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Maybe Not the Best Defense, or, Why a Gratuity is Not a Bribe, or Honest Services Fraud

The Seventh Circuit’s opinion in United States v. Hawkins – written by Easterbrook – presents a fascinating legal defense. When is getting money from someone for side benefits from the government bribery and when is it fraud?

Mr. Hawkins and his co-defendant Mr. Racasi worked in Chicago for the Board of Review – the entity that hears tax assessment appeals. They took money from a cop – Haleem – who they thought was dirty and, in fact, was – he was so dirty he was acting as an undercover officer to work his time down on some other criminal conduct of his.

It is an interesting question whether a dirty cop who has turned cooperator because his dirtiness has led to its own charges is truly “undercover” but let’s elide over that for a minute.

Messrs. Hawkins and Racasi took Mr. Haleem’s money so that they could work some influence at the Board that lowers tax assessments on some property Haleem owned. One of the properties didn’t have its assessment reduced, but the rest did.

They were charged with bribery and fraud in connection with the bribery. They were also charged with conspiracy, but that’s just because these days AUSAs get made fun of at the NAC if they don’t add a conspiracy charge to every case.

The Awesomest Defense Ever

Their defense, though, was that they weren’t committing bribery, they were committing fraud. They had no intention of working illicit magic on behalf of Haleem to reduce his property tax assessments – he would have won the appeals he won regardless of the money he gave them. Much as Haleem was trying to fake them out into receiving a bribe as a cooperator, they were trying to fake him out by not doing anything in exchange for the money he gave them.

This is the white-collar version of “I couldn’t have killed him, I was robbing a train on the other side of the state” or, from the Long Black Veil, “I couldn’t have killed him, I was sleeping with my best friend’s wife.”

It’s just so beautifully human.

How many times have I heard a version of this defense? How many times have I wanted to float it? I’ve just never had the courage to argue that “my client wasn’t trying to defraud the guy in the indictment, he was trying to defraud someone else.” I suppose I don’t run this defense because whenever I’ve seen it as a truly viable option, the guidelines are higher on the actual fraud.

The tricky bit is that they were charged with both bribery and fraud. And the bribery statute is a little tricky.

brown-envelope-money-bribe-1-1384589-m.jpgThe Bribery Charge

In any event, here, the men were charged with a violation of 18 U.S.C. § 666, which

provides that any agent of a covered organization who “corruptly solicits or demands for the benefit of any person, or accepts or agrees to accept, anything of value from any person, intending to be influenced or rewarded in connection with any business, transaction, or series of transactions of such organization” commits a felony.

Note one problem with this statute – it prohibits both bribes and gratuities. A bribe, of course, is giving money to someone in the government in order to get them to do something for you. A gratuity is giving money to someone in the government because they did something for you.

So, today’s life lesson, tip your waitperson, but not the lady at the DMV.

The Seventh Circuit found that the record was sufficient to support a gratuity charge. So the verdict on the § 666 count stands. (I wonder whether there was a variance argument between the evidence and the indictment – though, based on the jury instruction argument that appears to have been preserved, I think not.)

The Fraud Charge

The fraud charge, though, fared differently.

As the Seventh Circuit explains:

The convictions under §1341 pose a different problem. The mail-­‐‑fraud statute is not as detailed as §666. It prohibits schemes to defraud that use the mails but does not elaborate. Hawkins and Racasi may have defrauded Haleem out of his money (this was their defense!), but that was not the prosecutor’s theory. The United States relied on 18 U.S.C. §1346, which defines scheme to defraud as including “a scheme or artifice to deprive another of the ntangible right of honest services.” The idea is that the employer has a right to loyalty from agents and employees, and the prosecutor contended that Hawkins and Racasi deprived Cook County of their loyal services by taking Haleem’s money secretly. But “honest services” is open-­‐‑ended, and in Skilling v. United States, 561 U.S. 358 (2010), the Justices deflected a contention that it is so open-­‐‑ended as to be unconstitutionally vague. They did this by holding that §1346 covers only bribery and kickbacks. This means that an agent’s secret receipt of a gratuity (a “reward” in the language of §666) does not violate §1341, for a payment that does not entail a plan to change how the employee or agent does his job is neither a bribe nor a kickback. Because the instructions did not take into consideration this subtlety – and allowed the “we were defrauding not bribing” defense – the fraud convictions here were reversed.

Honest services fraud is getting charged more and more in cases that are barely within the scope of Skilling, see, e.g., this case.

Here’s hoping this is a start of a trend blowing that back.

Though it doesn’t make me think I’ll try that “no, I committed a different crime” defense any time soon.

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