“Honest Services Fraud” typically refers to fraud under 18 U.S.C. §§ 371, 1343, and 1346.
Section 1343 is the federal wire fraud provision. It provides penalties of fines and imprisonment for up to 20 years for those who devise or intend to devise “any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises” and then transmits information by “wire, radio, or television communication in interstate or foreign commerce . . . for the purpose of executing such scheme or artifice.” The statute specifically provides these penalties for schemes to obtain “money or property,” but courts began interpreting § 1343 to include “honest services fraud” as well.
Honest services fraud involves a scheme to defraud the victim not of tangible property but of an intangible right: the right to honest services. This type of fraud can be either public or private. In the case of public honest services fraud, the scheme could involve bribery of a public official; the classic example of private fraud is that an employer is entitled to the honest services of his or her employee. The honest services doctrine is not based on a gain or loss by the betrayed party; rather the offense is based on the betrayed party’s right to the offender’s services. In 1987, the United States Supreme Court held in McNally v. United States that § 1343 did not include honest services fraud. The next year, Congress responded by enacting § 1346, which states that “[f]or 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.”
Although it contains a mere 28 words, § 1346 has created a great deal of controversy and confusion. The statute does not define what exactly is meant by “honest services.” A public official or an employee who accepts bribes is certainly depriving his employer of his honest services, but cases arising under this statute are often less clear-cut. This ambiguity has made § 1346 a very powerful tool for prosecutors because it could be used where unethical conduct occurred, but they could not make a case for extortion or bribery.