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Lawmakers Seek to Close Corruption Loophole

The Senate Judiciary Committee held ahearingon Tuesday to discuss Skilling v. U.S., a recent U.S. Supreme Court case, which narrowed the application of federal law that prosecutors had used to bring fraud cases against corrupt corporate executives and politicians.

Prosecutors had convicted Skilling under a portion of the mail-fraud statute that makes it illegal to deprive someone of “honest services.” The honest services law was meant to tackle fraud cases in which no party suffered a loss. The idea behind the law was that certain actions, such as a government official colluding to give a contract to a favored constituent, for example, are still illegal even if the government receives fair terms on that service. However, the law does not set out exactly what sort of actions are illegal under the honest services theory.

Skilling was convicted for wire fraud under the honest services theory for conspiring to defraud Enron’s shareholders by misrepresenting the company’s fiscal health. However, Skilling could not be charged for this crime under another statute because he never solicited or accepted payment from a third party in exchange for making these misrepresentations. The government argued that Skilling’s actions were illegal because he deprived the company and its shareholders of honest services.

In appealing his conviction under the honest services theory, Skilling argued that he cannot be convicted under the statute because it does not clearly state that his actions are illegal. The U.S. Supreme Court agreed with Skilling, ruling that because most cases under the honest services doctrine involved bribes and kickbacks, the Court determined that the law applies only to bribes and kickbacks. Thus, ruled the Court, Skilling’s conviction on that count must be thrown out.

Senate Judiciary Committee Chairman Sen. Patrick Leahy (D-VT) sought testimony from legal experts and government prosecutors on how Congress could close the loophole created by the Court’s decision. In an opening statements, Sen. Russ Feingold (D-WI) told the committee why congressional action on the issue is urgent. “Over the last several months, we have seen a wave of challenges to existing convictions and requests for reconsideration of sentences. We need to act quickly to close the large loophole that the Court created,” said Feingold.

Lanny A. Breuer, assistant attorney general with the criminal division of the U.S. Department of Justice substantiated Feingold’s concerns. “I assure you that the impact of Skilling is real, and that there is conduct that would have been prosecuted under the honest services fraud statute before Skilling that can no longer be prosecuted under the federal criminal law,” said Breuer.

In drafting new legislation to address the loophole, Breuer urged that Congress include language requiring that those prosecuted under the law both intend to defraud and knowingly cover up that intent. This, said Breuer, will ensure that no person can be convicted for mistakenly or unwittingly breaking the law.

Michael L. Seigel, University of Florida Research Foundation Professor of Law, agreed with Breuer, but also noted that Congress should make the new law specific in establishing what conduct would be illegal. Such precise language is necessary, said Seigel, to prevent erroneous interpretation.

However, Samuel W. Buell of Duke University School of Law, told the committee that vagueness is not an issue so long as the legislation clearly requires intent. “There is nothing novel, or unworkable, or imprudent about the idea of Congress passing general prohibitions on fraud and the courts working out how to apply those general concepts to new forms of harmful deception as they arise,” said Buell.

The real issue, noted Buell, is proving that the person being prosecuted knew that his or her actions were wrong. “The Supreme Court itself has often observed that actors who are aware of the wrongfulness of their own conduct are not in a position to complain that they have been the victims of surprising application of allegedly vague laws,” he said.

Skilling v. U.S.pdf

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