'Honest Services' Doctrine: Recent Development

Author:Mr Stephen Spivack, Gregory G. Marshall and Erin K. Sullivan
Profession:Bradley Arant Boult Cummings LLP
 
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Government contractors know to train their employees, agents, and subcontractors to comply with the myriad laws and regulations governing their business relationships with the public sector. Although contractors are often most closely attuned to the requirements of the Federal Acquisition Regulation and analogous state and local procurement rules, they should not neglect the criminal laws when training employees. A recent Ninth Circuit decision underscored the serious criminal consequences that can result from bribery or kickback activity undertaken by individual independent contractors. Notably, the court held that liability under the "honest services" statute can extend even to contractors who have no formal fiduciary relationship with the government. When devising and improving their training and compliance programs, government contractors should be aware of the scope of the honest services fraud statute and the consequences, up to and including suspension or debarment from government contracting, that can result from an indictment or conviction under the statute.

Government contractors at all levels—federal, state, and local—need to be aware of potential criminal liability for so-called "honest services" mail and wire fraud under 18 U.S.C. § 1346. In 2010, the Supreme Court narrowed the scope of the honest services fraud statute, holding in Skilling v. United States that the statute criminalizes only bribe-and-kickback schemes committed in violation of a fiduciary duty. 130 S.Ct. 2896, 2930–31 (2010). However, the Supreme Court did not clarify who may owe such a "fiduciary duty." The Ninth Circuit's recent en banc opinion in United States v. Milovanovic directly addressed this important issue but unfortunately did little to add certainty to the landscape of potential liability. --- F.3d ---, 2012 WL1848740 (9th Cir. May 22, 2012). (The U.S. Court of Appeals for the Ninth Circuit has federal jurisdiction over Alaska, Arizona, California, Hawaii, Idaho, Montana, Oregon, Washington, Guam, and the Northern Mariana Islands.) What Milovanovic did clearly hold was that independent government contractors do not fall outside the scope of the honest services statute simply by virtue of their independent contractor status. Following Milovanovic, a government contractor who engages in bribery or kickback activity may be exposed to honest services criminal liability—and up to twenty years in prison per violation—even though the contractor is not an...

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