Election Could Open Door For Honest Services Legislation

By Hilary Russ

Law360, New York (September 16, 2011, 6:10 PM ET) — Following the U.S. Supreme Court’s decision last year to curtail a law that banned secret self-dealing by public officials, lawmakers now see an election-year opportunity to push legislation that would resurrect the statute as public anger over financial fraud and corruption continues to erupt, experts say.

“There’s no question in my mind, this kind of legislation… will pass.” said David Deitch, a partner at Ifrah PLLC. “In an election year, who’s going to vote against an anti-corruption statute?”

The U.S. Department of Justice has been urging lawmakers to fix the honest services fraud statute after the Supreme Court in June 2010 threw out part of the government’s conviction against former Enron Corp. CEO Jeffrey Skilling.

The statute, which explicitly prohibits any scheme or artifice to deprive another of the intangible right to honest services, has been used in high-profile criminal cases against corporate bigwigs and allegedly dirty lawmakers since Congress passed it in 1988.

But in Skilling’s case, the Supreme Court found that it was too broad and should be applied in cases of bribery and kickbacks only.

That decision led lawmakers to introduce several bills in recent months that aim to plug what prosecutors say is now a hole in the law, with two bills in particular gaining traction.

One bill, S. 401, the Public Corruption Prosecution Improvements Act, was reported out of the Senate Judiciary Committee in July.

The legislation looks to extend statutes of limitations on corruption crimes, lower the threshold needed to charge some crimes, and increase the maximum prison sentences for bribery, theft of federal money or property and other charges. It also aims to better define what an “official act” by a public official constitutes.

The law would also outlaw undisclosed self-dealing — for instance, when a public official steers a contract toward a company in which he has a financial interest that he hasn’t revealed — among other changes. Unlike the law pre-Skilling, however, the self-dealing provision would apply only to public officials and not to businesspeople.

This marked the fourth time that Sens. Patrick Leahy, D-Vt., and John Cornyn, R-Texas, have tried to push the bill through. No full Senate vote has yet been scheduled.

The Senate bill is the result of a bipartisan, bicameral deal with Reps. James Sensenbrenner, R-Wis., and Mike Quigley, D-Ill., who sponsored companion legislation in the House.

That bill, H.R. 2572, the Clean Up Government Act of 2011, is being revised after members of the House Judiciary Committee got an earful from witnesses who pointed out some troublesome provisions at a July hearing.

Witnesses said the proposed legislation was duplicative, contained unclear language, criminalized regular business conduct and would levy excessive prison sentences. One witness proposed the inclusion of a general safe harbor provision to answer the question of whether very minor gifts and benefits — like team jerseys or restaurant reservations — fell under the proposed law.

No follow-up date has yet been set to mark up that bill, but lawmakers vowed to keep pursuing it.

Congress has successfully revised the honest services law at least once, after the Supreme Court tried to impose limits in its 1987 decision in McNally v. U.S.

“Within a few months, [Congress] repackaged the amendment, put it in anti-drug legislation of 1988 and everyone voted for it,” said Daniel C. Richman, who teaches federal criminal law as a professor at Columbia Law School.

Now, however, it might be a tougher proposition, with experts noting a strong streak of anti-partisanship on the Hill.

“In the past, passing criminal statutes seemed to be as natural as getting up in the morning. And it may be a little different now,” Richman said.

Indeed, the legislation does face some hurdles; it has to overcome Tea Party-style claims that the government has grown too broad and intrusive in recent years, even in the realm of criminal law, experts said.

“Lawmakers don’t want to be seen as standing for big government,” said Linda Fentiman, a professor at Pace University Law School. “The same kind of Tea Party people on the right, and academics mostly on the left, both react to overly broad federal criminal laws.”

Still, there’s plenty to compel lawmakers to eventually pass whatever piece of legislation emerges. The bills in both the House and Senate have bipartisan support that could make it easier for other lawmakers to get on board, experts said.

What’s more, the winds of public opinion and the executive branch’s agenda have, with regard to white collar crime, shifted to favor prosecutors, several experts said.

“Lots of people are very concerned in tough economic times that bad guys and corporations really walked away scott-free,” Fentiman said.

Politicians want to be able to tell their constituents that they’re “going to make Main Street safe from Wall Street,” Deitch added.

That sentiment could enable Congress to push for stricter white collar criminal laws across the board — and it leads to great soundbites in an election year.

“It’s hard not to be for clean government,” said Patrick E. Deady, a partner at Hogan Marren Ltd. “It’s like home, mom and apple pie.”

–Additional reporting by Lisa Uhlman. Editing by Eydie Cubarrubia.