Donald Trump And Honest Services Fraud
LBJ gave up his radio stations. Jimmy Carter gave up his peanut farm. Untangling Donald Trump from his web of companies and interests is a bit more complicated.
Yesterday, a team of lawyers at Morgan Lewis released a “white paper” about “conflicts of interest and the President,” apparently prepared for President-Elect Donald Trump. (“Apparently” because it’s not clear if Morgan Lewis prepared it for Donald Trump, The Trump Organization, the newly created trust, or some combination of all three.) The white paper argues that the President and Vice President are exempted from the federal criminal conflict of interest statute, 18 U.S.C. § 208, and that the Foreign Emoluments Clause of the Constitution isn’t violated by Trump (or his company) doing business with foreign governments “so long as foreign governments pay fair-market-value prices.”
What was more interesting, however, was what Morgan Lewis did not say: how is Donald Trump going to ensure he and his sons don’t commit “honest services fraud?”
“Honest services fraud” is part of the federal mail and wire fraud statute. The crime is defined quite broadly as any “scheme or artifice to defraud,” which itself is defined as “includ[ing] a scheme or artifice to deprive another of the intangible right of honest services.” 18 U.S.C. § 1346. As emeritus law professor Michael Tigar recounts, the “honest services fraud” statute has a curious history. Congress passed it in response to McNally v. United States, 483 U.S. 350 (1987), in which the Supreme Court said the mail and wire fraud statutes applied only to frauds aimed at tangible property interests. When it comes to governmental officials, the victim of the fraud is the government. See, e.g., United States v. Halloran, 821 F.3d 321, 330 (2d Cir. 2016)(“The scheme to defraud element of wire fraud requires the specific intent to harm or defraud the victims of the scheme—in this case, New York City.” Quotations omitted.)
Unlike the conflict-of-interest statute, which doesn’t apply to the President, the honest services fraud statute applies to everyone. The Supreme Court has hacked away at honest services fraud a few times, including in Skilling v. United States, 561 U.S. 358 (2010) and McDonnell v. United States, 136 S. Ct. 2355 (2016). Skilling pared down § 1346 so that it applied only to the same bribe-and-kickback schemes at issue in the pre-McNally cases. McDonnell involved a former Governor and held that setting up a meeting, talking to another official, or organizing an event was not an “official act” as defined by the federal bribery statute, 18 U.S.C. § 201.
But the honest services fraud statute isn’t toothless, at least not yet. Nor is the federal bribery statute, which similarly applies. The Second Circuit – the federal appellate court for New York, where The Trump Organization operates – recently affirmed the conviction of a New York City Council member, despite Skilling and McNally, holding:
[T]he Government “need only show that a public official has obtained a payment to which he was not entitled, knowing that the payment was made in return for official acts.” Ocasio v. United States, ––– U.S. ––––, 136 S.Ct. 1423, 1428, 194 L.Ed.2d 520 (2016) (internal quotation marks omitted). “[A] public official is not required to actually make a decision or take an action.” McDonnell v. United States, ––– U.S. ––––, 136 S.Ct. 2355, 2370–71, 195 L.Ed.2d 639 (2016). “[I]t is enough that the official agree to do so.” Id. at 2371. “The agreement need not be explicit, and the public official need not specify the means that he will use to perform his end of the bargain.” Id.
… It is true that merely setting up a meeting—without more—does not qualify as an official act. See id. at 2371–72. It can, however, “serve as evidence of an agreement to take an official act.” Id. at 2371.
United States v. Halloran, No. 15-2351(L), 2016 WL 6128039, at *4 (2d Cir. Oct. 20, 2016).
It’s not hard to come up with ways President Trump could trigger a violation of one of these laws. Consider this article written by lawyers at, ahem, Morgan Lewis:
The McDonnell decision will require the government to allege and prove linkage between the official actions of public officials and their decisions or actions on specific questions or matters before them or other officials over whom they exercise influence, and the decision outlines a number of potential ways that the government may accomplish this. For example, the same conduct alleged in McDonnell could be found to constitute an official act for the purposes of the federal bribery statute if the evidence showed that setting up a meeting, hosting an event, or calling another public official (or agreeing to take such actions) was intended to exert pressure on another official to make a decision or take governmental action on a specific pending matter.
One of the many words we could use to describe Donald Trump’s style is “pressure.” He pressured Lockheed Martin on the F-35. He applied political pressure on foreign diplomats to stay at his hotel. Or, as he says, he “moves on” people.
President Trump could, perhaps, make a number of arguments about Presidential immunity, but they’ll run squarely into Clinton v. Jones, which emphatically rejected all of those arguments:
In sum, “[i]t is settled law that the separation-of-powers doctrine does not bar every exercise of jurisdiction over the President of the United States.” Fitzgerald, 457 U.S., at 753–754, 102 S.Ct., at 2703. If the Judiciary may severely burden the Executive Branch by reviewing the legality of the President’s official conduct, and if it may direct appropriate process to the President himself, it must follow that the federal courts have power to determine the legality of his unofficial conduct. The burden on the President’s time and energy that is a mere byproduct of such review surely cannot be considered as onerous as the direct burden imposed by judicial review and the occasional invalidation of his official actions. We therefore hold that the doctrine of separation of powers does not require federal courts to stay all private actions against the President until he leaves office.
Clinton v. Jones, 520 U.S. 681, 705–06 (1997).
President Trump might be able to avoid the blanket prohibition on conflicts-of-interest and he might be able to avoid the Emoluments Clause. But he should stay far away from his businesses – and the businesses of anyone he associates with – for his own sake, and for his children’s. If, as the Morgan Lewis letter says, his sons Don and Eric will be in charge of the Trust that controls The Trump Organization, then they, too, could be subject to federal prosecution for any involvement in “a scheme or artifice to deprive another of the intangible right of honest services.” The creation of the Trust and the appointment of an Ethics Officer are a good first step, but they’re not nearly enough, as Walter M. Shaub, Jr., Director, U.S. Office of Government Ethics, said yesterday. If Trump’s sons were to, for example, suggest that business with them would either produce a favorable governmental policy, or that there would be governmental consequences for not doing business with them, that could set the stage for a theft of honest services prosecution.