the honest services statute head on. The holding in the Skilling case anchored the statute's meaning to the pre-McNally cases. In those cases, a violation of the honest services act required a bribe or kickback. While John Skilling, as the CEO of Enron, perpetuated a broad fraudulent scheme on shareholders and the public, he was found not guilty of violating the honest services fraud statute, because his fraudulent scheme didn't involve bribes or kickbacks.
Elements and Defenses to Honest Services Fraud
To be guilty of violating the honest services fraud statute you must owe a duty of honest service to someone and have deprived that person or entity of the duty owed by accepting a bribe or kickback from another person.
Examples of this would include an elected official violating his duty to his voters by accepting a bribe to vote a certain way. As an example, Jack Abramoff corruptly provided campaign contributions, trips, meals, and entertainment to public officials in exchange for influence.
Another example is where California doctors were charged with accepting illegal kickbacks to refer patients to specific hospitals for spinal surgeries, thereby defrauding the California workers compensation system.
The best defenses to a charge of honest services fraud is that there was no duty of honest service owed, that no bribe or kickback took place, or that there was a good faith belief that the representations made were true.
Penalties for Honest Services Fraud
The federal fraud by mail or wire statutes, of which the honest services fraud statute is a part, provide for a fine or a maximum prison sentence up to 20 years, or both. This prison sentence can be for each individual instance of mail or wire fraud, specifically each letter, each telephone call, and each email. Conceivably, prison sentences could total up to well over 100 years.
Seek Legal Advice If You've Been Charged with Honest Services Fraud
Conviction of honest services fraud can lead to lengthy prison terms. If you're facing such charges, you'll need competent legal advice. Contact a knowledgeable criminal defense lawyer today to protect your rights and to plan your defense.