Business Fiduciary Relationships and Honest Services Fraud: A Defense of the Statute

Abstract

“Fraud, like many familiar concepts, is one which seems to have a perfectly obvious meaning until we try to define it.” This quote succinctly summarizes the essential problem Congress faced in drafting a law to prohibit fraud through the use of the mails and wire. It also highlights the problem courts have when interpreting the scope of a law meant to deal with this definitional difficulty. While it is clear that criminal law should doubtless tackle the evil that is fraud, and that Congress has the power to prohibit the use of private interstate carriers such as FedEx or UPS for the perpetuation of fraud, this still leaves the problems of 1) how one defines fraud, and 2) how one resolves the legal issues that are created when Congress enacts a statute to address it. The broad construction of the mail fraud statute, combined with prosecutors’ attempts to further expand the statute with new theories of prosecution, has led some to call the mail fraud statute the prosecutor’s “Stradivarius,” “Colt 45,” or “Uzi.” “Judge Ralph K. Winter noted in referring to ‘various federal fraud statutes–in particular, the mail and wire fraud statutes,’ that ‘with regard to the statutory weapons available to prosecutors, [fraud statutes] rank by analogy with hydrogen bombs on stealth aircraft.”’ The discomfort with the provision’s breadth reflected in these analogies suggests the fundamental paradox of the statute: one of the principal purposes of anti-fraud provisions, on both the state and federal level, is to protect the integrity of commerce, but if it is applied too expansively, there could be potential chilling effects on a wide range of legitimate business activities. This concern is even more pronounced in the context of intangible rights fraud as defined in 18 U.S.C. § 1346, which states that “for the purpose 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 Note examines the nexus between “honest services” mail fraud and the important fiduciary relationships commonly found in commercial enterprise and makes a recommendation on how courts can continue to uphold the validity and strength of § 1346 while addressing its current weaknesses. This Note is principally focused on the exploration of the connection between violations of private fiduciary obligations and “honest services” fraud in the criminal law. It is concerned, on the one hand, with the possible chilling effects of the uncertainty of where criminal liability arises and, on the other, the need for a strong anti-fraud statute. The solution proposed in this Note integrates the two major approaches courts have developed in dealing with § 1346.