Conrad Black: the man who took on a bad law, and won
Conrad Black left a U.S. federal prison Friday. For a moment, set aside whatever opinion you might have about Lord Black’s business practices. There’s no doubt about one point: businesspeople in the United States owe a very large debt of thanks to Black for his almost improbable challenge of the concept of “honest services fraud” – an oppressive device used by U.S. prosecutors to punish those who could not otherwise be charged with an actual crime.
In 2005, Black was accused by the U.S. government of stealing more than $60 million from Hollinger International, one of North America’s largest media conglomerates, by means of various non-competition agreements. The government failed to prove that Black had actually defrauded the company of any tangible benefit. As a result, the U.S. Attorney fell back on a section of the federal mail fraud statute that is sometimes called “the prosecutor’s Colt .45.” This section makes it a federal offence to “deprive another of the intangible right of honest services.”
The theory of “honest services fraud” was developed after a series of cases where elected officials had been accused of taking bribes. Prosecutors found that they could not convict the politicians of fraud under the normal fraud statutes, since in selling their votes they had not deprived their victims – in this case, the public – of any tangible benefit. As a result, Congress amended the law to include situations where public officials deprived the people of the “intangible right of honest services.”
It would be hard to imagine a more ambiguous statute than this. The law did not make any attempt to define what “honest services” are. As a result, zealous prosecutors began to use the honestservices l aw to attack all manner of what they viewed as “corporate greed.”
Black became one such target. Unable to convict him of actually stealing anything f rom Hollinger, the U.S. government argued that the manner in which he had structured his compensation payments from Hollinger violated his “duty of loyalty” to the corporation. Even if this were true, duty-of-loyalty claims belong to the shareholders and the corporation, not the government. They are private causes of action, tried in the civil courts, and until now, have never been crimes. That did not stop the prosecutors, however. Black was too juicy a target to let mere legal technicalities get in the way.
Black’s case thus exposed the f undamental problem with the honest-services law: it could be made to criminalize almost any activity in which an employee or officer of a company failed to put in a full day’s work. The vagueness of the statute allowed the government to find it a “crime” whenever an employee failed to do his or her job. Thus updating a Facebook page on the company’s computer, making a personal phone call, calling in sick to go play golf, or checking on one’s favourite baseball team could all conceivably be actions that deprive one’s employer of “honest services.” In the hands of a zealous prosecutor, goofing off becomes a felony.
One might scoff at the parade of horribles listed above: “Surely no prosecutor would bother with that kind of stuff !” However, the honest-services law was frequently used precisely where the government couldn’t prove an actual crime. Unable to get enough evidence to convict defendants of actual fraud, prosecutors used the honest-services law to jail them for actions that harmed the company.
That’s what happened to Lord Black. The U.S. government’s assault on Hollinger’s chairman was a textbook example of the abuses to which the honest-services law could be put. Black became a target largely because of his wealth and status, and his downfall was engineered as a strike against “corporate greed.”
Against all odds, Lord Black took on the honest-services law in the U.S. Supreme Court. Pundits and law professors scoffed at the idea that the court would strike down such an important part of the federal criminal code. The court took Black’s case (which was joined with that of another defendant), and in a stunning 9-0 decision in 2010, struck down the statute as overly broad and unconstitutionally vague.
The decision effectively put an end to the power of prosecutors to criminalize bad business judgment or negligence. The result is that, in the future, federal prosecutors will have to prove actual crimes rather than use a vague criminal statute to bludgeon corporations and their officers into toeing the government line.