Honest services fraud: federal prosecution of public corruption at the state and local levels.

• Author: Neiberger, Ellie

Honest services fraud, a form of federal mail and wire fraud, is the crime of defrauding citizens of the "intangible right of honest services." (1) Over the past four decades, the federal government has used the honest services theory of mail and wire fraud to successfully prosecute state and local public officials for a broad range of improper conduct, the most controversial of which is failure to disclose conflicts of interest. (2)

This article provides a general overview of honest services fraud in the public sector. (3) Despite the variety of conduct this theory encompasses, the common premise of public sector honest services cases is that the "the public is not getting what it deserves: honest, faithful, disinterested service from a public official." (4) Although many of these cases involve high-ranking government officials, public sector honest services charges have been brought against all types and levels of governmental and quasi-governmental personnel. (5)

Development of the Honest Services Theory

The federal mail and wire fraud statutes make it a crime to use the mail or wires in furtherance of any "scheme or artifice to defraud." (6) The honest services doctrine developed as a judicially created theory of mail and wire fraud, under which the term "scheme or artifice to defraud" was read to encompass schemes to deprive the public of "intangible rights," including the right to have public officials perform their duties honestly. (7)

Generally, to sustain a conviction of mail or wire fraud, the government must prove 1) a scheme or artifice to defraud, 2) intent to defraud, and 3) use of the wires or mails in furtherance of the scheme. (8) The original theory was that a "scheme or artifice to defraud" referred to fraud intended to deprive another of tangible rights--specifically, money or property.

In the 1970s, federal prosecutors began using the mail and wire fraud statutes to fight public corruption in state and local governments, which is not specifically addressed by any federal statute. (9) However, because proof of identifiable loss of money or property is often difficult to prove in public corruption cases, (10) many of these cases were brought under a new, alternative theory that the public official engaged in a scheme intended to deprive the people of their intangible rights to the official's honest and impartial services. (11)

One of the more well-known early intangible rights cases is United States v. Mandel, 591 F.2d 1347, rev'd on reh'g en banc, 602 F.2d 653 (4th Cir. 1979) (per curiam). In this case, a state governor received various gifts from a horse racing association and, without disclosing such information, used his public position to influence legislation which benefited the association by increasing the number of days of the horse racing season. (12) Because the governor's conduct affected the citizenry by changing length of the racing season, it would be difficult to prove that he deprived them of property. Thus, rather than attempt to establish that the state's citizens suffered tangible loss, the prosecution charged the governor with federal mail fraud on the basis that he devised a scheme to deprive citizens of "their right to the conscientious, loyal, faithful, disinterested, and unbiased" services of their governor. (13) The Fourth Circuit accepted this theory, recognizing that, "the fraud involved in the bribery of a public official lies in the fact that the public official is not exercising his independent judgment in passing on official matters.... A fraud is perpetrated upon the public to whom the official owes fiduciary duties, e.g., honest, faithful and disinterested service." (14)

In McNally v. United States, 483 U.S. 350, 355 (1987), the U.S. Supreme Court rejected the honest services doctrine based on the absence of clear statutory language indicating Congress intended to protect intangible rights. The Court explained:

Rather than construe the statute in a manner that leaves its outer boundaries ambiguous and involves the [f]ederal [g]overnment in setting standards of disclosure and good government for local and state officials, we read [section]1341 as limited in scope to the protection of property rights. If Congress desires to go further, it must speak more clearly than it has. (15)

Congress acted quickly in response to the McNally decision. Just a year later, in 1988, Congress enacted the honest services fraud statute, 18 U.S.C. [section]1346, for the purpose of legislatively overruling McNally and restoring prior case law. (16) Section 1346 provides in its entirety: "For the purposes of [Ch. 63 of Title 18, which includes the mail and wire fraud provisions], the term 'scheme or artifice to defraud' includes a scheme or artifice to deprive another of the intangible right of honest services." Therefore, with the enactment of [section]1346, federal prosecutors were granted the express statutory authority to pursue government officials on the basis that dishonest dealing constitutes a theft from the public at large.

The Meaning of "Honest Services"

Because the statute does not define the term "honest services," its meaning has been left to the courts. However, as this broad term has no common law roots or unified meaning under pre-McNally case law, the courts have struggled with defining its parameters and have reached conflicting, and sometimes unpredictable, conclusions on the scope of the honest services statute. (17)

The absence of a clear definition of honest services has allowed prosecutors the flexibility to argue that almost any type of abuse of office comes within the statute's reach. (18) Furthermore, the courts have generally been willing to acquiesce in a broad application of the statute. (19)

Due to the lack of coherent guiding principles, the honest services provision has been challenged on grounds that it fails to give adequate notice of what conduct it prohibits and that it fosters abuse of prosecutorial discretion. (20) However, the circuit courts have refused to strike down the statute as unconstitutionally vague. (21) While the courts have offered various reasons for rejecting constitutional challenges, including that [section]1346 was not vague as applied to the official's clearly illegal conduct, (22) at least one court has held that "concrete parameters" are unnecessary, since the very "concept of the duty of honest services sufficiently conveys warning of the proscribed conduct when measured in terms of common understanding and practice." (23) The Supreme Court has not yet weighed in.

Recently, the honest services statute has received significant criticism for its application in the campaign contribution context, where First Amendment rights are implicated. In 2006, former Alabama Governor Don Siegelman was convicted of various federal crimes, including honest services fraud, in connection with a $500,000 contribution his state education lottery campaign received from Richard Scrushy of HealthSouth...