Mail and wire fraud.

• Author: Green, Christopher G.
• Position: Thirteenth Survey of White Collar Crime

1. INTRODUCTION

   To federal prosecutors of white collar crime, the mail fraud statute is our

   Stradivarius, our Colt 45, our Louisville Slugger, our Cuisinart--our true

   love. We may flirt with RICO, show off with 10b-5, and call the conspiracy

   law `darling' but we always come home to the virtues of 18 U.S.C. [sections]

   1341, with its simplicity, adaptability, and comfortable familiarity. It

   understands us and, like many a foolish spouse, we like to think we

   understand it....(1)

   As the above statement by a former federal prosecutor indicates, the mail(2) and wire(3) fraud statutes have always been used as a powerful prosecutorial tool. The purpose of these two statutes is to prevent the use of the mails or wires(4) in the furtherance of fraudulent activity. While the two statutes were separately codified, a majority of the case law dealing with the statutes has concerned the meaning of a "scheme to defraud" and the courts have generally considered the two statutes in conjunction with one another.

   The two statutes have been widely used to "cover not only the fun range of consumer frauds, stock frauds, land frauds, bank frauds, insurance frauds. and commodity frauds, but [also] ... such areas as blackmail, counterfeiting, election fraud and bribery."(5) Prosecutors have also used these statutes to prosecute money laundering and Racketeer Influenced and Corrupt Organizations Act ("RICO") violations.(6) A violation of [sections] 1341 or [sections] 1343 can provide the unlawful act necessary to establish a RICO(7) or money laundering violation.(8) Once a mail fraud or wire fraud offense has been proven, then both the RICO and the money laundering statutes allow for more severe penalties.(9)

   When legislatures have been slow to act to combat certain types of crimes, the mail and wire fraud statutes have often served as a "first line of defense"--serving as a "stop-gap device which would permit the prosecution of newly-conceived frauds until such time that Congress enacted particularized legislation to cope with new frauds."(10) The mail and wire fraud statutes have, therefore, been referred to as "at least one secret weapon"(11) possessed by federal prosecutors.

   In 1994, responding to the ever-increasing threat of new innovations such as telemarketing fraud, the federal mail fraud statute was amended to cover not only the United States Postal Service (USPS), but private interstate commercial carriers as well (e.g., United Parcel Service, FedEx, DHL).(12) Because many of these telemarketing ploys were directed at the elderly, Congress promulgated the Senior Citizens Against Marketing Scams Act ("SCAMS"), which specifically criminalized telemarketing fraud.(13) The SCAMS Act of 1994 enhanced the penalties for mail and wire fraud convictions when targeted at individuals aged 55 and over.(14)

   This Article concentrates on the mail fraud statute because it has been utilized more frequently than its wire fraud counterpart. However, with the rapid advance of technology, the wire fraud statute may soon overshadow its more popular counterpart.(15) While jurisdictional differences exist between the statutes, they are sufficiently similar in their wording that court decisions addressing the character and scope of one statute are generally applicable to the other.(16)

   Section II of this Article outlines the elements of a mail fraud offense while Section III examines the available defenses. Next, Section IV reviews venue considerations; finally, Section V addresses sentencing issues.

2. ELEMENTS OF THE OFFENSE

   On its face, [sections] 1341 applies to any instances where the mails are used in furtherance of a scheme to defraud.(17) Given the common law definition of fraud, however, courts have traditionally read into the statute a third element: the defendant must have had an intent to defraud.(18) Therefore, to convict a defendant for violating [sections] 1341, the government must prove beyond a reasonable doubt that the defendant perpetrated (1) a scheme to defraud, with (2) the intent to defraud, while (3) using the United States mails or a private interstate commercial carrier to further that scheme.(19) Parts A through C of this Section review each of these elements seriatim.

   To secure a conviction, the government is not required to prove that the scheme to defraud was successful.(20) As one court stated, "[[sections] 1341] punishes the scheme ... rather than the completed fraud. It punishes, in short, the attempt to defraud."(21) The government must prove that a scheme existed in which use of the mails was reasonably foreseeable and that an actual mailing occurred in furtherance of the scheme.(22) The Supreme Court has even found that the mailing need not be related to "part of the execution of the fraud.... [T]he use of the mails need not be an essential element of the scheme.... It is sufficient for the mailing to be incident to an essential part of the scheme ... or a step in the plot."(23) Each use of the mails constitutes a separate offense and can, thus, constitute a separate count in an indictment.(24) There can be no vicarious criminal liability--each person must willfully participate in the fraudulent scheme and use the mails to sustain an indictment.(25)

   The wire fraud statute, [sections] 1343, further requires that the communication cross state lines. This interstate requirement arises because Congress relied on its Commerce Clause powers to assert jurisdiction over wire fraud. In contrast, exclusive congressional jurisdiction over the United States Postal Service provides the necessary constitutional foundation for federal prosecution under the mail fraud statute.(26)

   1. Scheme to Defraud

      Both the mail and the wire fraud statutes require the common element of a "scheme to defraud."(27) At no point throughout the history of these statutes has Congress "attempt[ed] to define or establish the precise parameters of the term I scheme to defraud."(28) Likewise, the legislative history is "sparse."(29) Therefore, courts have attempted to discern the purpose and scope of the statute from the bare face of the statute. Thus, the Eighth Circuit recognized that "[t]he relative lack of definite standards ... [in the statute] has permitted the courts to exercise wide latitude in determining what schemes are within the purview of that statute."(30)

      For the first century following its 1872 enactment, the statute was traditionally used to prosecute traditional frauds, where people used the mails in furtherance of a scheme to defraud someone of money or other tangible property.(31) The statutory reading was broadened within the past few decades, however, to address conduct not within the realms of traditional fraud, such as the "fraudulent" deprivation of the citizen's rights to the honest services of their government officials(32) and of private employers' rights to their employees' honest services.(33)

      The remainder of this Part of the Article will: (1) trace the application of the statutes to traditional fraudulent schemes and offer examples of common scams and cons targeted by prosecutions under the statutes; and (2) review the "intangible rights" doctrine of nontraditional frauds with respect to violations in both the public and private sectors.

      1. Traditional Frauds

         Traditional frauds are generally intended to defraud individuals of money or other tangible property interests, involving "calculated efforts to use misrepresentations or other deceptive practices to induce the innocent or unwary to give up some tangible interest."(34) Such misrepresentations or omissions must have been "reasonably calculated to deceive persons of ordinary prudence and comprehension."(35) This standard is an objective one; the court evaluates if a reasonable person would have acted on the misrepresentations(.36) Proof of actual harm to the victim or success of the scheme is not required.(37)

         Examples of traditional fraudulent schemes prosecuted under [sections] 1341 include false insurance claims,(38) fraudulent investment schemes,(39) misrepresentations in the sale of used automobiles,(40) false application forms for loans,(41) fraudulent loan marketing schemes,(42) check kiting schemes,(43) false advertising,(44) and various bribery and kickback schemes.(45) However, at least one court has held that the mail and wire fraud statutes should not be extended to conduct which deprived a foreign government of tax revenue, as opposed to frauds affecting foreign individuals and organizations, to which the statutes do extend.(46)

         There is debate among the circuit courts about whether permits, licenses, and certificates are considered the "property" of the government for purposes of prosecuting any fraudulent attempt to try to acquire such papers. The First Circuit has held that a contract that is not approved by a regulatory agency is not a property right,(47) but a state-issued liquor or entertainment license is.(48) The Third Circuit has found that state-issued licenses do constitute property, due to the states' regulatory interests and the accompanying rights which are bestowed on the holders.(49) The Second, Sixth, Seventh, Eighth, and Ninth Circuits have held that, in most instances, licenses are not property.(50) However, the Seventh Circuit has held that a government-appointed franchise is property based upon state law property rights.(51)

      2. Fraud Involving Intangible Rights

         The mail and wire fraud statutes have also been utilized where the scheme is to defraud someone of intangible rights or interests. The intangible rights doctrine was used by prosecutors to indict and convict public officials who had "deprived the citizenry of the right to good government."(52) This seemingly limitless doctrine was expanded to include private employment cases. "The progression of this doctrine came to a screeching halt in 1987,"(53) however, when the Supreme Court, in United States v. McNally, held "the original impetus behind the mail fraud statute...