Paul F. Enzinna
Partner, Brown Rudnick
Jim invites Pam, an employee of a potential customer, to lunch. Over the next several years, during which Jim and Pam enjoy dozens of lunches and dinners, and Jim treats Pam to many rounds of golf, Pam's company becomes one of Jim's biggest customers. None of this is extraordinary -- most, if not all, businesses, entertain customers in the hope of developing business. However, a recent decision by the U.S. District Court for the District of Columbia threatens to criminalize this practice. In United States v. Ring, the court held that an individual who provides a "thing of value" to another, with the "corrupt intent to influence" her, may face up to 20 years in prison for violating the federal "honest services fraud" statute.
The federal mail and wire fraud statutes prohibit schemes to "obtain money or property, but prior to 1987, courts expanded the statutes' reach, applying them to reach, in addition, deprivations of "intangible rights," including the right to another's "honest services." This theory of "honest services" fraud was applied most often in cases of bribery of public officials, but was also applied in the commercial context. However, in 1987, the Supreme Court held that the mail and wire fraud statutes are limited by their terms to deprivations of money or property. Congress responded nearly immediately, passing a separate statute defining fraud to include deprivations of "honest services."
After his 2006 conviction for "honest services" fraud, former Enron CEO Jeffrey Skilling argued on appeal that the statute should be struck down for failing to specify what conduct is prohibited. The Court agreed that the statute is vague, but rather than striking it down, held that it must be limited to conduct at its "core" -- i.e., bribes or kickbacks paid to influence decisions. In other words, to prove honest services fraud after Skilling, the government must show not merely a deprivation of "honest services," but also that the deprivation resulted from a bribery or kickback scheme. To prove bribery, the government must show an understanding between the giver and the recipient that there will be a quid pro quo, with the recipient providing something of value in exchange for the bribe. However, in Ring, the court held that a defendant may be convicted of honest services fraud with no showing of any quid pro quo agreement, but on a showing of only a unilateral "corrupt intent to influence." Skilling applied this theory both to charges of honest services fraud involving public officials, and those involving conduct in the private sector -- in each case, the statute covers only bribery or kickback schemes.
Kevin Ring was a Washington lobbyist who worked with Jack Abramoff. Unlike Abramoff and several other of his associates, Ring was not charged with bribery or defrauding clients. Instead, he was indicted for several counts of honest services fraud, for providing members of Congress and their staff with travel, "fundraising assistance," drinks, golf and tickets to sporting events and concerts. The government claimed that Ring provided these items in order to "groom" officials by making them "more receptive to requests for official actions on behalf of [Ring's] clients in the future." However, the government presented no evidence of any agreement between Ring and any public official that there would be any quid pro quo. Instead, prosecutors were permitted to argue that Ring could be convicted upon a showing that he intended to "to influence and reward official acts." And at the government's request, the court instructed the jury that it was "not necessary for the government to prove that . . . the public official actually accepted the thing of value or agreed to perform the official act."
The jury in Ring clearly had difficulty discerning and applying the law. During deliberations, it asked the judge for additional clarification of the line between "legal and illegal gifts," but the court refused any additional instruction. A short time later, the jury returned with a guilty verdict.
The Ring jury -- and the American public -- may have found his wining and dining Congressional staffers in order to obtain access distasteful, but absent a quid pro quo agreement, it was not honest services fraud. The Ring decision represents a disturbing trend toward "overcriminalization," in which regulatory transgressions and other conduct is transformed into criminal offenses by legislators eager to prove they are "tough on crime," abetted by courts that fail to enforce necessary limits on prosecutors' efforts to expand the scope of "criminal" conduct. Kevin Ring's appeal will be heard in the spring. If allowed to stand, the Ring decision would make potential criminal defendants of the millions of men and women who provide current and potential customers with "things of value" in order to make them "more receptive" or to "build a reservoir of goodwill." That prospect should send shivers down the collective spine of American business.