Honest Services Fraud: We Know It When We See It


The Supreme Court has agreed to hear two cases involving the federal statute that makes it a crime to "deprive another of the intangible right of honest services." The law is a handy tool for going after corrupt public officials, such as those Pennsylvania judges who took kickbacks from the juvenile detention centers they kept full. But as New York Times legal columnist Adam Liptak notes, the definition of "honest services fraud" is maddeningly, and possibly unconstitutionally, vague. "How can the public be expected to know what the statute means when the judges and prosecutors themselves do not know, or must make it up as they go along?" a 2nd Circuit judge asked in a 2003 dissent. Supreme Court Justice Antonin Scalia notes that the law "has been invoked to impose criminal penalties upon a staggeringly broad swath of behavior." The idea behind the statute, as Scalia summarizes it, is that "officeholders and employees owe a duty to act only in the best interests of their constituents and employers." Taken literally, he says, this principle "would seemingly cover a salaried employee's phoning in sick to go to a ballgame."

One of the cases the Supreme Court will hear involves former Enron CEO Jeffrey Skilling, who argues that his role in the company's demise did not amount to honest services fraud because his actions "were not intended to advance his own interests instead of Enron's." The other case involves former Hollinger International CEO Conrad Black, who says his controversial uses of company resources were not illegal under the statute because he did not envision that his employer would suffer "some identifiable economic injury." The circuit courts are split on whether the law requires economic injury to the victim and/or economic benefit to the defendant. According to the U.S. Court of Appeals for the 7th Circuit, the "fraud" has to yield some gain, but it needn't benefit the defendant himself. Hence public officials who hook up their cronies with government jobs, a very common practice across the country, can be charged under the statute.

While that might sound like a welcome prospect, it raises some serious concerns about political vendettas and federal interference with local matters. More generally, the statute does seem dangerously broad. As Liptak notes, civil liberties attorney (and Reason contributor) Harvey Silverglate, in his new book Three Felonies a Day, cites honest services fraud as a catch-all charge that, like mail fraud, conspiracy, and racketeering, invites abuse by ambitious or vindictive prosecutors.

William Anderson and Candice Jackson highlighted the hazards of sweeping federal criminal statutes in the April 2004 issue of Reason.