Honest Services Fraud

You may hear, from time to time, about something known as “honest services fraud.”  Like “mortgage fraud,” it’s not really a crime in itself. Well, it is, but let me see if I can explain it this way.  Federally speaking,  mortgage fraud, for example, is not encompassed in one specific statute which states “it’s illegal to commit mortgage fraud, and you’ll go to jail for 20 years if you commit it.”  Instead, mortgage fraud is brought under a variety of federal criminal statutes, such as the wire, mail, or bank fraud statutes, or the false statements statutes.  But, since the activity involves mortgages, it’s called “mortgage fraud” even though there’s no specific “mortgage fraud” statute.

“Honest services fraud,” by comparison is not a specific crime encapsulated by a statute.  But!  There is a statute that states “For the purposes of this chapter, the term ‘scheme or artifice to defraud’ includes a scheme or artifice to deprive another of the intangible right of honest services.”  And this statute refers to the fraud statutes.  Thus, one can commit wire fraud by depriving another of the intangible right of honest services, and therefore, that’s why it gets called “honest services fraud.”

All this to say, the DOJ Antitrust Division says that an executive in California has pleaded guilty to committing honest services fraud by “depriving a manufacturing company of the honest services of its employee.” Yong Zhu, the president of an Ex-Im company in California “paid the employee of a manufacturing company approximately $10,000. In return, the employee provided Zhu with sensitive pricing information that assured Zhu’s company would receive subcontracting awards from the manufacturing company.”  The Antitrust Division was involved because it involves anticompetitive behavior, and the investigation is apparently ongoing.