Before 2010, federal prosecutors routinely used the honest services component of the federal fraud statute, 18 U.S.C. § 1346, to criminalize the failure of public officials and corporate executives to report their financial gains from business dealings with corporate or government entities or “enriched themselves as a result of the scheme through salary, bonuses, grants of stock and stock options, other profits, and prestige.”
Federal fraud prosecutions changed after the 2010 U.S. Supreme Court decision in Skilling v. United States. The Court ruled in that case that fraud under § 1346 is limited to fraud schemes that involve bribes and kickbacks.
In effect, the Skilling decision limted § 1346 fraud prosecutions of corporate executives, public officials, and fiduciaries who engage in “self-dealing” or further their self-interests, while supposedly acting in the interests of others to whom they owe a fiduciary duty, to cases in which there are allegations of bribery or kickbacks.
There was sound constitutional reasoning for the Supreme Court to rein in abusive federal honest services prosecutions before Skilling.
In an amicus curiae brief to the Court in the Skilling case, the National Association of Criminal Defense Lawyers (NACDL) explained: The honest services feature of § 1346 failed to provide “fair warning to ordinary people of the prohibited conduct or prevents arbitrary enforcement by federal prosecutors. The ‘core’ principles that the government now purports to find in the statute have no basis in its text or legislative history and amount to little more than an invitation to judicial legislation.”
Mail Fraud and Wire Fraud
These federal crimes, commonly known as “mail fraud” and “wire fraud,” encompass multiple forms of fraudulent conduct using jurisdictional hooks that reach practically all forms of communication.
18 U.S.C. § 1341, Mail Fraud, prohibits the use of the mails (including the United States Postal Service and “any private or commercial interstate carrier”) for the purpose of executing “any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises.
16 18 U.S.C. § 1343, Wire Fraud, likewise prohibits transmissions “by means of wire, radio, or television communication in interstate or foreign commerce” for the purpose of executing such schemes or artifices.
Tension Between Courts and Congress
A March 18, 2020 report by the Congressional Research Service notes an ongoing post-Skilling tension between the courts and Congress over what kinds of honest services prosecutions should be conducted under § 1346.
“After Skilling,” the C.R.S.S report stated, “mail and wire fraud prosecutions under an honest services theory may extend only to those who participate in bribery or kickback schemes in violation of a fiduciary duty. Notably, the Skilling decision withdrew from the reach of Section 1346 a significant category of cases that had been prosecuted as honest services fraud up to that point: cases involving more general financial self-dealing or conflicts of interest, where no bribes or kickbacks are given. Congress has considered legislation on more than one occasion to reinstate the self-dealing category of honest services fraud rejected in Skilling. However, the law remains unchanged as of this writing.
“The conversation between the Court and Congress regarding the scope of honest services fraud and its culmination in Skilling have presented more questions that lower courts are attempting to answer, including the source of the requisite fiduciary duty and the conduct that qualifies as bribery or kickbacks. Courts have looked to various sources to give content to the fiduciary duty requirement, including federal, state, and common law. Likewise, in fleshing out the contours of the bribery or kickbacks called for in Skilling, lower courts have relied on anti-bribery and anti-kickback provisions found in federal statutes.
In the recent case of McDonnell v. United States, the Supreme Court limited the reach of one of those statutes. 18 U.S.C. § 201 makes it a crime to offer or solicit anything of value to influence an “official act.” The Court construed “official act” narrowly as “a decision or action on a question, matter, cause, suit, proceeding, or controversy that involves a specific exercise of formal governmental power. Nevertheless, the Court left open the possibility that alternate routes may be available to prosecute bribery schemes involving conduct that may be beyond the scope of McDonnell.
“Should Congress seek to alter the scope of honest services fraud, it will likely need to be attuned to the concerns that federal district courts interpreting 18 U.S.C. § 1346 have voiced over the years. Chief among these have been the concerns that—as written—the statute has the potential to sweep too broadly and regulate ethically dubious conduct of state and local officials in a way that conflicts with the Constitution.”
That has been, and remains, the position of the NACDL:
“Section 1346 is still impermissibly vague because it gives prosecutors almost unlimited discretion to determine what undesirable conduct they will pursue.” This broad discretion incentivizes federal prosecutors to overreach in § 1346 offenses. We agree. Congress cannot make corruption a per se federal offense.