making local government more ethical

The Supreme Court Is to Consider How Honest Services Fraud Jives with Ethics Laws

Update: October 16, 2009 (see below)
In his New York Times legal affairs column today, Adam Liptak focused on what is known as "honest services fraud," which is actually part of a definition of "scheme or artifice to defraud" in the federal mail and wire fraud statute (before reading on, please read my earlier blog post on the meaning and history of honest services fraud).

As I noted in the earlier blog post, Justice Scalia recently dissented against the Supreme Court's decision not to take an honest services fraud case, which involved Chicago officials. Soon after, the Court chose to take two honest services cases, one involving corporate fraud, the other involving a state legislator's failure to disclosure that he solicited work with a company with business before the legislature (U.S. v. Weyhrauch, 9th Cir. 2008).

Liptak cites three problems with the concept of honest services fraud. One, it leaves too much discretion to federal prosecutors, opening the door to partisan prosecution. Two, it raises a federalism issue: should the federal government be determining what ethics rules are appropriate for state and local officials? And three, it overcriminalizes and does so with almost no guidance or fair notice.

The Value of Honest Services Fraud
On the other hand (this is me, not Liptak), honest services fraud is a reasonable way for the federal government to get involved when there is little, highly partisan, or self-serving local and state ethics enforcement. When officials choose not to provide basic ethics laws or independent enforcement, which is itself placing personal interest above the public interest, it is important to be able to turn to the federal government to require officials to respect their fiduciary obligations toward citizens.

I certainly don't like criminal prosecution of ethics laws, but I don't think any state would accept a federal ethics commission to deal with basic ethics violations that states and local governments ignore. If there were such a commission, then Congress could repeal the honest services fraud provision and replace it with a basic federal ethics law applicable to state and local governments. But since that is a fantasy, perhaps the existence of honest services fraud will cause at least some state and local governments to have better ethics laws and enforcement in order to take back territory from federal prosecutors. Where there are local and state ethics laws and enforcement, it does not appear that federal prosecutors take on cases.

The Weyhrauch Decision
The only question before the Supreme Court in the Weyhrauch case is whether the government must prove that the official violated a duty imposed by state law. According to the appellate court decision in Weyhrauch, the third and fifth circuits have limited honest services fraud prosecution to situations where there is a violation of state law. However, the majority of circuits, now including the ninth, have found that there need be no state law violation or have not yet made any determination.

The Weyhrauch decision notes that the application of federal fraud statutues such as wire fraud have never been limited to what is illegal under state law. The standard used by the courts has been a uniform one -- the right to honest and faithful government -- not a standard that differs state to state. Also see the Justice Department's brief in the Supreme Court appeal.

The decision also describes the two core areas covered by honest services fraud:
    (1) taking a bribe or otherwise being paid for a decision while purporting to be exercising independent discretion and (2) nondisclosure of material information.
Some circuits have imposed limiting principles other than state law, including personal financial gain and fraudulent intent. The Supreme Court will decide at least one important question surrounding honest services fraud. Considering how unusual it is for the Court to take an interlocutory appeal like this, it is likely that it will choose to respect state law over taking a uniform approach. Oral argument is set for December 8.

Update: October 16, 2009
The Supreme Court has taken on a third honest services fraud case, according to an article in yesterday's New York Times. This one involves Jeffrey Skilling, former CEO of Enron, who is arguing that the honest services fraud language is unconstitutionally vague. If the Court were to agree with him in a general way, it would completely undermine this approach to enforcing local and state government ethics violations even though, of course, the Skilling case is a corporate one.

Robert Wechsler
Director of Research, City Ethics