Honest Services Fraud - 18 U.S. Code § 1346
In 1988, Congress introduced Section 1346 to the federal mail and wire fraud statutes, Title 18 U.S.C. Chapter 63, aiming to address public corruption and breaches of fiduciary duty. This section consists of a single sentence explaining what is known as "honest services fraud."
The sentence states: "For the purposes of this chapter, the term 'scheme or artifice to defraud' includes a scheme or artifice to deprive another of the intangible right of honest services."
This addition aimed to strengthen the mail fraud law and expand the definition of fraud, allowing prosecutors to secure convictions for more intangible forms of fraud.
The term "honest services fraud" has gained headlines due to several high-profile federal criminal cases involving celebrities and wealthy parents who bribed college admissions officials to admit their children.
College Admissions Scandal
This statute resurfaced recently when it was used to prosecute several cases in the 2019 College Admissions Scandal. In this scheme, several celebrities, including Felicity Huffman and Lori Laughlin, paid bribes to prestigious college admissions offices to manipulate test scores and secure their children's admission over other applicants.
"Honest services fraud" involved depriving qualified applicants of their right to honest services by manipulating their acceptance into schools.
In simple terms, federal law, 18 U.S.C. 1346, defines honest services fraud as a scheme to deprive someone of their intangible right to honest services, usually through a breach of fiduciary duty, such as bribery or kickbacks.
A "fiduciary duty" refers to an obligation to act solely in the interest of the public, employer, shareholders, or a union. As mentioned, this law was enacted by Congress in response to the government's restrictions on using the federal wire fraud statute.
If you're convicted of honest services fraud, you could face penalties similar to those for other fraud types, such as mail, wire, or healthcare fraud, which can include up to 20 years in prison, and sometimes even up to 30 years. Let's explore this federal law further below.
What Exactly Is Honest Services Fraud?
Honest Services fraud, outlined in Title 18 U.S. Code 1346, is a federal offense that involves misusing one's position or authority for personal benefit. This crime can be committed by public officials, corporate executives, and private individuals who have fiduciary duties to others or organizations.
Since the enactment of 18 U.S.C. 1346, case law has established that honest services fraud requires a bribe or kickback to qualify as a crime. (Skrilling v. United States, 2010) Therefore, honest services fraud involves three entities:
- Someone offering a bribe or kickback.
- Someone accepting a bribe or kickback; and
- A victim is someone who is deprived of the intangible right to honest services because of a bribe or kickback.
What Are the Relevant Statutes?
18 U.S. Code Chapter 63 on mail fraud and related offenses includes several federal laws connected to the definition of "scheme or artifice to defraud" in 18 U.S.C. 1346, such as the following:
- 18 U.S.C. 1341 - Mail fraud
- 18 U.S.C. 1342 - Fictitious name or address
- 18 U.S.C. 1343 - Wire fraud
- 18 U.S.C. 1344 - Bank fraud
- 18 U.S.C. 1345 - Injunctions against fraud
- 18 U.S.C. 1347 - Healthcare fraud
- 18 U.S.C. 1348 - Securities and commodities fraud
- 18 U.S.C. 1349 - Attempt and conspiracy
- 18 U.S.C. 1350 - Failure of officers to certify financial reports
- 18 U.S.C. 1351 - Fraud in foreign labor contracting.
What Are Some Examples?
EXAMPLE 1: Roger, an elected state representative, receives a "gift" from an oil refinery owner in his constituency, in exchange for Roger voting against a bill that facilitates electric vehicle purchases. Both Roger and the refinery owner could face charges for violating U.S.C. 1346.
EXAMPLE 2: Tim, the CFO of a large company, plans to hire a contractor for a new factory. A local contractor offers him a "lifetime discount" on future projects in exchange for winning the contract, and he agrees. This situation could lead to charges of honest services fraud against Tim and the contractor, as the discount acts as a bribe or kickback that prevents other contractors from competing fairly.
What Are the Possible Penalties?
Honest services fraud, as an extension of the mail and wire fraud statutes, can lead to severe penalties upon conviction. The potential punishments include:
- For typical cases of honest services fraud, penalties can include fines up to $250,000 and imprisonment for as long as 20 years.
- For cases of honest services fraud involving a financial institution or impacting benefits during a nationally declared disaster or emergency: fines can reach up to $1 million, and offenders may face up to 30 years in federal prison.
What Are the Available Defenses?
To convict you of honest services fraud, prosecutors need to prove four essential elements beyond a reasonable doubt.
- There was a "scheme or artifice" in place aimed at deceiving others, such as granting someone an unfair advantage over another;
- You knowingly engaged in this scheme to defraud, whether by offering or accepting a bribe or kickback.
- The scheme could have harmed others by depriving them of tangible or intangible "honest services," even if it ultimately did not.
- The scheme utilized mail or wire services, such as telephone or Internet.
Challenging the Key Elements
Most defenses against honest services fraud employed by a federal criminal lawyer aim to challenge one or more of the key elements. For instance, we might argue that you were unaware of the scheme to defraud when you took part in it.
You might have been led to believe that the additional fee you paid for "priority consideration" in college admissions was a legitimate "fast-track" option, when in reality, it was a bribe. A conviction depends on proof of intentional involvement in the scheme.
We might argue that no bribe or kickback was exchanged. For instance, you could have given a gift to the other person as a friend without expecting anything in return, or the other person did not gain any unfair advantage.
If you are under criminal investigation or have already been charged with Title 18 U.S. Code 1346 honest services fraud, contact our law firm by phone or through our contact form to thoroughly review your case details and legal options.
We might negotiate with the federal prosecutor for a favorable plea bargain if guilt is clear. Eisner Gorin LLP, based in Los Angeles, California, offers federal criminal legal services nationwide.
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