“Honest Services” Fraud Defined

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Recent rulings by the Supreme Court have significantly narrowed the scope of criminal liability for corporate officers and employees under the “honest services” law of the federal wire and mail fraud statutes.  Federal law makes it a felony to “deprive another of the intangible right of honest services,” a crime known as honest services fraud.

The Supreme Court held that individuals can only be convicted of honest services fraud if they have committed bribery or received kickbacks. Prior to the ruling, prosecutors had used the honest services statute to convict corporate executives and other employees for a broad range of activity, including non-disclosure of conflicts of interest. This ruling effectively put the brakes on prosecutors’ more ambitious theories of criminal liability.

Limiting honest services fraud to bribes and kickbacks likely means that prosecutors can bring charges only when an officer or employee has taken money, or other types of gifts, from a third party. Absent evidence of bribery or kickbacks, failure to disclose conflicts of interest will no longer be grounds for prosecution.

This raises some questions. Will prosecutors be able to fit self-dealing and conflict-of-interest cases into the bribery/kickback framework? Also, to secure a conviction for honest services fraud, must prosecutors show that corporate workers held a fiduciary position? It is possible that prosecutors may be able to pursue self-dealing and other breach of fiduciary duty cases by framing them as bribery or kickback schemes.

It is possible that, sometime in the future, Congress may pass laws that expand the definition of corporate “crimes.” In its ruling, the Supreme Court expressly invited Congress to pass clearer laws if it intends to permit the prosecution of self-dealing by corporate officers and employees.


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