Now We Know What Honest Services Fraud Is (Sort Of)


Yesterday the Supreme Court unanimously ruled that a federal statute making it a crime to deprive someone of "the intangible right to honest services" is unconstitutionally vague. The law is handy for prosecutors taking on allegedly corrupt politicians and businessmen—a little too handy, since no one is sure exactly what it covers. If you are reading this at work, thereby depriving your employer of your "honest services," you could be violating the statute right now. During oral arguments in December, Justice Antonin Scalia noted that prosecutors are "all over the place" in their interpretation of the law. "And if the Justice Department can't figure out what is embraced by this statute," he said, "I don't know how you can expect the average citizen to figure it out." Because clear guidelines for staying on the right side of the law are a basic requirement of due process, the statute in its current form had to go. Six justices decided to fix it by interpreting it to cover only cases involving bribes or kickbacks. Three others—Scalia, Clarence Thomas, and Anthony Kennedy—would have gone further, overturning the law entirely. In Scalia's view, the reading adopted by the majority "requires not interpretation but invention."

The honest services statute was challenged by three defendants. Former Enron CEO Jeffrey Skilling was convicted of honest services fraud based on allegations that he misled investors by manipulating the company's publicly reported financial results. Under the majority's reading of the statute, that conviction cannot stand, since the prosecution did not claim that Skilling was bribed to fiddle with Enron's numbers. Conrad Black, former chairman of Hollinger International, was convicted of honest services fraud for failing to disclose noncompetition fees that he paid himself with company funds. Similarly, Bruce Weyhrauch, a former Alaska legislator, was convicted under the statute for failing to disclose that he had solicited legal work from the oil-field service company Veco Corp. when Veco was lobbying the legislature for lower oil taxes. Both of those convictions now also look wobbly, since there was no clear bribe or kickback in either case. The Court sent all three cases back to lower courts for further consideration.

This decision slightly narrows the dangerously broad discretion that federal prosecutors have to indict people who may not have realized they were breaking the law and to arbitrarily pile on penalties by linking one vague statute to another. The honest services law, for instance, can be combined with equally sweeping wire fraud, racketeering, money laundering, and obstruction of justice statutes to punish the same underlying actions over and over again, generally much more severely than the offense would have been treated under state law. For more on the federalization of crime, see William Anderson and Candice Jackson's Reason articles here and here.

The Skilling decision, in which the Court narrowed the scope of the honest services statute, is here. The Black case is here. Previous Reason coverage of the subject here.