Honest Services Fraud

In 2019, the U.S. Department of Justice charged dozens of people in a nationwide conspiracy with cheating on elite college entrance exams and admission requirements. The DOJ charged more than 50 people, including actors, lawyers, and wealthy business owners, with conspiracy, mail and wire fraud, money laundering, racketeering, and "honest services fraud."

According to the federal statute, honest services fraud is "a scheme or artifice to deprive another of the intangible right of honest services." The federal law is in 18 U.S.C. 1346. This part of the U.S. Code prescribes many elements for this federal crime.

This law intended 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 statute's scope, and no provision for due process under the law. It's up to the courts to define and limit the statute. This 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
• Someone who's harmed by the transaction

The person who accepts the bribe owes a duty to the third person, typically an employee or elected official. This duty can be a “fiduciary duty." 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.

For example, Yale University women's soccer coach Rudolph Meredith pleaded guilty to violating honest services wire fraud. He was charged with devising a scheme to get money and property by fraudulently contriving admission to Yale through bribes and kickbacks, depriving Yale of its right to his honest services.

Honest services fraud can take many forms. It involves many types of conduct. All these types of conduct fall within the scope of white-collar crime. Some of those forms and types of conduct are:

• Kickback schemes
• Fraud involving financial institutions
• Involve violations of mail fraud statutes, if the crime involves the use of the mail
• Breach of fiduciary duty for personal gain
• Offenses that also entail violations of wire fraud statutes given how this type of crime tends to be committed
• Can involve people from the private sector, but can also involve people from the public sector
• Can be a consequence of public corruption

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. But Congress disagreed with that interpretation and changed the statute to include intangible property specifically.

After McNally, prosecutors increased their use of honest services fraud. This new emphasis alarmed Supreme Court Justice Antonin Scalia. In Sorich v. United States, Scalia rebuked the statute for its vagueness and expansive scope. He cited several examples, such as a case where students schemed with a professor to turn in a plagiarized paper. Scalia believed that the court should tackle the statute's scope and meaning and reign in its abuses.

Finally, in Skilling v. United States, the Supreme Court took the honest services statute head-on. The holding in the Skilling case anchored the statute's meaning to the pre-McNally cases. Violating the honest services act required a bribe or kickback in those cases. John Skilling, 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.

Lower courts and other federal courts have also weighed in on the matter. But the Supreme Court precedent always governs.

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 include an elected official violating his duty to voters by accepting a bribe to vote a certain way. For example, former lobbyist Jack Abramoff corruptly provided campaign contributions, trips, meals, and entertainment to public officials in exchange for influence.

Another example is when California doctors were charged with accepting illegal kickbacks to refer patients to specific hospitals for spinal surgeries, defrauding the California workers' compensation system.

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 of up to 20 years, or both. This prison sentence can be for each 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 plan your defense. This area of criminal law is difficult to navigate on your own. When this crime is treated as a federal one, it can result in years in federal prison. Honest services fraud cases are complicated. An honest services fraud conviction can ruin a person's record. Fraud prosecutions can be too difficult to manage yourself. Federal prosecutors will often try to secure the harshest penalties. Contact a criminal defense attorney today.