The State of Public Corruption Law After Menendez

Last January federal prosecutors announced they were dropping the charges against New Jersey Senator Bob Menendez. This latest in a series of recent setbacks in high-profile corruption cases has led many to question whether it’s become too difficult to prosecute public corruption. The answer to that question is yes – and the solution lies with Congress, not with the courts.

New Jersey Senator Bob Menendez

New Jersey Senator Bob Menendez

Menendez and his co-defendant, Dr. Salomon Melgen, went to trial last fall. Prosecutors had charged that over a number of years Melgen gave Menendez expensive gifts including frequent private jet travel and luxury vacations, as well as hundreds of thousands of dollars in contributions to various PACs and campaign organizations. In exchange, Menendez allegedly used his official position to intercede on Melgen’s behalf in various disputes with the federal government, including a case involving millions of dollars in alleged false Medicare billings by Melgen.

The trial ended in November with a hung jury, with jurors reportedly voting 10-2 for acquittal. On January 19, prosecutors announced they would re-try the case. But less than a week later, the trial judge granted a defense motion for acquittal on seven of the eighteen counts in the indictment, those based on Melgen’s large political donations. Shortly thereafter, prosecutors announced they would not proceed on the truncated indictment and asked the judge to dismiss all the remaining charges.

The demise of the Menendez case is the latest in a series of setbacks for prosecutors in public corruption cases. Many point the finger at the Supreme Court’s 2016 decision reversing the convictions of former Virginia Governor Bob McDonnell. But McDonnell was actually only the latest in a series of Supreme Court cases over the last two decades that have dramatically narrowed federal corruption laws. Cumulatively, these decisions now provide a safe harbor for behavior most would consider unquestionably corrupt.

The Supreme Court Narrows Public Corruption Law

Sun-Diamond: The trend starts with United States v. Sun-Diamond Growers of California in 1999. The main federal bribery statute, 18 U.S.C. 201, prohibits both bribery and the lesser crime of gratuities. A gratuity is a gift given to a public official because of an official act. It is considered less serious than bribery because there is no corrupt intent to influence the official to act in a certain way. Rather than trying to affect the official’s behavior, a gratuity is simply what it sounds like: a “tip” for services rendered. While a bribe says “please,” a gratuity says “thank you.”

Sun-Diamond involved a challenge to a popular prosecution theory at the time known as a “status gratuity.” Prosecutors had charged the Sun-Diamond co-op with providing a series of gratuities to the Secretary of Agriculture Mike Espy, including luggage, a crystal vase, and tickets to the U.S. Open. Although the indictment identified matters pending before Espy that were of interest to Sun-Diamond, it did not link any of the gifts to any particular act by Espy. Instead, it charged that by providing a stream of gifts, Sun-Diamond was seeking to build up a reservoir of good will with Espy in the hopes that he might look favorably upon their interests down the road. Prosecutors argued that a gratuity could be based simply on a public official’s status and ability to exercise power on behalf of the gratuity-giver.

The Supreme Court disagreed. It noted that the language of section 201 requires that a gratuity be given “for or because of any official act.” That means, the Court held, that a particular gratuity must be directly linked to a particular official act by the public official. Simply providing a series of gifts to curry favor with the official of because of the official’s status or position is not sufficient.

A common pattern of corruption involves a politician and a donor with a long-term, “you scratch my back, I’ll scratch yours” relationship. The donor provides the politician with personal gifts over the years, and the politician takes various steps to help the donor as the need arises. The donor effectively has the politician “on retainer,” expecting that, when needed, the politician will act to benefit the donor. Most would consider such a relationship to be corrupt; the official is acting not in the public interest but in order to reward the person providing the secret gifts.

After Sun-Diamond, prosecutors can no longer charge gratuities based solely on such a relationship but must prove beyond a reasonable doubt that a particular gift was linked to a specific official act. Rather than proving gratuities based on corrupt long-term relationships, they must prove specific corrupt transactions. In a long-term relationship involving a series of gifts and acts over time, making such a precise correlation may be impossible.

Cases like Skilling have made it too difficult to prosecute public corruption

Former Enron CEO Jeff Skilling

Skilling: In Skilling v. United States, decided in 2010, the issue was a popular public corruption theory known as honest services fraud. Instead of defrauding a victim of money or property, the defendant in an honest services fraud case defrauds the victims of their intangible right to the fair and honest services of the defendant.

Honest services fraud was particularly popular with public corruption prosecutors in the decade following Sun-Diamond. (For example, it was charged in almost all of the Jack Abramoff-related corruption cases in the 2000’s.) It provided a vehicle for prosecutors to charge a corrupt relationship without necessarily meeting Sun-Diamond’s requirement of a direct, one-to-one link between gifts and official actions. Prosecutors could simply charge an ongoing corrupt relationship, a pattern of gifts and favors, under the more malleable honest services fraud statute.

Jeff Skilling was the former CEO of Enron, the giant energy company that spectacularly collapsed in 2001. For his role in that collapse, was convicted of conspiracy to commit private sector honest services fraud for depriving Enron and its shareholders of their right to his fair and honest services. He urged the Supreme Court to throw out the honest services fraud theory as unconstitutionally vague. The Court declined to do that, but did hold that honest services fraud must be limited only to cases that involve bribes or kickbacks. More general allegations of an ongoing pattern of gifts and favors, or of conflicts of interest, would not suffice.

As a result of Skilling, honest services fraud is now subject to the same stringent requirements of bribery law – indeed, it is really just bribery by another name.  In addition, self-dealing and conflicts of interest by public officials, formerly chargeable as honest services fraud, are now beyond the reach of that statute.

Cases like McDonnell have made it too difficult to prosecute public corruption

Former Virginia Governor Bob McDonnell

McDonnell: The Court’s recent decision in McDonnell v. United States further restricted the scope of federal corruption law. McDonnell adopted a narrow definition of “official act” for purposes of federal bribery. Bribery generally requires the government to prove that a public official agreed to accept something of value in exchange for being influenced in the performance of an official act. In the past, courts typically defined official act to encompass anything done in the course of official duty or under the color of the office. Relying on the precise statutory language of Section 201, McDonnell narrowed the definition of official act, holding that bribery requires the public official to agree to exercise government power or take substantive action on a particular matter or dispute. Arranging meetings, making phone calls, or providing access to other government officials in exchange for secret gifts, which is what Governor McDonnell had done, was not substantial enough to support a bribery conviction.

The McDonnell Court’s exclusive focus on the nature of the public official’s actions fails to guard against an overall corrupt relationship. For example, after McDonnell, as governor I could routinely charge a personal, secret fee of $10,000 to set up a meeting with someone in my administration. That secret use of a public office to enrich myself would now be legal, according to the Court, because arranging a meeting is not an official act, no matter how corrupt my motivation. (For a more detailed critique of McDonnell, see my post here.)

The Effect on the Menendez Case

The Menendez case is the most recent high-profile corruption case to falter. Many saw this as another casualty of McDonnell. But in the end, Menendez was not really a McDonnell case. Menendez’s lawyers certainly made arguments based on McDonnell, claiming that Menendez’s lobbying of executive branch officials on Melgen’s behalf could not be considered “official acts.” But the case ultimately foundered not on the question of “official acts” but for lack of proof of corrupt intent. The defendants were long-time friends, and the defense was successful in arguing that whatever they did for each other was not a result of a corrupt bargain but was simply out of friendship. Particularly where campaign contributions (which are not inherently corrupt) are involved, the government’s proof of a corrupt bargain must be particularly compelling. In the end, prosecutors simply couldn’t meet that standard.

But there’s no question that the line of Supreme Court cases culminating in McDonnell has made prosecuting cases like Menendez much more difficult. Twenty years ago, the Menendez case would have looked very different. Without Skilling, prosecutors could have charged the ongoing pattern of secret gifts and political favors as honest services fraud without being required to prove the elements of bribery. Without Sun-Diamond they may have charged that same string of gifts and favors as the lesser crime of gratuities, even if they felt they lacked evidence of corrupt intent to make a bribery case.

Things could get worse in the future. For example, some of the bribery counts in the Menendez case relied upon the so-called “stream of benefits” theory, charging a series of gifts in exchange for unspecified future official acts to be taken as the need arose. In the aftermath of Sun-Diamond, prosecutors have successfully used this theory to charge bribery, arguing that the holding of Sun-Diamond is limited to gratuities. But I’m not sure that’s going to hold up in the future. Based on the Court’s approach to interpreting the language of section 201, as reflected in both Sun-Diamond and McDonnell, I think if the issue gets to the Supreme Court it will likely reject the stream of benefits bribery theory and require prosecutors to prove a one-to-one connection between gift and official act, just as they must do in a gratuities case.

Future cases also could further restrict the scope of “official acts” that will support a corruption prosecution. Menendez argued vigorously that his lobbying of executive branch officials could not be an official act by him, because he did not have the power to resolve the matter in question. His case ultimately did not turn on that question, but future defendants will undoubtedly make the same claims.

This string of Supreme Court cases has left us with a system in which only the most clumsy and obtuse corrupt officials will end up being prosecuted. Representative Randy “Duke” Cunningham famously drafted a “bribe menu” where he spelled out his price for awarding defense contracts in increasing amounts. But most corrupt agreements are not reduced to writing. Most corruption takes place through winks, nods, and silent understandings. The Menendez case highlights that if neither party to a corrupt deal cooperates and there is no “smoking gun” email or document, proving corruption can be extremely difficult – even in the face of such extravagant gifts as Parisian vacations and repeated private jet travel.

Politicians who act in response to secret, undisclosed gifts are engaged in corrupt behavior. But ironically, now a single act of corruption – I pay a Congressman $100,000 to award me a contract – is easier to prove than an ongoing corrupt relationship. With the single gift and single act the direct connection is clear. But if I have a Member of Congress on retainer, giving her gifts from time to time over the years in exchange for political favors as the need arises, there may be far more corruption but much less ability to prosecute.

The Need for Congressional Action

These problems are not insurmountable. These Supreme Court decisions are based on statutory language, and Congress can amend the statutes. Congress could amend the federal bribery law to broaden the definition of official act to respond to McDonnell and make it clear that bribery applies to any corrupt exercise of official discretion. It could broaden and clarify the definition of honest services fraud to respond to Skilling, and extend honest services fraud to self-dealing and conflicts of interest. It could specify that a “stream of benefits” theory is valid in both bribery and gratuity cases, and that prosecutors are not required to prove a direct one-to-one correlation between gift and official act.

Congress could also require increased disclosure of the identity of those who are spending money in support of particular candidates, through legislation such as the proposed DISCLOSE Act. Such disclosures also guard against corruption by shedding light on who is supporting a politician and allowing the voters to respond accordingly. Gifts and donations that are hidden from the public are much more likely to lead to corruption.

Some might believe that Congress coming together to strengthen the laws against political corruption is about as likely as all the foxes coming together to build a big wall around the henhouse. But at this point, if there is going to be a solution it needs to be legislative. As the current statutes have been interpreted, routine everyday corruption is increasingly beyond the reach of the criminal justice system.

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Supreme Court Rejects Rod Blagojevich’s Appeal: Monty Python and Public Corruption

And now for something completely different . . . .

Last week the U.S. Supreme Court declined to hear an appeal from former Illinois Governor Rod Blagojevich. Blagojevich (also known as “Blago”) was convicted on multiple counts of corruption in 2011 and was sentenced to fourteen years in prison.

While Blagojevich’s petition for certiorari was pending, the Supreme Court agreed to hear the corruption case of another former governor, Bob McDonnell of Virginia. McDonnell’s case is set to be argued on April 27 and should be decided by the end of this term.

When the Court agreed to take McDonnell’s case, some thought it might be a good omen for other public corruption defendants. Was the Court about to undertake a wholesale re-examination of corruption law in a way that would benefit Blagojevich, New Jersey Senator Bob Menendez, and other officials with pending cases? But the refusal to hear Blago’s appeal puts at least a temporary damper on any such hopes.

And how does Monty Python figure into all this? Read on.

rod-blagojevich

Governor Blagojevich’s Case: Pay to Play

Blagojevich’s convictions resulted from a series of incidents in which he demanded cash or other things of value in exchange for various exercises of his power as governor. The most infamous example arose after Barack Obama was elected President. Obama had been a U.S. Senator from Illinois, and his election left a vacant Senate seat that Illinois law gave the governor the power to fill.

The FBI was already tapping Blago’s phones as part of an ongoing corruption probe, and it quickly became clear that the governor viewed his power to appoint Obama’s successor as a potential bonanza. In one memorable conversation, he was recorded telling his associate: “I’ve got this thing [the power to appoint a new Senator] and it’s f**king golden. I’m just not giving it up for f**cking nothing!”

Blagojevich believed that Obama’s preferred choice to take his seat was Valerie Jarrett. Accordingly, he tried to make a deal where he would appoint Jarrett in exchange for a spot in Obama’s cabinet or for a high-paying position in the private sector arranged by the President. When the Obama administration refused to make a deal, Blagojevich’s response was, “They’re not willing to give me anything except appreciation. F**k them.”

The governor then tried to make a deal with supporters of Rep. Jesse Jackson Jr. to appoint Jackson to the Senate seat in exchange for a $1.5 million “campaign contribution,” but he was arrested before this proposal had a chance to play itself out.

The evidence at trial also included other examples of a “pay to play” culture in the governor’s office. For example, when hospital lobbyists sought an increase in reimbursement rates for Medicaid patients, Blagojevich let it be known he would approve the increase only in exchange for a “campaign contribution” of $50,000. In another incident, when the state legislature approved a program that taxed casinos for the benefit of racetracks, Blagojevich had intermediaries inform a racetrack owner that the governor would not sign the bill until the owner fulfilled a $100,000 “campaign pledge.”

Although the defense characterized the money involved in these incidents as campaign contributions, the government maintained this was a sham and that the money was really for Blagojevich’s personal benefit. The governor was serving his second term and had already decided not to run for re-election, and so had no apparent reason to raise campaign funds.

In July 2015 the U.S. Court of Appeals for the Seventh Circuit, in a decision I discussed here, reversed five of Blagojevich’s convictions. The Court held that those counts rested in part on an improper legal theory: that the trading of political favors (such as trading one appointment for another), without more, could constitute extortion or bribery. However, that left thirteen counts of conviction intact, and those convictions formed the basis of Blagojevich’s petition to the Supreme Court.

Campaign Contributions and Corruption

The key statutes Blagojevich was convicted of violating are Hobbs Act extortion under color of official right and honest services mail and wire fraud. These are two popular statutory vehicles for the federal prosecution of state and local corruption. Both essentially operate as bribery by another name: they prohibit public officials from agreeing to exercise the power of their office in exchange for something of value.

More straightforward cases of bribery involve secret gifts to a politician that have nothing to do with campaign fundraising. In Bob McDonnell’s case, for example, such gifts included a Rolex watch, designer gowns for his wife, and paying for the caterer at his daughter’s wedding. Because the politician has no apparent legitimate reason to be accepting such gifts, a corrupt agreement may more readily be inferred when the politician then acts in favor of the donor.

Where campaign contributions are concerned, however, the analysis becomes trickier. Politicians do have a right to solicit campaign funds, and donors have a right to support politicians whose policies they favor. A campaign contribution may still be extortion or a bribe, but the evidence of a corrupt link will need to be very strong. It is not enough that a politician solicits a campaign contribution and later takes an action that the donor desired – that happens every day. To prove corruption, the government must establish that a particular contribution was given or demanded in exchange for an agreement to take a specific action in return – a clear deal, or quid pro quo.

Of course, it isn’t enough for a politician simply to claim that money he received was a legitimate campaign contribution. If that is the claim, then evidence concerning the nature of the donation and how it was handled becomes important. For example, one way to distinguish legitimate campaign contributions from corrupt gifts is to see whether the “donation” is within relevant legal limits and whether it shows up on required public campaign finance reports. If not, the circumstantial evidence is much stronger that the purported “campaign contribution” was actually a bribe.

The two leading Supreme Court cases involving bribery and campaign contributions are McCormick v. United States (1991) and Evans v. United States (1992). Both involved charges of Hobbs Act extortion under color of official right. And in both cases, the defendants claimed the money they received was actually a campaign contribution (even though, in both cases, they had failed to include the money on their campaign finance reports).

In McCormick the Court made it clear that, when it comes to campaign contributions, it’s not enough for the government to show simply that a donation was made with the expectation that the official would take an action that he in fact later did take. As long as we have privately financed campaigns, that is simply the nature of our politics. The Court held that Congress could not have intended to criminalize conduct that is essentially unavoidable in our political system. For a campaign contribution to be corrupt, therefore, it must be accepted “in return for an explicit promise or undertaking by the official to perform or not to perform an official act.”

But the following year in Evans, the Court seemed to soften this “explicit promise” standard. It held that extortion under color of official right requires only that the public official accept the thing of value knowing that it was given in exchange for a particular official act. There is no requirement that the official verbally demand the payment or “shake down” the payer.

In an important concurrence, Justice Kennedy noted this was essentially the quid pro quo requirement inherent in any bribery prosecution. There cannot just be a coincidence of timing between support and official action; the parties must make a specific deal. But, he noted, the parties “need not state the quid pro quo in express terms, for otherwise the law’s effect could be frustrated by knowing winks and nods.” It is enough if the quid pro quo can be implied from words or actions and the totality of the evidence surrounding the transaction.

The standard that emerges from McCormick and Evans, therefore, is that Hobbs Act extortion under color of official right in a campaign contribution case requires an explicit quid pro quo — but “explicit” does not always mean “express.” The key is whether there is a corrupt link between payment and official action, and that link may be proven by circumstantial evidence in the absence of an express verbal or written agreement.

Blago’s Supreme Court Petition and Implications for McDonnell

Blago’s principal argument to the Supreme Court was that it needs to clarify the McCormick/Evans standard and what it takes to prove a quid pro quo in a campaign contribution case. He claimed his conviction wrongfully failed to distinguish criminal conduct from a legitimate request for political support. He urged the Court to use his case to hold that, where campaign contributions are concerned, a higher degree of proof of an explicit corrupt agreement should be required. The Court apparently was not persuaded.

Blagojevich had made this same argument in the Seventh Circuit, which also rejected it. Judge Easterbrook’s opinion noted that Blago “assumes that extortion can violate the Hobbs Act only if a quid pro quo is demanded explicitly, but the statute does not have a magic-words requirement. Few politicians will say, on or off the record, ‘I will exchange official act X for payment Y.’”

And, in a reference that may have made Easterbrook my new favorite judge, he observed: “‘Nudge nudge, wink, wink, you know what I mean’ can amount to extortion under the Hobbs act, just as it can furnish the gist of a Monty Python sketch.”

(This Monty Python reference apparently impressed the Solicitor General’s office as well; they quoted it in their brief opposing Blagojevich’s petition for certiorari. I’m guessing this may be the first time Monty Python has made its way into Supreme Court advocacy – although I’d love to be proven wrong about that.)

In other words, as Justice Kennedy observed in Evans, the law cannot be defeated by knowing winks and nods. The jury in Blagojevich’s case was free to find the existence of the quid pro quo based on the overall facts and circumstances — including the fact that Blago’s characterization of the money as campaign contributions seemed implausible.

Does the Court’s refusal to hear Blagojevich’s case have any implications for McDonnell’s appeal? In one sense their arguments are similar: McDonnell, too, is claiming the government has wrongfully criminalized routine interactions between a politician and his supporters, and has urged the Court to clarify the line between corruption and “politics as usual.” If the Court were concerned about where that line is being drawn and thought it needed to re-examine public corruption law, one might have expected them to take Blago’s case as well.

But it’s probably a mistake to read too much into this decision where McDonnell is concerned. The facts of the two cases are very different, and the Seventh Circuit accurately characterized the evidence against Blagojevich as overwhelming. His blatant actions did not present a very sympathetic vehicle for probing the outer limits of federal corruption law.

Legally, McDonnell’s claim is different as well. He is not directly challenging the existence of a quid pro quo; rather, he is claiming that even if there was a deal, the quo promised by McDonnell is legally insufficient because it was not an “official act” within the meaning of federal corruption law. This was not an issue presented in the Blagojevich case; he clearly undertook official actions, the question was simply whether he acted pursuant to a corrupt deal.

It’s also possible this is just a question of timing. One of the government’s arguments opposing Blago’s petition was that the Supreme Court should not consider any of his claims until the government decides whether to retry him on the dismissed counts and he is resentenced. The prosecutors have already announced they will not retry him, and he is scheduled for resentencing on June 30. Once that happens, Blago’s lawyers have said they will petition the Supreme Court again to review his legal claims.

So it appears Blago will get one more bite at the Supreme Court apple. As for McDonnell’s fate, we should have the answer sometime in June. Rest assured, Sidebars will keep you posted.  Say no more.

Update May 23, 2016: Today the Supreme Court rejected Blago’s petition to consider his appeal following his resentencing, so the Court will definitely not be hearing the case. His resentencing is now set for Aug. 6.

monty_python_foot_uhdtv

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