Offside! Federal Judge Overturns FIFA Convictions in Latest Attack on the Federal Honest Services Fraud Statute

Background on the Problematic Enforcement of Honest Services Fraud

Honest services fraud is defined as a form of wire fraud that includes a “scheme or artifice to deprive another of the intangible right of honest services.”² Since Congress enacted the honest services fraud statute in 1988, the Supreme Court and lower federal courts have consistently taken issue with the vague nature of the crime and steadily narrowed its scope.

The first major narrowing of the statute occurred in the aftermath of the high-profile trial and conviction of former ENRON CEO Jeffrey Skilling in Skilling v. United States, in which Skilling challenged his conviction under the honest services fraud statute on the basis that the statute was unconstitutionally vague.³ Although the Court acknowledged that the statute was at least somewhat vague, it concluded that the doctrine’s precedent could be pared down to its “core,” eliminating any vagueness problem.⁴ In doing so, the Court limited the statute’s application to circumstances involving fraudulent schemes to deprive another of honest services through bribes or kickbacks.⁵ The government urged the Court to include within the statute’s scope a public official’s undisclosed self-dealing, but the Court rejected that proposal on grounds that the historical cases included such prosecutions relatively infrequently, and “that a reasonable limiting construction of § 1346 must exclude this amorphous category of cases.”⁶

A few years later, the Supreme Court acted again to further limit the reach of the honest services statute in connection with another high-profile case in McDonnell v. United States. In McDonnell, the Court examined the criminal conviction of the former governor of Virginia after he and his wife were tried on multiple counts of honest services fraud for their acceptance of gifts and loans from the CEO of a private company in exchange for their help introducing the CEO to other public officials. The Court limited the breadth of the statute’s application by strictly delineating what kinds of “acts” fell within the scope of the federal bribery statute.⁷ Specifically, the Supreme Court vacated their convictions on grounds that prosecutors had not shown that the governor had committed an “official act,” as required by the federal bribery statute, in exchange for the gifts that were received.⁸ The Court construed the bribery statute’s “official act” to mean a “formal exercise of governmental power” in response to a “question, matter, cause, suit, proceeding or controversy” of a narrowly defined level of formality and the Court declined to find that honest services fraud applied under the facts of the case.⁹

Since McDonnell, the Court has continued to take issue with the vague nature of honest services fraud and to hollow out the statute. For example, in Kelly v. United States, the Court further narrowed the definition of “acts,” holding that wire fraud laws cannot be used to prosecute regulatory acts by the government.¹⁰ In Kelly, DOJ charged public officials with honest services fraud for their fraudulent actions in a scheme to cause a four-day traffic jam in retaliation for a New Jersey mayor’s alleged refusal to support the governor of New Jersey’s presidential campaign.¹¹ The Court reversed the officials’ convictions at trial, holding that federal prosecutors had not shown that the officials had engaged in those deceptions with the object of obtaining money or property.¹² The Court noted that a scheme to alter a regulatory choice is not one to take the government’s property; thus, the honest services fraud doctrine did not apply to the defendants’ conduct.¹³

Most recently, earlier this year in Percoco v. United States, the Court limited the use of the statute against private citizens engaged in bribery or kickback schemes.¹⁴ Percoco was a former employee of the New York governor’s office who continued to operate as an advisor to the governor.¹⁵ A jury convicted Percoco of honest services fraud for accepting payments from a real estate developer for Percoco’s assistance in convincing a state official to drop a development requirement.¹⁶ But the Supreme Court reversed Percoco’s conviction, concluding that the instructions presented to the jury that a private citizen could be convicted on honest services fraud charges if he had a “special relationship” to the government and had “dominated and controlled” government business were too broadly drafted.¹⁷ Though the Court did not rule out the enforcement of the statute against private citizens, it noted that the statute “plainly does not extend a duty to the public to all private persons.”¹⁸

Honest Services Fraud and the FIFA Case

In 2015, DOJ brought a historic series of indictments in the FIFA Case, alleging that multiple leaders of international soccer federations, and companies and senior executives doing business with them, had participated in a multi-million-dollar bribery scheme over 25 years. DOJ charged defendants in the investigation with crimes such as wire fraud and racketeering, alleging that some defendants paid upwards of $150 million in bribes and payoffs to other defendants, who accepted those bribes in exchange for awarding lucrative broadcasting rights and access to confidential information.

In bringing the FIFA case, DOJ attempted to expose the corrupt underbelly of the world’s most popular sport. But now, after almost a decade of investigation and multiple prosecutions, many of the government’s convictions and the broad investigation itself are in jeopardy because of the government’s reliance on the honest fraud services statute.

In jury trials, federal prosecutors obtained convictions of and guilty pleas from multiple defendants for honest services fraud and related offenses. But earlier this month, the federal district court in the Eastern District of New York declined to apply the honest services fraud statute to the foreign commercial corruption alleged in the DOJ’s investigation. After a jury convicted former Fox executive Hernán López and sports marketing company Full Play Group of honest services fraud related to their payouts of bribes to officials of La Confederación Sudamericana de Fútbol (CONMEBOL) in exchange for broadcasting rights, the district court vacated the convictions. The court extrapolated from the line of Supreme Court cases narrowing the scope of the honest services fraud statute that honest services fraud cannot be construed to “encompass foreign commercial bribery” because there is no precedent for that application.¹⁹ In particular, the district court relied on the Supreme Court’s reluctance, as expressed in its recent Percoco opinion, to expand the honest services fraud statute.²⁰ And, redoubling its position, one week later the district court stayed the sentencing of nine other defendants convicted as part of the DOJ’s investigation, including top FIFA officials central to the bribery scheme, “pending further proceedings, if any” with respect to the acquittals of López and Full Play Group.²¹

Still, the limits of the application of the honest services fraud statute are far from settled. DOJ has since noticed its indication to appeal the district court’s decision vacating the convictions and staying the other sentencings. Further, the court’s order did not distinguish between foreign commercial bribery and domestic commercial bribery, leaving open the question of whether domestic commercial bribery falls within the purview of the honest services fraud statute. When the case inevitably reaches the Supreme Court, the Court may very well again grant certiorari, given its past interest in narrowing prosecutors’ acceptable use of the statute. If it does, the Court may once again narrow the application of the statute or even find it unconstitutionally vague once and for all.

What This Means For You

In its decisions regarding the honest services fraud statute, the federal judiciary has signaled strong reservations about the statute’s breadth and application, particularly as applied to commercial bribery, foreign or domestic. But companies and executives should not take too much comfort even if the courts finally find the statute to be fatally flawed, either legally or practically. The demise of honest services fraud may result in one less tool in the government prosecutor’s toolkit, but it is not the only anti-corruption statute available to the government. For instance, prosecutors typically can rely on wire fraud, money laundering, the Travel Act, and the FCPA when corrupt payments involve foreign government officials. Moreover, prosecutors continue to signal their willingness to bring novel theories in their cases against corruption, which can still cause irreparable reputational harm and drive investigative costs. As a result, it remains as essential as ever for companies and executives to invest in compliance and ensure that all of their business ventures remain in bounds.

¹United States v. Full Play Grp., S.A., No. 15-CR-00252-PKC, 2023 WL 5672268, at *1 (E.D.N.Y. Sep. 01, 2023).
²18 U.S.C. § 1346.
³Skilling v. U.S., 561 U.S. 358, 403 (2010).
⁴Id. at 404.
⁵Id. at 408
⁶Id. at 410.
⁷579 U.S. 550, 574 (2016).
⁸Id. at 581.
⁹Id. at 568–69.
¹⁰140 S. Ct. 1565, 1574 (2020).
¹¹Id. at 1568.
¹²Id. at 1573–74.
¹³Id. at 1574.
¹⁴598 U.S. 319, 322 (2023).
¹⁵Id. at 322–23.
¹⁶Id. at 325.
¹⁷Id. at 322, 328–30.
¹⁸Id. at 330.
¹⁹Full Play Grp., 2023 WL 5672268, at *21–23.
²⁰Id. at *24.
²¹Order, United States v. Trujillo, No. 16-CR-00108-PKC (E.D.N.Y. Sep. 07, 2023).