The U.S. Supreme Court has restricted the meaning of honest services fraud since Gov. John Rowland pleaded guilty to that charge a decade ago, but the same law could be at issue in an FBI investigation of House Republicans.
George Gallo served as chief of staff under Minority Leader Larry Cafero, R-Norwalk, from 2007 until he resigned last month, acknowledging he was a person of interest in the investigation. No arrests have been made.
Cafero said the Republican caucus is “cooperating fully with the federal inquiry.”
The FBI appears to be focused on direct mail vendors used by Republican House candidates, including Direct Mail Systems of Florida and King Strategic Communications of Ohio.
“It kind of looks like a kickback case,” said Eric Jaso, a partner at Seeger Weiss and former federal prosecutor. He said investigators may also be looking for “a secret or undisclosed ownership interest.”
Jaso said it was unclear to him, based on press accounts, what federal law was violated. “It is very puzzling. You need a federal jurisdictional hook,” he said.
“It’s almost like a commercial bribery case,” Jaso said, explaining that commercial bribery is, for example, when an architect pays to be on a landlord’s list of approved contractors.
Norm Pattis of the Pattis Law Firm said authorities take cases involving public officials more seriously “because they involve violations of the public trust.”
Pattis said one defense approach is to look at whether the payments were “a commission” that came out of company profits or “are you rolling that extra cost” into what the client pays.
Honest Services Fraud
Honest services fraud is a form of mail or wire fraud. Pattis said one form of fraud involves false representations and so a defense strategy would be to ask, “Were the representations in fact false?”
“Sometimes in fraud cases there’s buyer’s remorse” rather than fraud, he said.
The problem some courts have had with honest services fraud, Jaso said, is that officials do not have “reasonable notice of what’s illegal.”
“Where does mere dishonesty end and a violation of federal law begin,” he said.
Although the federal courts from the Supreme Court down have reduced the scope of honest services fraud in recent years, federal prosecutors recently charged former Virginia Gov. Robert McDonnell and his wife with conspiracy to commit honest-services wire fraud and three counts of honest-services wire fraud.
Last month, federal prosecutors indicted a California state senator on 24 counts for allegedly taking bribes from a hospital owner and an FBI front. The charges include honest services fraud.
“The theory is that when a local or state official takes a bribe or a kickback, he or she defrauds the people of the state or locality of their right to that public official’s honest services,” the law firm Hodgson Russ wrote in an analysis of the McDonnell indictment.
The bribe or kickback does not have to violate state law, either. In Virginia, “laws apparently place no financial limit on the gifts a state or local official can receive,” according to Hodgson Russ, although there are disclosure requirements.
In order to avoid being unconstitutionally vague, the U.S. Supreme Court “limited the scope of the honest-services fraud statute to bribery and kickback schemes, as opposed to ‘undisclosed self-dealing by a public official or private employee,’” according to an analysis of Ring v. United States by the law firm Saul Ewing.
“In other words, when a lobbyist offers ‘things of value’ other than campaign contributions, the government can establish bribery, and therefore a violation of the honest-services fraud statute, without establishing an explicit agreement between the lobbyist and the public official,” according to the Saul Ewing analysis.
According to Hodgson Russ, honest services fraud “does not criminalize mere failures to disclose conflicts of interest.”
“As a practical matter, the law gave federal prosecutors the power to criminalize objectionable behavior, conflating the merely unethical with the intentionally criminal,” wrote David Rittgers, a lawyer and former legal policy analyst at the Cato Institute. “Behavior that was not illegal under state law (particularly state ethics requirements for public officials) became illegal under federal law.”
“This criminalized an employee lying to his employer, and as Justice Scalia pointed out, ‘would seemingly cover a salaried employee’s phoning in sick to go to a ball game,’” Rittgers said.
“Public corruption is already illegal. But unlike the existing federal bribery and kickback statutes, the ‘honest services’ fraud statute isn’t limited to lobbyists or those who do receive federal funds,” Rittgers continues. “Breach of a fiduciary duty between private actors falls within the statute when motivated by a bribe or kickback.”
Under Color of Official Right
The charges against the McDonnells also include conspiracy to obtain property under color of official right and obtaining property under color of official right.
According to the U.S. Supreme Court in Evans v. United States, under common law “extortion was an offense committed by a public official who took ‘by color of his office’ money that was not due to him for the performance of his official duties.”
“It can be said that ‘the coercive element is provided by the public office itself,’” according to the U.S. Department of Justice’s Criminal Resource Manual. “This theory of extortion under color of official right has resulted in the successful prosecution of a wide range of officials, including those serving on the federal, state and local levels.”
The manual also says a public official doesn’t have to have “actual authority” if it was “reasonable to believe” he or she had that power. For example, a “public official can extort money for permit beyond control of his office, so long as victim has a reasonable belief that he could affect issuance.”
“Some courts have held that private persons who are not themselves public officials can be convicted under this provision if they caused public officials to perform official acts in return for payments to the non-public official,” the manual says.
For example, the head of a local Republican Party was convicted for causing “public officials to induce a third party to pay out money.”
Private individuals who make such payments have also been charged under this statute.
The 7th U.S. Circuit Court of Appeals was not receptive to under color of official right charges against private individuals, saying “we believe that, as a general matter and with caveats as suggested here, proceeding against private citizens on an ‘official rights’ theory is inappropriate.”
In addition to federal laws against bribery, there is also a law prohibiting illegal gratuities. The difference between the two is that an illegal gratuity is offered after an official action rather than before.