Breuer Pushes Congress for ‘Honest Services Fraud’ Replacement
By Christopher M. Matthews | September 28, 2010 2:28 pm

Updated at 3:55 p.m. to include Sen. Leahy’s bill.

Assistant Attorney General Lanny Breuer urged Congress Tuesday to pass legislation to “fill the gap” created by the recent Supreme Court decision that placed new limits on federal prosecutors’ use of the federal honest services fraud statute.

“One of the tools that we have relied upon for more than two decades was significantly eroded as a result of the Supreme Court’s recent decision in Skilling v. United States,” Breuer said during a Senate Judiciary Committee hearing.

Later on Tuesday, the committee’s chairman, Sen. Patrick Leahy, introduced legislation along the lines advocated by the Justice Department.

Prosecutors have aggressively used the 1988 federal fraud statute for the past 20 years to go after local and state politicians for graft and corporate executives for bilking their companies.

In June, the Supreme Court found that a section of the law making it a crime to deprive others “of the intangible right of honest services” was unconstitutionally vague.

The court ruled the honest services law is limited to bribery and kickback schemes, and it questioned the convictions of several high-profile defendants including former Enron chief Jeffrey Skilling and former Canadian newspaper mogul Conrad Black.

“Because Skilling’s alleged misconduct entailed no bribe or kickback,” the court said in a majority opinion authored by Justice Ruth Bader Ginsburg, “it does not fall within the Court’s” reading of the law.

Breuer, who leads the Justice Department’s Criminal Division, said the decision all but eliminated the department’s ability to prosecute undisclosed self-dealing by public officials. He provided an example of a local health official who refered disabled citizens to housing facility in which the official had a concealed ownership interest.

“This undisclosed self-dealing or concealed conflict of interest is not bribery, but is just as violative of the public trust,” Breuer said.

Breuer said that it was imperative that Congress act quickly to create a law that would allow the Justice Department to prosecute such behavior using using federal mail and wire fraud statutes.

Sen. Jeff Sessions, the ranking Republican on the panel, expressed some concern about writing a law that did not clearly define “undisclosed self-dealing.”

“Undisclosed self-dealing , that’s a pretty broad statute, it really is,” said Sessions. “Give me a break.”

Sessions expressed concern that federal prosecutors would use a vague or ambiguous law to pursue crimes on the state and local levels, conduct that Sessions said should not fall under the purview of the federal government.

Sessions outlined a scenario in which a local official was prosecuted using federal mail and wire fraud statutes for forgetting to disclose an interest in a dividend fund and then voting on proposed legislation that might affect his interest in the fund.

Breuer assured Sessions that such behavior would not be prosecuted. He said that  Justice Department had created a set of proposed principles for any new law, which would impose a strict burden of proof.

“We’re not going to prosecute the mere failure to disclose,” Breuer said. “What we will prosecute is if a person does not disclose and that official knew he or she had to disclose. We will then look at whether there was scheme or artifice to defraud.”

Former Deputy Attorney General George Terwilliger, who also testified during the hearing, said that he agreed with 90 percent of what Breuer said.

“This is certainly is not a partisan issue,” said Terwilliger, now a partner at White & Case LLP. “This is a post-partisan issue, given the level of corruption that exists at every level of government.”

But Terwilliger said that Congress needs to be careful and deliberative in writing new legislation.

“I respectfully suggest the utmost care,” Terwilliger said. “Ambiguous statutes and requirements present enormous problems. They put prosecutors in the position of setting the standards instead of letting the legislature define them.”

Terwilliger said that Congress should undertake a study of the potential effects of any proposed legislation before writing a new law. He also suggested that it might be better to fold any new requirements into federal conflict of interest laws instead of into the mail and wire fraud statutes, to which Sessions expressed support.

Leahy said that he believed it would be possible to quickly produce a piece of bipartisan legislation.

“We must act aggressively but carefully to strengthen our laws to root out the kinds of public corruption that have resulted in convictions of high state officials, members of Congress, and many others,” Leahy said.

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