A Black day for ‘honest services’

The high profile criminal cases against ex-Enron CEO Jeffrey Skilling and Canada-born former newspaper owner Lord Conrad Black have led the United States Supreme Court to reduce the scope of America’s ‘honest services’ statute, used to convict many fraudsters, reports Keith Nuthall. In both cases the court ruled that the law should only apply where bribes and kickbacks have been paid and received. Appeals regarding both men’s cases are now awaited (given bribes and kickbacks did not figure in their prosecutions). Meanwhile, anti-fraud specialists have been debating whether clipping the wings of the honest services law will weaken US anti-fraud law enforcement.

American courts developed the honest services concept as a precedent from the 1940s. It “targeted corruption that lacked [the] symmetry” of standard money or property frauds, where the victim was directly swindled by a fraudster, said the Supreme Court in its July judgment on the Skilling case. With ‘honest services’ fraud, “while the offender profited, the betrayed party suffered no deprivation of money or property; instead, a third party, who had not been deceived, provided the enrichment,” it explained. When ‘honest services’ precedents were first used by prosecutors, this third party was generally a bribed public official. But in an increasing number of cases in the 1970s and 1980s,“the courts increasingly recognised that the doctrine applied to a private employee” who breached his allegiance to his employer, in a wide variety of ways. Congress intervened in 1988 at the request of the Supreme Court, which found that cases relying on ‘honest services’ were insufficiently based on solid statute, especially where cases focused on the loss of “intangible” property, rather than hard cash.