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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The Menendez Trial and the Future of Bribery

The prosecution has finished presenting its case in the trial of New Jersey Senator Bob Menendez. Menendez and his co-defendant, Dr. Salomon Melgen, are facing multiple counts of bribery and related charges. The government alleges that in exchange for gifts from Melgen including private jet trips, luxury vacations, and large political donations, Menendez interceded on Melgen’s behalf in various disputes he was having with the federal government. (A more detailed analysis of the indictment is available here.)

Senator Menendez faces corruption charges

Senator Robert Menendez

When the government rested last week, the judge made some comments that appeared to question whether the bribery case could survive the Supreme Court’s 2016 decision in McDonnell v. United States. This led to widespread speculation that the judge might dismiss many of the charges. But on Monday the judge ruled there was enough evidence to go to the jury. The defense is now putting on its case.

Menendez makes two primary types of claims concerning the bribery charges. The first is that the things he agreed to do for Melgen did not qualify as “official acts” under McDonnell and thus could not support a bribery conviction. The second is that, even if Menendez did perform official acts, they were not in response to any gifts from Melgen but were simply done out of friendship or as part of Menendez’s routine Senate responsibilities.

The McDonnell case has been looming over the Menendez prosecution from the beginning. If the Senator is convicted, I think there is a good chance that at least some of the bribery charges will indeed be overturned on appeal. But I believe it will be based primarily not on McDonnell but on a different Supreme Court case decided almost two decades ago.

McDonnell and “Official Acts”

The Supreme Court in McDonnell held that in any federal bribery case the prosecution must prove the public official agreed to be influenced in the performance of an “official act” as defined in 18 U.S.C. 201, the federal bribery statute. The Court concluded that Governor McDonnell’s actions —  making phone calls, arranging meetings, and holding an event at the Governor’s mansion — did not rise to the level of “official acts” and could not support a bribery conviction. (For a critique of McDonnell and its “official act” holding, you can see my posts here and here.)

The “official act” argument says, in effect, that even if there were a deal or quid pro quo, what the public official did – the quo – was not substantial enough to justify a bribery charge. The official can admit there was a link between his actions and the gifts he received, but argue that those actions were trivial or were simply routine political courtesies.

The McDonnell opinion has already resulted in some high-profile convictions being thrown out, including that of former New York State Assembly Speaker Sheldon Silver. Senator Menendez has argued from the beginning of his case that the things he did for Dr. Melgen did not amount to official acts, and the judge has repeatedly rejected his arguments. As I wrote here, I think the judge is correct. If Menendez is convicted and those convictions are later overturned, I don’t expect it to be on the McDonnell “official act” ground.

Melgen is accused of bribing Senator Menendez

Dr. Salomon Melgen

Quid Pro Quo and the “Stream of Benefits” Theory 

Assuming Menendez did perform official acts, to be bribery those acts still needed to be done in exchange for the gifts he received from Melgen. This is the requirement of a quid pro quo, or corrupt intent. This is Menendez’s other main line of defense: he says that anything he did for Melgen was either out of friendship or was part of his general oversight and policy duties as a Senator, not in response to the gifts he received.

Some counts of the indictment related to Melgen’s hefty political contributions to Menendez allege a direct quid pro quo (Counts 9-14). They charge that in exchange for a particular donation, Menendez took a particular identified official act, such as advocating on Melgen’s behalf before the State Department or Department of Health and Human Services.

But a number of the charges (Counts 2-8) rely on a different bribery theory, known as “stream of benefits.” These counts charge that Menendez accepted gifts such as trips on Melgen’s private jet in exchange for “being influenced in the performance of official acts, as opportunities arose.” The specific official acts are not identified in the individual bribery counts, although a large number of official acts are described in the indictment as a whole.

Prosecutors use this “steam of benefits” theory in cases where the bribe payer essentially has the public official on retainer. In exchange for a series of gifts over time, the public official agrees do things to benefit the bribe payer when opportunities arise. It might not be possible to prove a direct link between any particular gift and any particular official act; what is charged is the continuing corrupt relationship, a sort of ongoing “you scratch my back and I’ll scratch yours” theory.

The Supreme Court has never weighed in on this stream of benefits theory. It has been widely accepted in the lower courts, including those in the Third Circuit where Menendez is on trial. But Menendez’s attorneys claim that McDonnell has changed the legal landscape here as well.

The trial judge made some comments last week suggesting he might find that the stream of benefits theory did not survive McDonnell. In the end, though, he agreed with the government that McDonnell’s requirement that an official act be specific and focused does not mean the act has to be identified at the time of the corrupt agreement. In other words, the deal may be, “I’ll give you a stream of benefits over time, and in exchange you agree to do things for me, as the opportunities arise, that qualify as official acts.” The parties have to agree that the public official will perform official acts, but they don’t have to agree up front what the precise official acts might be.

As far as the impact of McDonnell itself is concerned, that seems like the right answer. McDonnell did not discuss the stream of benefits theory and there’s no particular reason to believe that the “official act” requirement, standing alone, would invalidate that theory.

But I think the Supreme Court’s overall approach in McDonnell does suggest the Court might well reject the stream of benefits bribery theory if given the opportunity. That rejection would primarily be based not on the holding of McDonnell, but on the language of the federal bribery statute itself and the reasoning of a 1999 Supreme Court case, United States v. Sun-Diamond Growers of California.

The Sun-Diamond Decision

In Sun-Diamond the defendant, a large agricultural cooperative, was charged with giving illegal gratuities to the Secretary of Agriculture, Mike Espy. The crime of gratuities, 18 U.S.C. 201(c), appears in the same statute as federal bribery, 18 U.S.C. 201(b). It prohibits giving a public official a thing of value “for or because of any official act.” It differs from bribery in that no corrupt intent to influence the official is required; a gratuity can be a mere “thank you” for an official act that has already been performed.

Sun-Diamond was prosecuted on what was sometimes called a “status gratuity” theory. The government didn’t identify any particular official acts by Espy to which the gifts were linked. Instead, it argued it was enough that the gifts were based on Espy’s official position and were made with the hope of building up a reservoir of goodwill with Espy, perhaps to influence or reward some unspecified official act in the future.

The Supreme Court rejected this theory. It was not enough, the Court held, to charge Sun-Diamond with paying gratuities to Espy based on his status or for official acts not named in the indictment. The Court found that section 201(c)’s requirement that a gratuity be “for or because of any official act” means a specific official act must be identified. The Court particularly focused on the phrase “any official act,” holding that this language “seems pregnant with the requirement that some particular official act be identified and proved.” It specifically rejected the alternative, broader interpretation that “any official act” meant any one of the universe of potential official acts “without specification as to which one.”

Did the Stream of Benefits Bribery Theory Survive Sun-Diamond?

Sun-Diamond rejected a gratuity prosecution based on a stream of gifts not linked to any particular official acts. But in the wake of Sun-Diamond, lower courts have continued to uphold the stream of benefits theory in bribery prosecutions. Courts have held that the reasoning of Sun-Diamond does not apply to bribery cases because bribery requires proof of a higher level of intent, a corrupt quid pro quo. That’s true, but as one of my old law professors liked to say, is that a difference that makes a difference?

The language of the gratuities and bribery statutes is strikingly similar. The bribery statute in section 201(b)(2)(A) prohibits a public official from accepting anything of value in exchange for agreeing to be “influenced in the performance of any official act.” That phrase – “any official act” – is precisely the language that the Court in Sun-Diamond said required a particular official act to be identified and proved. It’s not clear to me how the different levels of intent required for the two crimes makes any difference at all when it comes to interpreting this statutory language. For either a gratuity or a bribe, the statute and reasoning of Sun-Diamond appear to require a link to a particular, identifiable official act.

There is another reason to be suspicious of lower court decisions upholding the stream of benefits theory after Sun-Diamond: most of those cases involved prosecutions for honest services fraud or Hobbs Act extortion, not section 201 bribery. Courts in those cases typically were applying general bribery law principles, not parsing the precise statutory language of 18 U.S.C. 201. One of the leading “stream of benefits” decisions, a 2007 case from the U.S. Court of Appeals for the Second Circuit called United States v. Ganim (authored by now-Justice Sotomayor when she was on the appeals court) made precisely that point. Judge Sotomayor noted that Sun-Diamond hinged on the precise wording of section 201 and that the same reasoning did not necessarily apply to other corruption statutes, including the Hobbs Act charges at issue in Ganim.

Menendez is also charged with honest services fraud, but the bulk of the bribery charges in his indictment are under 18 U.S.C. 201. McDonnell and Sun-Diamond make it clear that when interpreting section 201 the Supreme Court will not look to common-law bribery principles but will strictly interpret the precise statutory language. As a result, lower court cases upholding the “stream of benefits” theory in honest services fraud or Hobbs Act cases are of limited value when considering how the Supreme Court would rule in Menendez’s case. And McDonnell suggests that however the Court ends up defining bribery for purposes of section 201, it will apply that same bribery definition to honest services fraud and the Hobbs Act as well.

The Menendez defense argues that the stream of benefits theory does not survive McDonnell. I think the better argument is that it actually did not survive Sun-Diamond and the Supreme Court just has not yet had a chance to say so. The Court’s approach to statutory interpretation in McDonnell simply further highlights why it is unlikely to buy the stream of benefits theory for bribery.

The Defense: Playing the Long Game

The trial judge is likely to let the jury decide the Menendez charges. Even if the judge thinks some of the bribery theories may be invalid, he will likely feel constrained by Third Circuit precedent to let the case go to the jury.

Senator Menendez is in part playing a long game, hoping that even if he is convicted he ultimately will prevail on appeal. Don’t forget that Governor McDonnell was convicted at trial and his conviction was affirmed by a unanimous Court of Appeals before the Supreme Court ultimately took the case and unanimously reversed.

If the Menendez case ever were to reach the Supreme Court, I think there’s a good chance the Court would reject the stream of benefits bribery theory. A number of counts against Menendez and Melgen would remain, so that alone would not mean they would walk free. But it would represent yet another step by the Court to further narrow the scope of federal public corruption law – a process that began nearly twenty years ago in Sun-Diamond.

Update: On November 16, 2017, the Menendez trial ended in a hung jury.

Update 2: On January 19, 2018, prosecutors announced they would re-try Menendez and Melgen.

Update 3: On January 31, 2018, after the judge acquitted the defendants on seven counts, prosecutors announced they would not re-try the case and dismissed all charges.

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