One of the most potent anticorruption tools for U.S. prosecutors is the “honest services” fraud statute. In essence, the statute makes it illegal for someone to violate their fiduciary duty to the public by participating in a bribery or kickback scheme. The idea behind this law is that when someone owes a fiduciary duty to the public, engaging in corruption deprives the public of their right to “honest services” and thus constitutes a violation of that duty.
Yet while it is relatively clear what activities violate this statute, it is less clear who can violate it. Some cases are obvious: Public officials, for instance, hold a position of power that has been entrusted to them by the public, and in turn must act on behalf of the public when wielding that power. They clearly are the sorts of public fiduciaries to whom the honest services fraud statute can apply. At the other end of the spectrum are ordinary private citizens who have no connection whatsoever to government office. Such people may have a general moral responsibility to behave honestly, but they do not owe fiduciary duties to the public. But between those easy cases at either end of the spectrum are more challenging cases. Consider a person who does not formally hold office but who, by virtue of some relationship to public office or to a public official, have significant influence over government decisionmaking. Do those people owe a fiduciary duty to the public? Are they subject to conviction under the honest services fraud statute? This is the difficult problem that the U.S. Supreme Court will soon address in Percoco v. United States.
The case involves Joseph Percoco, who was a public official in the New York Governor’s office when Andrew Cuomo was still the governor. Percoco left his position in the state government to manage Cuomo’s reelection campaign. During this period, Percoco was approached by a real estate developer who wanted to avoid having to enter into a costly labor agreement with a local union. The developer paid $35,000 to Percoco, who in exchange pressured his former colleagues in state government to waive the labor agreement. At the time this occurred, Percoco was already planning to return to the Governor’s office, and despite not being formally employed by the state, Percoco still had access to and regularly used his old government telephone, desk, and office. Indeed, Percoco was using that office and telephone when he communicated with state officials about waiving the labor agreement.
If Percoco owed a fiduciary duty to the public, then his actions violated that duty and would amount to honest services fraud. But did he owe such a duty, given that he technically was not a government official at the time of his actions? The prosecution and the defense have advanced two competing theories on how to address that question:
- One theory—the one that Percoco advocates—is that fiduciary duties to the public are strictly attached to public office. Under this view, it’s the fact of formally being in office that creates an obligation to the public; without that formal designation, no such obligation can exist. Someone who didn’t hold office at the time of their alleged misconduct therefore cannot be convicted for honest services fraud.
- An alternative theory, which the appeals court endorsed in upholding Percoco’s conviction, is that a fiduciary duty to the public depends not on one’s formal title but instead on the extent to which one has a say in government decisions. Under this “reliance-and-control” theory, a person who is not technically a public official can nonetheless owe a fiduciary duty to the public if that person exercises sufficient control over governmental decisionmaking and others in the government rely on that person due to a special relationship they have with him.
Although each of these theories has merit, both are ultimately unsatisfactory. Percoco’s theory has the benefit of clarity and objectivity, but it would make it far too easy to evade the honest services fraud statute. Under this approach, all it takes in order to escape liability for honest services fraud is to write down “I quit” before accepting a bribe, then resume office immediately after the quid pro quo is fulfilled. A person would escape liability even if, like Percoco, they are quite literally sitting in their government office when they engage in the bribery scheme. This formalistic distinction between who does and does not wield the power of public office—and thus who can be culpable for abusing that power—severely undermines the force of an important anticorruption statute.
The reliance-and-control theory rightfully acknowledges that someone can exploit the power of public office without a formal title. However, this theory seems to lack any limiting principle, and could potentially apply to people in positions far outside the normal conception of public fiduciaries. For example, media figures and union leaders maintain close ties to government officials and often have a good deal of influence over party politics. Although one might have legitimate concerns about these cozy relationships, these figures are undoubtedly private citizens who do not wield—either formally or informally—the power of public office. The reliance-and-control theory, expansive as it is, could nonetheless impose on them a fiduciary duty to the public, rendering the honest services fraud statute ripe for weaponization against private citizens.
In deciding Percoco’s case, the Supreme Court would do well to reject both of these theories. A better approach, which has been surprisingly overlooked, would be for the Court to follow the fiduciary principles that are already established by government ethics laws. In other words, the Court need not develop from scratch an all-encompassing theory about whether a certain figure is bound by a fiduciary duty; instead, the Court can look to existing ethics laws to determine whether those rules, either explicitly or implicitly, already provide an answer.
In Percoco’s case, for example, the Court could take notice of the “revolving door” statutes that the federal government and most states have implemented. These statutes prohibit former public officials from engaging in certain activities (like lobbying) for a specified period of time after they leave office. Underpinning these laws is the recognition that an official’s fiduciary duty to the public—like their capacity to abuse the power and connections they have accrued through their position—does not end the moment they lose their title. Thus, whatever the ultimate boundary of fiduciary duties may be, it clearly encompasses people like Percoco, whose activities took place shortly after leaving office and involved officials with whom Percoco worked while a public official.
Percoco’s case presents an important opportunity for the Court. It can reject the overly formalistic and expansive competing theories that have long dominated the debate in discussing the scope of fiduciary duties under honest services fraud. Instead, the Court can situate the conversation within the broader framework of government ethics laws, which can provide clear guidance and limiting principles that have long been worked out and implemented at the state and federal level.
Great post, Logan. Really interesting and timely commentary on a key issue that I have no doubt will only get more attention over time. Do you think there is something valuable that investment firms’ definition of fiduciary duty could contribute to this conversation? Is it materially different from government ethics’ definition of fiduciary duty? Very thought provoking commentary!
This is a really tough issue, and you captured the dilemma excellently. It seems like a classic example of a hard case risking bad law. Thus, when you suggested that the court look to ethics rules as a guide, it made me wonder whether the right solution here is a legislative one. Should it be up to the legislature to clarify the scope of the honest services fraud statute in tough cases like this, or to write rules which strike the proper balance? There’s a good case to be made for the court to step back and make Congress clarify the law, perhaps even as a rule of lenity matter.