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By Barry M. Hartman & Brian W. Stolarz
In United States v. Skilling, No. 08-1394, and United States v. Black, No. 08-876, the Supreme Court limited the government's ability to prosecute people for the intangible fraud of failing to provide "honest services" to the public or an employer. The honest services fraud statute's core purpose, to prosecute public and private corruption involving persons who accepted bribes or kickbacks, had morphed into a catch-all "moral compass" statute. Prosecutors used it to target conduct that may have been unappealing or unethical, or just "seemed wrong," but where there was little if any proof of personal financial gain from the conduct at issue. Additionally, prosecutors favored charging the honest services fraud statute rather than federal bribery and gratuity statutes because the latter carry lesser penalties and have more demanding elements of proof. More often than not, however, the government used the honest services fraud statute as an add-on count or alternative fraud theory to enhance indictments, increase the likelihood of convictions, and ultimately raise the stakes for defendants.The Court's decisions would appear to require federal prosecutors to refocus on core corruption and tangible fraud cases and resist the temptation to stretch the law to support prosecutions where a defendant receives no personal financial benefit. What remains to be seen, however, is whether the government will seek to amend the law to support broad criminalization of undisclosed conflicts of interest. In this regard, the Supreme Court in Skilling cautioned Congress that there are limits to the government's power and authority to proscribe such conduct without violating the Due Process Clause of the Constitution.
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Beyond the potential impact to the defendants personally, Skilling should curtail aggressive prosecutors from charging crimes for conduct that could previously have been charged as honest services fraud. However, the government will still be able to charge bribery and gratuities offenses involving federal officials or even those state officials involved in programs that are federally funded. Further, prosecutors may be able to expand the limits of the broad definition of kickbacks that was cited by the Supreme Court in Skilling - "any money, fee, commission, credit, gift, gratuity, thing of value, or compensation of any kind which is provided, directly or indirectly, to [enumerated persons] for the purpose of improperly obtaining or rewarding favorable treatment in connection with [enumerated circumstances]." Additionally, the government can still charge individuals by availing itself of the now-limited honest services statute as well as traditional money and property mail and wire fraud statutes, securities fraud, false statements, obstruction of justice, false certification of corporate reports, criminal regulatory violations, criminal conflicts of interest, money laundering, and other offenses, including potential new crimes arising from the Dodd-Frank financial reform legislation. [footnotes omitted]
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Barry M. Hartman is a partner in the Washington D.C. office of K&L Gates. Mr. Hartman engages in a national litigation and counseling practice, with an emphasis on matters involving environmental issues, the regulation of chemical and biological materials, and wastes. He represents companies in criminal and civil investigations, trials, and appeals primarily involving federal environmental laws and regulations. He also conducts independent internal investigations, counsels clients regarding corporate compliance programs, and homeland security matters relating to the environment, and represents clients in Congressional investigations regarding lobbying, ethics, and related issues. Prior to joining K&L Gates in 1992, Mr. Hartman served in a number of positions in the United States Department of Justice, including Acting Assistant Attorney General for the Environment and Natural Resource Division (1991-92), Deputy Assistant Attorney General (1989-91) and Deputy Assistant to the Attorney General (1989).Brian W. Stolarz is of counsel in the Washington D.C. office of K&L Gates. Mr. Stolarz concentrates his practice in the areas of white-collar criminal defense and securities enforcement. He has been involved in over a dozen jury trials, participated in regulatory hearings, and has litigated numerous motions in criminal and civil cases in federal and state court. Prior to joining K&L Gates, Mr. Stolarz was an attorney for The Legal Aid Society, Criminal Defense Division in Brooklyn from 2003 to 2004.