Honest services fraud is a federal crime defined in the United States Code (statutes) at 18 U.S.C. §1343 and 18 U.S.C. §1346. Honest services fraud is a type of mail or wire fraud in which: (1) there was a scheme or artifice used with the intent to defraud others; (2) the scheme or artifice to defraud was meant to deny others the intangible right of honest services; (3) it was reasonably foreseeable that the scheme or artifice could cause more than minimal financial harm to the victim or victims—even if it ultimately did not; and (4) the scheme or artifice used the U.S. mail or wires (secured, computerized messaging system used by banks to transfer funds and transaction requests).
Federal prosecutors often use the honest services fraud statute to prosecute public officials believed to have engaged in corruption such as payment and receipt of bribery and kickbacks. The honest services fraud statute has also been used by federal prosecutors to charge private individuals who are alleged to have breached a fiduciary duty—to a company in which they are an officer, for example.
In the case of Skilling v. United States, 130 S.Ct. 2896 (2010), the United States Supreme Court interpreted the honest services fraud statute as applying only to fraudulent schemes to deprive another of honest services through bribes or kickbacks provided by a third party who was not deceived—in other words, a party with knowledge that the payments were bribes or kickbacks.
Honest services fraud is a felony and carries a maximum penalty of up to 20 years in state or federal prison, and a fine of up to $250,000. When a financial institution is defrauded, the maximum prison sentence is 30 years, with a fine of up to $1,000,000. And each mail or wire transaction related to the fraud is a separate offense that may be charged by prosecutors—with increased potential prison time and fines.