Supreme Court takes up 'honest services,' or anti-corruption, law

The US Supreme Court has agreed to hear three cases in its current term examining a controversial federal statute that makes it a crime "to deprive another of the intangible right of honest services."

The law is a powerful weapon in the arsenal of prosecutors seeking to root out all forms of public and private corruption. But the statute, critics say, fails to give fair warning of precisely which conduct violates the law.

On Tuesday, two of the cases arrive at the high court for oral argument, and the justices will confront a murky issue: What is an intangible right of honest services, and when does its absence rise to the level of a federal crime?

It is not exactly a new question. In 1987, the Supreme Court struck down a similar "honest services" law, saying the outer boundaries of the statute were too ambiguous. The court said that federal prosecutors seeking to prove mail fraud would have to show a deprivation of actual physical property. In other words, it wasn't enough to provide evidence that a defendant had infringed "the intangible right of the citizenry to good government."

The court declared: "If Congress desires to go further, it must speak more clearly than it has."

Congress responded with the current statute, a 28-word law that retains all the ambiguity of the original.

Thus the stage is set for the justices to decide whether the broadly worded law complies with due process and other safeguards or is too vague to withstand constitutional scrutiny.

The first case set for argument on Tuesday involves former newspaper magnate Conrad Black, who was convicted of "honest services" fraud in a Chicago trial in 2007.

Prosecutors accused Mr. Black and his colleagues of defrauding investors by diverting corporate funds for personal use. They told the jury that Black and others received personal payments through a series of phony "non-compete" agreements related to the sale of various newspapers.

According to Black's lawyers, the non-compete agreements were not phony, but were rather a creative way to channel legitimate management fees to top corporate officials to obtain certain advantageous tax benefits in Canada. No theft occurred, Black's lawyers say.

It doesn't matter, government lawyers counter. In addition to the theft allegation, prosecutors charged that Black's conduct violated Delaware corporate law by breaching his fiduciary duty of "loyalty" to the corporation.

That is the essence of the dispute.

"No one who is not a federal prosecutor believes that a deprivation of 'honest services,' by itself, adequately and clearly describes an offense with the specificity required by the Constitution," writes Washington lawyer Miguel Estrada in Black's brief to the court.

"This approach effectively licenses prosecutors to target anything that offends their ethical sensibilities, especially when the defendant is likely to generate career-building headlines," Mr. Estrada says.

Dishonesty isn't enough to send a defendant to prison, Estrada says. Proof is needed that a defendant contemplated that the victim would suffer an identifiable economic injury.

US Solicitor General Elena Kagan is urging the justices to uphold the statute as Congress wrote it. "Congress did not criminalize all manner of dishonesty," she writes in her brief. "Disloyal agents or fiduciaries who intend to deceive on a material matter have ample notice of their criminal conduct."

There is no need to require proof that a defendant contemplated economic harm to the person to whom honest services were owed, she says.

The second case set for argument Tuesday involves a former state representative and lawyer in Alaska, Bruce Weyhrauch, who tried to solicit the legal business of a major oil firm in his state at the same time he and other lawmakers were debating a tax bill involving that company.

Federal prosecutors charged him with "honest services" mail fraud, saying that he schemed "to defraud and deprive the State of Alaska of its intangible right to the honest services of [Mr. Weyhrauch], performed free of deceit, self-dealing, bias, and concealment."

According to prosecutors, he failed to disclose a conflict of interest to the Legislature and the people of Alaska.

Weyhrauch's lawyer is urging the Supreme Court to declare that a state official's failure to disclose a conflict of interest can never, standing alone, constitute a violation of the right of honest services if the alleged action does not also violate some other clear legal duty.

The third case, which has not been scheduled for argument, involves a challenge to the May 2006 conviction of former Enron chief executive Jeffrey Skilling.

Mr. Skilling was convicted of securities fraud and deceiving corporate auditors in an alleged effort to inflate Enron's share price while concealing large business losses. He was sentenced to 24 years in prison.

Skilling argues in his appeal that prosecutors failed to prove he was motivated by a desire for personal gain. He maintains his actions were taken to advance Enron's interests and thus he is not guilty of "honest services" fraud. The statute is unconstitutionally vague, his lawyers say.

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