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Supreme Court narrows use of 'honest services' law in cases of corruption, fraud

This article first appeared in the St. Louis Beacon, June 24, 2010 - The U.S. Supreme Court has blunted a popular anti-corruption law used by federal prosecutors against public officials and corporate executives, but left the law potent enough to prosecute former Ill. Gov. Rod Blagojevich.

"The allegations in the Blagojevich indictment are well within what the court upheld," said Kathleen F. Brickey, a Washington University law professor who is an expert on white-collar crime. "I think there is no problem under the court's holding."

U.S. District Judge James Zagel, who is presiding over the Blagojevich trial, apparently came to the same conclusion. He refused Blagojevich's request to delay the trial, telling defense attorneys that he had read the decision and it "may not offer a lot of hope for you."

The Supreme Court ruled unanimously that the law requiring "honest services" could not be used as the basis of the conviction of former Enron chief Jeffrey Skilling. But the court left it to the lower courts to decide whether the conviction of Skilling for other law violations could stand.

Three justices would have thrown out the honest services law entirely, considering it too vague to serve as the basis of a criminal conviction. But the majority of justices agreed with Justice Ruth Bader Ginsburg who said the law could be applied to situations where an official dishonestly enriched himself by accepting a kickback or a bribe. 

Brickey noted in an interview that Blagojevich's indictment accused him of taking actions for personal gain or employment of himself or his family. "One of the tapes played in the last week said that Blagojevich was working to get a good gig, which tends to reinforce the government's case that this is a bribe or a kickback," she said.

In February, U.S. Attorney Patrick Fitzgerald added new charges to the indictment against Blagojevich in case the Supreme Court knocked out the honest services law entirely. That indictment alleged that Blagojevich's behavior not only violated the honest services law but also other criminal laws, such as bribery and extortion. Fitzgerald said at the time that even a decision throwing out the entire law "would do little" to affect the Blagojevich trial, which is now underway.

The honest services law largely developed as a result of federal prosecutions in Illinois under former U.S. Attorney Jim Thompson.

Stephen B. Higgins -- a partner at Thompson Coburn who prosecuted white-collar cases in St. Louis as an assistant U.S. attorney in the 1970s and U.S. attorney from 1990-93 -- described the evolution of the honest services law in an interview at the time Blagojevich was first charged.

He said Thompson tried to use the federal mail and wire fraud statutes not only against schemes that defrauded people of property, but also against public officials who defrauded the people of their "intangible right" to honest government. In a standard fraud case, the victim is the one who loses money, but in an honest services case the money that enriches the public official comes from a third party who also benefits. The public may not lose money but loses the right to honest services.

The U.S. Supreme Court eventually rejected Thompson's approach, but Congress passed a clarification, Section 1346, embedding the prosecutor's approach into law. Section 1346 is one of the laws that U.S. Attorney Fitzgerald cited repeatedly in the Blagojevich indictment.

Skilling was convicted of 19 counts for his involvement in a scheme to deceive the public about the health of Enron, while privately making a profit because he knew the company was in trouble. One of the charges on which he was convicted was conspiring to commit wire fraud by denying shareholders his honest services.

Ginsburg wrote that there was "no doubt" that Congress intended to criminalize what she described as the "core" of the honest services law and concluded that, for that reason, it was not vague. That core involves "offenders who, in violation of a fiduciary duty, participated in bribery or kickback schemes," she wrote. One of the cases that Ginsburg cited as part of this core was the 1970s conviction of former St. Louis Building Commission Kenneth O. Brown for a kickback arrangement involving demolition contractors.

Brickey noted that the court refused to narrow the law by limiting it to public officials. That means that the behavior of corporate executives still will be covered.

But Ginsburg rejected the government's argument that the law should also cover "undisclosed self-dealing" by a public or private official that runs counter to the interest of people to whom the official owes a duty of loyalty. If Congress wants to cover that kind of conflict of interest, it will have to write a new law that more clearly sets out the conduct that is illegal, she wrote. She included a helpful footnote on what kinds of requirements such a law would have to meet.

Brickey said that Congress may want to rewrite the law to cover some of the examples of honest services fraud that will be excluded from coverage under the current law, now that the court has made clear that it applies only to situations where bribes or kickbacks occur. In an email, she gave these examples of frauds that would not be covered without congressional action:

• a public servant who stuffs the ballot box to ensure the defeat of a political rival;

• a university professor who awards credit toward graduate degrees on the basis of dissertations he knows to be plagiarized; and,

• college basketball players who throw the results of a championship game because they are mad at their coach for kicking a wayward teammate off of the squad.

She added, "Although there may be no immediate economic consequences and no money has changed hands, that does not mean that the misconduct does not involve infliction of real harm. In the first example, the voters and the public at large have been cheated out of the right to have elections conducted fairly and to have the candidate who received the most legitimate votes be declared the winner. In the two university hypotheticals, the university has been deceived and is, at minimum, at risk of incurring harm to its reputation."

Justice Antonin Scalia, joined by Justices Anthony M. Kennedy and Clarence Thomas, would have thrown out the entire honest services law. Scalia accused Ginsburg of having "invented" a new law, taking over Congress' function of writing the laws. Ginsburg noted in response that the court often tries to preserve Congress' work by narrowing the meaning of a law. This respects the work of the legislature, she said. 

The court sent the Skilling case back to the lower courts to determine whether the convictions on counts unrelated to honest services could stand. It took the same action in a case involving Conrad Black, the newspaper magnate who had been convicted of paying himself millions in hidden fees. Black's conviction also had been based in part on the honest services law.

In another portion of the Skilling opinion, Ginsburg rejected Skilling's claim that he had been denied a fair trial because of prejudicial pre-trial publicity. Ginsburg wrote that even pervasive, negative pre-trial publicity does not deny a person a fair trial. Justice Sonia Sotomayor, joined by Justices Stephen Breyer and John Paul Stevens, dissented from this part of the ruling. Where passions ran as hot as they did in Houston after the Enron collapse, the trial judge should have probed juror attitudes more deeply to make sure the jury was fair, she wrote.

William H. Freivogel is director of the School of Journalism at Southern Illinois University Carbondale and a professor at the Paul Simon Public Policy Institute.

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