Corruption Law

Federal Statutes.

The most prominent of the federal corruption statutes are the Hobbs Act, the Racketeer Influenced and Corrupt Organizations Act (RICO), the mail and wire fraud statutes, the Foreign Corrupt Practices Act (FCPA), and the obstruction of justice and perjury acts under the Sarbanes Oxley amendments.

Does a political boss have a fiduciary duty to the public?

The Hobbs Act

The Hobbs Act criminalizes obstruction, robbery and extortion in interstate commerce. “The term "extortion" means the obtaining of property from another, with his consent, induced by wrongful use of actual or threatened force, violence, or fear, or under color of official right.” 18 U. S. C. §1951. The federal ‘hook’ is the acceptance of a check, or solicitation of extortion though a letter or over the telephone, which is an interstate industry, or the extortion of a business that affects interstate commerce. The favor for which money has been extorted does not have to be completed. “Under color of official right” was written in the act to cover a state officers and elected officials. The extortion “offense is completed at the time when the public official receives a payment in return for his agreement to perform specific official acts; fulfillment of the quid pro quo is not an element of the offense.” Evans v. United States, 504 U.S. 255 (1992).

The Racketeer Influenced and Corrupt Organizations Act

RICO was passed to target enterprises engaged in patterns of criminal activity, particularly organized crime. Gangsters are not the only target of the statute, but any enterprise in which “racketeering predicates are related, and that they amount to or pose a threat of continued criminal activity.” H.J. Inc. et.al. v. Northwestern Bell Telephone Co. et. al., 492 U.S. 229, 239 (1989). In H.J., telephone company officials bribed the state regulatory commission turning their legitimate business into a racketeering enterprise under the act.

Federal jurisdiction has even been imposed over state judges, exercising the quintessential function of a state. The courthouse was deemed a criminal enterprise under RICO in United States v. Castro, 89 F.3d 1443, (11th Cir. 1996). Judges were prosecuted for running a racket for pay to fix the appointment of public defenders. However, they were not accused of affecting interstate commerce. The jurisdictional hook was that those favor with appointment in return for the bribes were paid partly with money funded by the federal government.

The Mail Fraud Statute

The mail fraud statute prohibits the use of the mails for any “scheme or artifice to defraud . . .” 18 U.S.C. §1341. U.S. v. McNally, 483 U.S. 350 (1987) interpreted the statute to protect against fraud, but not against bribing politicians. The statute spoke to the deprivation of property rights but did not refer to the intangible right of honest services that a politician owes his constituents, the theory of right under which bribery was brought under the scope of the mail fraud statute by several circuits. The McNally Court reasoned that cheating someone by use of the mails, such when fraud was committed, was specifically envisioned by Congress, not bribery. Congress afterwards amended the statute to include under its coverage "a scheme or artifice to deprive another of the intangible right of honest services." 18 U.S.C. §1346. But even after this, it was not clear that deprivation of honest services encompassed fiduciary hiding information from those who he owed his services. The Court in Skilling v. United States, 130 S. Ct. 2896, (2010) limited §1346 to bribery. Misrepresenting a company’s fiscal standing to keep its stock prices high was not covered.

The question of honest services turns on whether an actor owes a fiduciary duty to a party. Clearly, an executive has this duty to his company. He is entitled to his salary and not for a payment by a third party for his decisions. If he is paid by a third party to direct a decision of the company in its favor, he has violated the law. At least four difficult questions arise in other circumstance.

The Sarbanes-Oxley Act

Another federal corruption law involves obstruction of justice. In Arthur Anderson v. United States, 544 U.S. 696, (2005), the Court decided that the language of the statute prohibiting the destruction of documents needed for criminal investigations is not violated unless a person 1) knows that an investigation is ongoing and 2) persuades another, not himself, to destroy the documents. Congress passed the Sarbanes-Oxley Act so that the statute now reads, "Whoever corruptly alters, destroys, mutilates, or conceals a record, document, or other object, or attempts to do so, with the intent to impair the object's integrity or availability for use in an official proceeding." 18 U.S.C. §1512. A person does not need to know that an investigation was imminent and a person can be prosecuted for his own actions. Fortunately for companies, the act has a safe haven for those with reasonable documentation retention policies