18 U.S. Code § 1346 - Honest Services Fraud
In 1988, in an attempt to clamp down on instances of public corruption and private breaches of fiduciary responsibility, Congress added Section 1346 to the federal mail and wire fraud statute, Title 18 U.S.C. Chapter 63, a single sentence that defines what we refer to as “honest services fraud.”
The sentence reads simply: “For the purposes of this chapter, the term “scheme or artifice to defraud” includes a scheme or artifice to deprive another of the intangible right of honest services.”
This addition intended to add “teeth” to the mail fraud law and broaden the scope of what constitutes fraud so prosecutors could obtain convictions for more intangible instances of fraud.
The term “honest services fraud” has been in the news headlines because of some high-profile federal criminal cases involving celebrities and other wealthy parents who bribed some college universities to admit their children.
This statute came into the spotlight again recently as it was used to prosecute multiple cases in the so-called College Admissions Scandal in 2019, a scheme in which various celebrities, such as Felicity Huffman and Lori Laughlin, paid bribes to college admissions offices of prestigious schools to alter college admissions test scores so their children would be admitted over other applicants.
The “honest services fraud” was that this scheme deprived other qualified applicants of the “honest services” of acceptance into these schools.
Simply put, honest services fraud is described under federal statute 18 U.S.C. 1346 as a scheme to defraud another of the intangible right to honest services using a scheme to violate a fiduciary duty by bribery or kickbacks.
So, what does a “fiduciary duty” mean? It's a duty to act only for the benefit of the public, employer, shareholders, or a union. As noted, this statute was created by congress as a response to the government's limitation in its use of the federal wire fraud statute.
If you're convicted of honest services fraud, you can now face the same penalties as with other types of mail, wire, or health care fraud, up to 20 years in prison and sometimes up to 30 years. Let's review this federal law in more detail below.
What Is Honest Services Fraud?
Honest Services fraud under Title 18 U.S. Code 1346 is a federal crime involving the misuse of an individual's position or authority for personal gain or advantage.
It can be committed by public officials, corporate officers, and private individuals with fiduciary duties to another person or entity.
Since 18 U.S.C. 1346 was implemented, case law has clarified that honest services fraud must include some bribe or kickback to be considered a crime. (Skrilling v. United States, 2010) Thus, honest services fraud involves three entities:
- Someone offering a bribe or kickback;
- Someone accepting the bribe or kickback; and
- A victim—someone deprived of the intangible right of honest services due to the bribe or kickback.
What Are the Related Statutes?
18 U.S. Code Chapter 63 mail fraud and other fraud offenses have several federal laws that are related to 18 U.S.C. 1346 definition of “scheme or artifice to defraud,” such as the following:
- 18 U.S.C. 1341 – Mail fraud;
- 18 U.S.C. 1342 – Fictitious name or address;
- 18 U.S.C. 1343 – Wire fraud;
- 18 U.S.C. 1344 – Bank fraud;
- 18 U.S.C. 1345 – Injunctions against fraud;
- 18 U.S.C. 1347 – Health care fraud;
- 18 U.S.C. 1348 – Securities and commodities fraud;
- 18 U.S.C. 1349 – Attempt and conspiracy;
- 18 U.S.C. 1350 – Failure of officers to certify financial reports;
- 18 U.S.C. 1351 - Fraud in foreign labor contracting.
What Are Some Examples?
EXAMPLE 1: John is an elected state representative. He accepts a “gift” from the owner of an oil refinery in his constituency with the expectation that he will vote against a bill that makes it easier for people to buy electric vehicles.
As a result, John and the oil refinery owner could be charged with violating 18 U.S.C. 1346.
EXAMPLE 2: Fred is the CFO of a major corporation looking to hire a contractor to build a new factory. A local contractor offers Fred a “lifetime discount” on future construction work in return for awarding him the contract, and Fred accepts the offer.
Fred and the contractor could be charged with honest services fraud because the discount is a bribe or kickback that deprived other contractors of the right to compete.
What Are the Penalties for 18 U.S.C. 1346?
As an extension of the mail and wire fraud statutes, honest services fraud can be severely penalized upon conviction. The possible penalties are as follows:
- For general instances of honest services fraud: Fines of up to $250,000 and up to 20 years in federal prison;
- For instances of honest services fraud that involve a financial institution or which affect benefits being provided in a nationally declared disaster or emergency: Fines of up to $1 million and up to 30 years in federal prison.
What Are the Defenses for 18 U.S.C. 1346?
To convict you of honest services fraud, prosecutors must prove four critical elements beyond a reasonable doubt:
- There was a “scheme or artifice” in existence designed to defraud others (e.g., giving someone an unfair advantage over someone else);
- You willfully participated in this scheme to defraud, whether by offering or accepting a bribe or kickback;
- The scheme had the potential to cause harm to others by depriving them of tangible or intangible “honest services,” even if ultimately it did not do so; and
- The scheme used mail or wire services, including telephone or Internet.
Thus, most defenses against honest services fraud used by a federal criminal lawyer will be for the purpose of refuting one or more of these critical elements. These are discussed below.
Perhaps we can argue that you were unaware of the scheme to defraud when you participated in it.
For example, perhaps you were told the extra fee you were paying for “priority consideration” for college admission was a legitimate “fast-track” plan when it was a bribe. A conviction requires willful participation in the scheme.
Perhaps we can argue that there was no bribe or kickback exchanged. For example, maybe you gave the other person a gift as a friend with no strings attached—or the other person gave you no unfair advantage.
If you are under a criminal investigation or have already been indicted for Title 18 U.S. Code 1346 honest services fraud, contact our law firm by phone or contact form to closely review the case details and legal options.
Perhaps we can negotiate with the federal prosecutor for a favorable plea bargain if guilt is not in doubt. Eisner Gorin LLP is located in Los Angeles, California. We provide legal representation throughout the United States on federal criminal issues.