Honest Services Fraud

It might be a good idea for public officials and those who lobby them in Florida to pay attention to what's going on in federal courtrooms around the nation. Especially state legislators.

Federal prosecutors are winning cases using a doctrine called "honest services" fraud. It's a broad way to fight public corruption.

In plain words, the law presumes a public official owes the public a duty of honest services. When the official fails and does so using the mail or telephones — or perhaps e-mail or BlackBerry — while concealing a financial interest, it becomes a crime.

In some states the law has been used to prosecute legislators who accepted jobs or gifts from lobbyists or institutions that receive public money.

Most of us are familiar with bribery and understand that it takes proof that a public official was willing to do something in return for a corrupt payment. But "honest services" fraud is easier to prove than outright bribery.

The change came about in 1988 when Congress specifically rewrote mail and wire fraud laws to include schemes designed to "deprive another of the intangible right of honest services.'' That decision came after the U.S. Supreme Court overruled lower courts and tossed out corruption charges against Kentucky officials, saying those laws did not prohibit schemes to defraud citizens of the intangible right to honest government.

As it frequently does, Congress reworked the statutes to make its intent clear in answer to a court ruling.

Convictions taken under the 1988 law have since been upheld by the U.S. Supreme Court and a number of appellate courts. "Public officials inherently owe a fiduciary duty to the public to make governmental decisions in the public's best interest,'' wrote the 11th U.S. Circuit in a 1999 case.

Some officials have been prosecuted for omitting income on their financial disclosure statements and voting against legislation affecting the income that was not disclosed. Others have been prosecuted for taking sham jobs with businesses and governmental agencies. A Missouri lawmaker was convicted after he accepted free lodging from an insurance lobbyist. And some have been prosecuted for making and taking campaign contributions in expectation of government action.

It's one of the reasons that public corruption indictments have risen more than 40 percent in the past two years, notes the American Bar Association's White Collar Crime Newsletter. Defense attorneys complain that the charge loads the deck against them, and appellate courts are divided. But hundreds of public officials have gone to jail on the charge.

The charges were among those brought against Washington lobbyist Jack Abramoff, U.S. Reps. William Jefferson and Randy "Duke" Cunningham and more recently in Palm Beach County corruption cases.

The way federal prosecutors see it, public officials have a duty to make decisions in the best interest of the people who elect them. When they make decisions based on personal interests, they are defrauding the public.

In one case, city employees were prosecuted after they structured the hiring and promotion system so that those who participated in the right political campaign got better jobs and more money.

A New Jersey lawmaker was convicted of the crime in November after he used his power and influence to obtain a $35,000-a-year job at a state School of Osteopathic Medicine after he helped steer $10-million in state grants to the school. A former dean at the medical school was also convicted of rigging the hiring process to create a job for the legislator.

There are some differences in the New Jersey case and the acceptance of a $110,000-a-year college job by Florida House Speaker Ray Sansom. The New Jersey official failed to disclose his job and funneled money to the college after going on the college payroll. On the day Sansom became speaker, Northwest Florida State College appointed him to an unadvertised job as vice president. A day later the college announced the appointment. Sansom had funneled millions of dollars in construction money to the college. He has denied any wrongdoing but resigned from the college earlier this month after news of the appointment created an uproar. Sansom did say he has consulted Peter Antonacci, a Tallahassee defense attorney who is a former statewide prosecutor.

One governmental lawyer who has been paying a lot of attention to honest services fraud cases is Leon County Attorney Herbert W.A. Thiele. He has written a lengthy memo on the subject and made presentations on the law for city and county officials around the state.

Thiele says he decided to look into the law after reading about the prosecutions in Palm Beach County.

His advice: "If you have to think about whether you should be doing it, maybe you shouldn't be doing it.''

Efforts to put an honest services fraud clause in to state law have so far been unsuccessful, but Sen. Dan Gelber, D-Miami Beach, says he is making another attempt to get legislative approval of the measure this year. Gelber, a former federal prosecutor, said it is a "useful tool that should be part of the arsenal that state prosecutors have."

A good look inside some of these cases might make Florida lawmakers and lobbyists thankful for the 2005 law that prohibits lobbyists from giving gifts to legislators. Assuming, of course, that everyone has obeyed the law.

You might also wonder: Is an honest services investigation in Tallahassee's future?

Acting U.S. Attorney Thomas Kirwin won't say. But some of Tallahassee's best defense attorneys admit they are boning up on the law. And they won't name the potential clients asking for help.

In 1988 Congress, reacting to a Supreme Court decision that tossed out convictions of Kentucky officials, added the phrase "intangible right of honest services" to mail and wire fraud law. The court had said the law did not prohibit schemes to defraud citizens of intangible rights to honest and impartial government. The code is 18 USC 1346. Congress specifically passed it to overturn the court's ruling in McNally vs. U.S., 483 US 350 1987.

Note: The 'honest services' statute has been used to convict dozens of state and local governmental officials, but because it has been so effective, especially in high-profile cases, the Department of Justice has come under pressure to consider weakening its reach.

Lynne Marek, "DOJ may rein in use of 'honest services' statute," The National Law Journal, June 15, 2009, http://www.law.com/jsp/nlj/PubArticleNLJ.jsp?id=1202431433581, accessed 06/15/09.
Bruce Alpert, "Justices have doubts on 'honest services' law; Statute's demise would lift Jefferson," The Times-Picayune, New Orleans, December 9, 2009, National, p. A7.
On June 24, 2010, the U.S. Supreme Court issued a ruling that severely restricts the ability to bring corruption cases against public officials and corporate executives. The judges unanimously ruled to limit the so-called honest service statute (4 min 25 sec).

Nina Totenberg, "High Court Reins In Use Of Fraud Law," National Public Radio, June 25, 2010, http://www.npr.org/templates/story/story.php?storyId=128099972, accessed 07/04/10.