Thursday, September 12, 2019

Honest Services Fraud

"Honest services fraud" is a relatively new criminal statute added to the federal mail and wire fraud statute in 1988. Persons convicted of honest services fraud have been convicted of a scheme or artifice to deprive another of the intangible right of honest services.

This statute has been most often applied by federal prosecutors in cases of public corruption. The statute is limited to "fraudulent schemes to deprive another of honest services through bribes or kickbacks supplied by a third party who has not been deceived. The traditional mail fraud and wire fraud statutes are limited to schemes that defraud victims of tangible property, including money. Congress added the 'honest services' provision in 1988 to included defrauding victims of honest services. Generally, there are two main areas of honest service fraud; bribery (either direct or indirect) and failure to disclose a conflict of interest resulting in personal gain.

Anthony Daguanno was recently sentenced to a year in prison after pleading guilty to 'honest services fraud'.

The Treasury Department gives cities with blighted areas, money each year to demolish vacant houses. Detroit hired a company called Adamo to help administer the program. Specifically, Adamo assembled bid packages in response to RFPs issed by the City, communicated with subcontractors and kept track of bids submitted. Mr. Daguanno worked for Adamo and was primarily responsible for these tasks.

On numerous occasions, 'Contractor A' paid Daguanno money for disclosing confidential information about competitors' bid; information such as the lowest competitor bid which allowed Contractor A to submit a lower bid, ensuring that it got the contract. Over an eight year period, Daguanno accepted more than $372 thousand in bribes and kickbacks on 71 occasions.

As part of the sentencing, Mr. Daguanno must forfeit the $372 thousand in bribes and pay a $10 thousand fine. Read more about the case in the Justice Department press release.

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