In a major ruling, the United States Supreme Court, at least partially, eliminated a critical tool for white collar prosecutors: the ability to bring charges for “honest services fraud” pursuant to 18 USC §1346, based on the undisclosed self-dealing by a public official or private employee.
The United States Supreme Court vacated one of the convictions of former Enron executive Jeffrey Skilling for so-called “honest services fraud” (18 USC §1346). Skilling v. United States, all nine Justices agreed that the “honest services” conviction should be reversed, but for different reasons.
In an opinion written by Justice Ginsburg, the majority declined to strike the entire statute as unconstitutionally vague. Rather, the majority concluded that in order to survive a vagueness challenge, the statute must be construed to criminalize only those “core cases” involving bribes and kickbacks. So limited, the Court found that the law passes constitutional muster, but that Skilling did not violate the statute under the Court’s interpretation. Justice Scalia, joined by Justices Thomas and Kennedy, wrote in a concurring opinion that the language in 18 USC §1346 (“a scheme or artifice to deprive another of the intangible right to of honest services”) is vague and violates the Due Process Clause of the Fifth Amendment.
Although the Court vacated Skilling’s “honest services” conviction, the Court remanded the case to the lower court to determine whether the error was harmless, given that the government had also charged Skilling under separate theories. Further, Skilling’s other 18 fraud convictions remain intact.
The phrase “scheme and artifrace to defraud” is contained in a number of other criminal statutes: Mail Fraud (18 USC §1341), Wire Fraud (18 US §1343), Bank Fraud (18 USC §1344), Health Care Fraud (18 USC §1347) and Securities Fraud (18 USC §1348), the scope of which will also likely be significantly narrowed due to the Court’s decision in Skilling.
Further, the Skilling decision may also impact the prosecution of former Illinois Governor Blagojevich who was is currently charged of ”honest services fraud.”
Tags: Enron, honest services fraud, Skilling, White Collar
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IntroductionSiding with convicted former Enron CEO Jeffrey Skilling a majority of the United States Supreme Court today cut sharply back on the scope of a federal fraud law that has been a favorite tool of prosecutors for many years the so-called honest services fraud statute 18 U.S.C. The Court held that Section 1346 which defines as fraudulent efforts to deprive another of the intangible right of honest services is properly confined to cover only bribery and kickback schemes which constitute only a fraction of all Section 1346 prosecutions. United States that the criminal mail fraud statute which prohibits the use of the mails in any scheme or artifice to defraud did not prohibit a scheme or artifice to defraud citizens of their intangible rights to honest and impartial Government. 1 The Court held that the mail fraud statute protected money and property rights only not intangible rights and stated that i f Congress desires to go further it must speak more clearly than it has. 2..Just one year later Congress responded to McNally by amending the mail and wire fraud statute to include a scheme or artifice to deprive another of the intangible right of honest services. 3 Congress however did not define what constitutes the right of honest services who is entitled to such a right and what actions constitute a scheme to defraud a person of his right to honest services.