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S. HRG. 111–906 

RESTORING KEY TOOLS TO COMBAT FRAUD AND 

CORRUPTION AFTER THE SUPREME COURT’S 

SKILLING DECISION 

HEARING 

BEFORE THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

SEPTEMBER 28, 2010 

Serial No. J–111–111 

Printed for the use of the Committee on the Judiciary 

( 

(II) 

COMMITTEE ON THE JUDICIARY 

PATRICK J. LEAHY, Vermont, Chairman 

HERB KOHL, Wisconsin 

DIANNE FEINSTEIN, California 

RUSSELL D. FEINGOLD, Wisconsin 

ARLEN SPECTER, Pennsylvania 

CHARLES E. SCHUMER, New York 

RICHARD J. DURBIN, Illinois 

BENJAMIN L. CARDIN, Maryland 

SHELDON WHITEHOUSE, Rhode Island 

AMY KLOBUCHAR, Minnesota 

EDWARD E. KAUFMAN, Delaware 

AL FRANKEN, Minnesota 

JEFF SESSIONS, Alabama 

ORRIN G. HATCH, Utah 

CHARLES E. GRASSLEY, Iowa 

JON KYL, Arizona 

LINDSEY GRAHAM, South Carolina 

JOHN CORNYN, Texas 

TOM COBURN, Oklahoma 

BRUCE A. COHEN, Chief Counsel and Staff Director 

MATTHEW S. MINER, Republican Chief Counsel 

(III) 

C O N T E N T S 

STATEMENTS OF COMMITTEE MEMBERS 

Page 

Feingold, Hon. Russell D., a U.S. Senator from the State of Wisconsin, prepared statement ................................................................................................... 44 

Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont .................... 1 

prepared statement .......................................................................................... 45 

Sessions, Hon. Jeff, a U.S. Senator from the State of Alabama .......................... 3 

WITNESSES 

Breuer, Lanny A., Assistant Attorney General, Criminal Division, U.S. Department of Justice, Washington, DC ................................................................ 5 

Buell, Samuel W., Professor, Duke University School of Law, Durham, North 

Carolina ................................................................................................................ 13 

Seigel, Michael L., University of Florida Research Foundation, Professor of 

Law, Fredic G. Levin College of Law, Gainesville, Florida .............................. 16 

Terwilliger, George J., III, Partner, White & Case, Washington, DC ................. 18 

QUESTIONS AND ANSWERS 

Responses of Lanny A. Breuer to questions submitted by Senator Leahy ......... 28 

SUBMISSIONS FOR THE RECORD 

Breuer, Lanny A., Assistant Attorney General, Criminal Division, U.S. Department of Justice, Washington, DC, statement ............................................. 31 

Buell, Samuel W., Professor, Duke University School of Law, Durham, North 

Carolina, statement ............................................................................................. 39 

Lowell, Abbe David, Potomac, Maryland, letter .................................................... 48 

National Association of Criminal Defense Lawyers, Timothy P. O’Toole, Washington, DC, statement .......................................................................................... 55 

Seigel, Michael L., University of Florida Research Foundation, Professor of 

Law, Fredic G. Levin College of Law, Gainesville, Florida, statement ........... 62 

Terwilliger, George J., III, Partner, White & Case, Washington, DC, statement ...................................................................................................................... 65 

(1) 

RESTORING KEY TOOLS TO COMBAT FRAUD 

AND CORRUPTION AFTER THE SUPREME 

COURT’S SKILLING DECISION 

TUESDAY, SEPTEMBER 28, 2010 

U.S. SENATE

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:07 a.m., in room 

SD–226, Dirksen Senate Office Building, Hon. Patrick J. Leahy, 

Chairman of the Committee, presiding. 

Present: Senators Leahy, Whitehouse, Kaufman, and Sessions. 

OPENING STATEMENT OF HON. PATRICK J. LEAHY, A U.S. 

SENATOR FROM THE STATE OF VERMONT 

Chairman LEAHY. Good morning. Good morning, Mr. Breuer. 

We are going to consider another in a series of recent cases in 

which the Supreme Court appears to have undermined Congressional efforts to protect hardworking Americans from powerful interests. In Skilling v. United States, the Court sided with an Enron 

executive who had been convicted of fraud and gutted a statute 

vital to combating public corruption, corporate fraud, and self-dealing. 

Now we have to explore the kinds of problematic conduct that 

may go unchecked in the wake of the Skilling decision and consider 

what Congress should do or could do to fill those gaps and bring 

strong enforcement against corrupt and fraudulent conduct. I 

thank Assistant Attorney General Lanny Breuer for coming in to 

share the Justice Department’s focus on this important case, and 

I look forward to hearing from our panel of experts. 

In recent years, the stain of corruption has spread to all levels 

of Government. It is an issue that both parties have to address. 

This is a problem that victimizes every American by chipping away 

at the foundations of our democracy and the faith that Americans 

have in their Government. 

Too often, loopholes in existing laws have meant that corrupt 

conduct goes unchecked. Senator Cornyn and I introduced the Public Corruption Prosecution Improvements Act last year to try to address some of these gaps. Obviously, a bipartisan piece of legislation, with Senator Cornyn of Texas and myself introducing it. And 

it was passed by this Committee, and I would hope the Senate 

would pass it now. The honest services fraud statute has in the 

past served to fill in some of the gaps in corruption laws, but with 

the Skilling case, of course, it is greatly limited. I think we have 

2 

to act aggressively but we also have to act very carefully to 

strengthen our laws to root out the kind of public corruption that 

resulted in convictions of high State officials, Members of Congress, 

and many others. 

We have seen in recent years a plague of financial and corporate 

frauds. They have robbed people of their savings, their retirement 

accounts, college funds for their children, and so forth. Congress 

acted by passing the Fraud Enforcement and Recovery Act to give 

prosecutors and investigators more tools. The honest services fraud 

statute has allowed prosecutors the flexibility to keep up with corporate criminals. 

For decades, courts and prosecutors agreed that the Federal mail 

and wire fraud laws could be used to prosecute individuals for 

‘‘deprivation of honest services,’’ including cases in which public officials acted to benefit their own hidden financial interests or in 

cases in which corporate executives secretly enriched themselves at 

the expense of their own corporations. 

In 1987, the Supreme Court, over Justice Stevens’ dissent, overturned those decades of case law, and the Congress responded 

quickly, explicitly adding in 1989 a provision for prosecuting deprivations of honest services under the mail and wire fraud cases. In 

the 21 years following that action, every single circuit court upheld 

the honest services fraud statute. No court limited it in the sweeping way the Supreme Court chose to in Skilling. 

The honest services statute was used to prosecute lobbyist Jack 

Abramoff, Congressman Bob Ney, many corrupt State and local officials, and corporate wrongdoers like Enron executive Jeff Skilling 

and multi-millionaire Canadian publisher Conrad Black, whose 

conviction for blatant self-dealing was called into question by the 

Supreme Court’s decision. 

The Court in Skilling ruled that the honest services fraud statute may be used to prosecute only bribery and kickbacks, but no 

other conduct. Of course, there were already statutory tools to go 

after bribery and kickbacks, so the honest services fraud statute 

was more important in other areas. 

It allowed prosecutors to go after corporate executives who acted 

to benefit themselves financially at the expense of the shareholders 

and the employees of their company. But those cases now are at 

risk. I understand the concerns in many circles about vague or undefined Federal laws which could leave some public officials or executives uncertain about what kind of conduct could leave them 

susceptible to criminal charges. But that is no reason to let corrupt 

or fraudulent conduct go unchecked. So let us identify the gaps in 

current law after Skilling. 

We should be clear about what conduct is unacceptable. I would 

hope we could all agree that undisclosed self-dealing by public officials and corporate executives is not acceptable. We should figure 

out the best way to fill in those gaps, and I thank the Senators, 

both Republican and Democratic Senators, who have been working 

with me to find the best way to restore our fraud and corruption 

laws. And because I know we have a vote coming up, I will put my 

whole statement in the record. 

[The prepared statement of Chairman Leahy appears as a submission for the record.] 

3 

Chairman LEAHY. Senator Sessions. 

STATEMENT OF HON. JEFF SESSIONS, A U.S. SENATOR FROM 

THE STATE OF ALABAMA 

Senator SESSIONS. Thank you, Mr. Chairman, and thank you for 

this hearing. I do believe it is an important hearing, and we are 

wrestling with very significant issues. I prosecuted public officials 

personally for weeks at a time. They probably took a year off my 

life, those cases. One good criminal lawyer who was representing 

one of the witnesses said, ‘‘Jeff, if you lose this case, you and I are 

both going to have to leave town.’’ 

So these are very important tough cases with powerful forces out 

there, but the Supreme Court I do not think is trying to further 

illegal activity when they have rendered several cases that tell us 

that you have got to have criminal statutes that are clear and 

mean something and have real definitions. 

When I go back and look at it, when I was a prosecutor, perhaps 

I did not think it particularly bad. We will see what Mr. 

Terwilliger used to think when he was a prosecutor. He probably 

thought this was a good statute. He may have helped write it. But 

I see now he is not so happy with it. But it says a ‘‘scheme or artifice deprives’’—an amendment to the mail fraud statute ‘‘includes 

a scheme or artifice to deprive another of the intangible right of 

honest services.’’ 

Now, what kind of statute is that? I mean, think about that. The 

United States Congress—and we are all, I know proud of what we 

do, and if a court sometimes overturns it, we think they have overreached. But we wrote a statute that is going to make it a Federal 

crime to deprive somebody of an intangible right of honest services. 

I do not know what that means. Historically, robbery was the taking of a thing of value from a person with force or violence. The 

elements were crystal clear, and a prosecutor knew precisely what 

had to be proven, and precisely the defendant knew what he could 

or could not do. 

So I am worried about that. I think Justice Ginsburg was correct 

in saying that if Congress were to take up the enterprise of criminalizing ‘‘undisclosed self-dealing by a public official or private employee,’’ it ‘‘would have to employ standards of sufficient definiteness and specificity to overcome due process concerns.’’ 

I think that is a legitimate observation by the Supreme Court. 

You have got to be careful when you write these kinds of statutes. 

And when I see Mr. Breuer from the Department of Justice’s opinion, I am little bit concerned. I think it is more specific than the 

mail fraud statute. The Supreme Court has found that insufficiently broad, too broad. It seems to me it is sort of taking a State 

ethics law that may be a 1- or 2-year penalty, converting it to a 

Federal—converting the State ethics law into a Federal offense. 

And if you do not disclose—undisclosed self-dealing, that is a pretty 

broad statute. Give me a break. It really is. 

So I think ‘‘undisclosed self-dealing by a public official or a private employee’’ I think is the phrase that is being suggested as an 

appropriate statute here, well, let us talk about it. Let us see 

where we go from here. But you are tying, I think, Mr. Chairman, 

an awful lot to the exact language that a State may have in their 

4 

ethics law. You have got the Hobbs Act, 1951, where a politician 

extorts a kickback or a thing of value for themselves or another in 

exchange for doing their official duty, that is a pretty broad statute 

in itself, and it has got more seriousness to it. I always felt that 

you needed a clear threat and a clear benefit, and I prosecuted a 

number of those cases, and sometimes you live and die by the 

words in a statute. You have to argue to the judge. If you do not 

meet the statute definition, you are out. You are done. And you 

have to know that. 

So I believe it is an important issue. The Supreme Court has 

raised these issues. I do not think they were trying to benefit criminals and crooked politicians or crooked CEOs, but I do think that 

they correctly raise a concern that a Federal criminal statute 

should be clear; it should tell the court precisely what it is the 

prosecutor must prove; and the rights of defendant certainly depend on clarity in knowing what they are charged with and what 

the law is. 

Thank you. 

Chairman LEAHY. Thank you, Senator Sessions. It is helpful in 

this Committee that we have a number of former prosecutors like 

Senator Sessions, Senator Cornyn, Senator Whitehouse, Senator 

Klobuchar, and others, and it is very helpful. 

We have a number of statements, one from Senator Feingold, 

which will be placed in the record, and I will keep the record open 

all day for any other statements that will automatically without objection be placed in the record. 

[The prepared statement of Senator Feingold appears as a submission for the record.] 

Chairman LEAHY. Mr. Breuer is the Assistant Attorney General 

for the Criminal Division at the Department of Justice. He started 

his career as an assistant district attorney in New York City, prosecuted offenses ranging from violent crime to white-collar crime, 

later joined Covington & Burling where he served as co-chair of the 

White-Collar Defense Investigations Group. He served as Special 

Counsel to President Clinton from 1997 to 1999; undergraduate degree from Columbia, a law degree from Columbia Law School, well 

known to this Committee. 

Please, Mr. Breuer, go ahead. And your whole statement will be 

made part of the record, but go ahead and emphasize whatever you 

would like. 

Senator SESSIONS. Mr. Chairman, could I just say one more thing 

I forgot to mention. 

Chairman LEAHY. Sure, of course. 

Senator SESSIONS. I do believe that anyone who is familiar with 

the reality of criminal prosecutions knows that it is very difficult 

for a local district attorney to bring a complex case against a bank 

or financial institution or powerful politicians in the community. 

They are, you know, overwhelmed with murders and robberies and 

that kind of things, and it takes months preparing a case frequently as not. So I do believe a legitimate Federal role in prosecutions and a dramatic limitation on the ability of the Federal Government to prosecute clear criminal acts by State and local officials 

would be bad policy for the country. 

Thank you. 

5 

Chairman LEAHY. Thank you. 

Mr. Breuer. 

STATEMENT OF HON. LANNY A. BREUER, ASSISTANT ATTORNEY GENERAL, CRIMINAL DIVISION, U.S. DEPARTMENT OF 

JUSTICE, WASHINGTON, DC 

Mr. BREUER. Thank you, Mr. Chairman and Senator Sessions, 

and thank you for this opportunity to speak with you about the Supreme Court’s recent decision in Skilling v. United States and its 

impact on the Justice Department’s ability to prosecute certain 

honest services fraud cases. 

Protecting the integrity of our Government institutions and the 

American marketplace is among the highest priorities for the Department of Justice. The Department is committed to using all 

available tools to combat fraud and corruption in the public and 

private sectors, and our enforcement efforts in these areas are vigorous. 

The Supreme Court’s recent decision in Skilling, however, has 

without doubt impacted our ability to prosecute certain honest 

services fraud cases. In order to restore our ability to prosecute the 

full range of public corruption and fraud cases, we believe that legislation to remedy the effects of Skilling is needed, and we urge 

Congress to pass such legislation quickly. 

As early as the 1940s, Federal prosecutors began to use the mail 

and wire fraud statutes to charge public and private officials who 

acted in their own financial interests rather than in the interests 

of their constituents. These officials were prosecuted on the theory 

that they were defrauding the public of its right to their honest 

services. That is back since the 1940s. 

In 1987, however, the Supreme Court in McNally v. United 

States held that the mail and wire fraud statutes do not cover honest services fraud schemes and instead apply only to schemes to deprive victims of money or property. The next year, in response to 

the legislative gap created by McNally, Congress enacted what we 

now know as the honest services fraud statute, 18 U.S.C. 1346, 

which expressly criminalized schemes, as Senator Sessions said, to 

deprive another of the intangible right to honest services. 

Between the enactment of the honest services fraud statute in 

1988 and the Supreme Court’s recent decision in Skilling, the statute has proved extremely valuable to the Justice Department’s efforts to attack corruption and fraud. Congressmen William Jefferson and Robert Ney, Illinois Governor George Ryan, and lobbyist 

Jack Abramoff, among others, were all convicted of honest services 

fraud or conspiracy to commit honest services fraud. 

The honest services fraud statute has been valuable because it 

gets at two core types of corrupt behavior by public officials and 

corporate officers; one, accepting bribes or kickbacks and, two, engaging in undisclosed self-dealing. In Skilling, however, the Supreme Court limited the reach of the statute to bribery and kickback schemes only. Simply put, after Skilling, the statute can no 

longer be used to prosecute undisclosed self-dealing, thereby, in our 

view, leaving a gap that must be filled. 

Let me provide you with a concrete example of what this means. 

After Skilling, if a corrupt mayor solicits bribes in return for giving 

6 

out city contracts to unqualified bidders, our prosecutors could still 

charge that mayor with bribery under Section 1346. But if that 

same mayor created his own company and then used his office to 

funnel city contracts to that company without disclosing his financial interest in that company, we would no longer be able to charge 

the mayor with honest services fraud even though his undisclosed 

self-dealing is every bit as corrupt as bribe taking. Furthermore, I 

am unaware of another criminal statute that we could use to reach 

that mayor’s conduct. 

In light of Skilling’s impact on our efforts to combat this particular type of criminal conduct, the Department urges Congress to 

pass legislation that would restore our ability to prosecute officials 

who engage in such undisclosed self-dealing. 

I have provided suggestions for such legislation in my accompanying written testimony, emphasizing in particular the public 

sector remedy. We believe that legislation along the lines described 

in my written testimony would restore our ability to address the 

full range of corrupt conduct by Federal, State, and local officials. 

The Department is also open to a private sector remedy, and we 

would be happy to work with the Committee in finding an appropriate legislative solution. 

The Department of Justice is committed to protecting the integrity of our Government institutions and our markets. Our citizens 

are entitled to know that their public servants are making decisions based upon the best interests of the citizens who elect them 

rather than for their own personal gain. Likewise, investors and 

shareholders are entitled to know that corporate officers and fiduciaries are acting in the investors’ and shareholders’ best interests 

and not attempting to secretly benefit themselves. 

Thank you for this opportunity to address the Committee, and I 

would, of course, be happy to answer any questions that you may 

have. 

[The prepared statement of Mr. Breuer appears as a submission 

for the record.] 

Chairman LEAHY. Thank you, Mr. Breuer. 

You know, my concern, the reason we have these hearings, is 

that for decades we have used the honest services fraud provision. 

As I mentioned earlier, circuit courts have always upheld it, and 

it was a major tool in a prosecutor’s ability to go after criminals. 

And one of the key types of conduct that may be difficult to go after 

now is what you and others call undisclosed self-dealing. 

Do you want to just explain it in layman’s language what is undisclosed self-dealing Why is it important for prosecutors to be able 

to go after it. 

Mr. BREUER. Absolutely, Mr. Chairman. So under a typical example of money or property fraud, the fraudster has a victim, and 

that victim loses money or property because of the fraud. So his intention is directed at his victim. 

In honest services fraud, the victim is not necessarily himself or 

herself out money. What the victim is out is the honest services of 

the public official. So if I am a public official, that mayor who I referred to in my opening, and I receive bribes for taking official conduct, the citizens themselves are not necessarily out any money, 

but I have benefited, I have profited because I have received 

7 

money. And by doing so, I have corrupted the system, and the citizenry has been defrauded in that circumstance. 

Chairman LEAHY. What we have is pretty clear—no, not bribery. 

I mean, we have statutes, specifically statutes on bribery. Those 

have not been touched by Skilling. But if you have this undisclosed 

self-dealing—and just so we can maybe be more specific in my 

question, how do we go about prosecuting that? But, also, how do 

we make sure that we are not just going after an inadvertent oversight or somebody does not do their paperwork correctly? They 

were perfectly honest, but they just did not fill out the papers properly. 

Mr. BREUER. I will. And, Mr. Chairman, just for 30 more seconds 

on what I was saying, we do have a bribery statute. But, of course, 

our Federal bribery statute deals with Federal employees. And in 

my example, we were talking about a local mayor. And so I think 

we have to have an interest in reaching that. 

But the second part of it, Mr. Chairman, is the circumstance 

where I am not receiving a bribe, but I have an undisclosed interest. I have created my own company or I have a company that my 

spouse has an interest in, and I take an official action not for the 

benefit of my constituents in my city, but I take an official action 

that benefits my wife’s or my own secret company. That, too, corrupts the process, and that, too, is a fraud. It is a fraud on my citizens and my constituents because I am not doing something for the 

purpose of serving them. I am personally benefiting from my official conduct. And if we do not have an honest services statute that 

addresses this self-dealing, Mr. Chairman, then, of course, that 

kind of conduct is absolutely right now something that we cannot 

reach. 

Chairman LEAHY. You know, most of our public servants—and 

you are talking beyond the Federal area, but into State and local. 

A lot of local governments, the mayor, the board, are either paid 

a nominal amount or nothing in a lot of small towns. It is not like 

the community in California where the chief of police is paid, I 

think, two or three times what the President of the United States 

is paid. But, I mean, those are pretty obvious on the point. But if 

you have got somebody who owns a local car dealership and serves 

on the board of aldermen and gets paid $100 a year, is he precluded from voting on anything if the city is buying a fleet of cars? 

Mr. BREUER. Well, if the mayor has a car—— 

Chairman LEAHY. I am assuming everybody knows he is the 

local—— 

Mr. BREUER. Right. So the mayor of a small community is also 

a car dealer, and it is known that he is a car dealer, and he has 

not surreptitiously hid the fact that he has an ownership interest, 

then there is absolutely nothing wrong, presumably, with what he 

is doing. 

Chairman LEAHY. So what you are saying, however, if he was— 

but if he was a privately—or he was a silent partner in that car 

dealership and all of a sudden the cars being bought by the city 

at his direction went only there, that would be a different situation. 

Am I correct? 

Mr. BREUER. It could be a different situation. To address Senator 

Sessions’ excellent points, I think what we have to do after Skilling 

8 

is to address this conduct, but to address it in a way that is fair 

and gives notice. 

So in the first instance in your hypothetical, there needs to be 

some sort of pre-existing requirement that the mayor disclose his 

interest. It can be a city ordinance. It can be a State statute. It can 

be a regulation. But there has to be something in this situation 

that there is notice that there is a pre-existing disclosure requirement, and that I think is essential. 

And then, second, I think we have to show, if we were to go forward, that that mayor knowingly concealed his interest—not that 

he forgot. It should be the burden of the Government to prove in 

addressing Skilling that it was a knowing concealment, he did it 

on purpose; and in addition, we believe, that we have to establish 

that that mayor had the specific intent to defraud. 

So it cannot be accidental that he forgot. It must be the purpose 

for what he was doing. But our view is if there is a pre-existing 

requirement and we can show that the mayor in your case knowingly concealed his interest and specifically intended to defraud because he took an official action not for the benefit of the people of 

his city but, frankly, to benefit his or his wife’s private interests, 

that is the kind of conduct that we think goes to the core of the 

integrity of Government and we think needs to be addressed. 

Chairman LEAHY. My time is up, but we are trying and we will 

try to get a bipartisan piece of legislation out of here. I would urge 

you and the Department to work closely with both Republicans and 

Democrats in our effort to draft such legislation. I assume that you 

have no problem with working with us on that. 

Mr. BREUER. Mr. Chairman, we are absolutely committed to 

working with both sides of the aisle on bringing forth this kind of 

legislation as quickly as we can. 

Chairman LEAHY. Thank you. 

Senator Sessions. 

Senator SESSIONS. Well, thank you. 

Mr. Breuer, if a mayor takes a series of bribes and, that is, bribery being a predicate act under RICO, the mayor can be charged 

with RICO—right?—a racketeering charge, which I have prosecuted before. And two is generally sufficient if there is a pattern 

shown. So that is prosecuted. Well, what about if a mayor on his 

way to work goes by a local grocery store and steals groceries That 

is not a Federal offense, is it 

Mr. BREUER. I do not think it is. I do not think—— 

Senator SESSIONS. You would not make that a Federal offense, 

would you 

Mr. BREUER. I do not think in your scenario we would, Senator. 

I do not think we would do that. 

Senator SESSIONS. Well, let us go beyond ‘‘think.’’ If an individual, the mayor, picks up a rock in Alabama and murders someone, that is just not a Federal crime, is it? 

Mr. BREUER. That is not a Federal crime, Senator. 

Senator SESSIONS. It cannot be prosecuted in Federal court. 

Mr. BREUER. Well, based on the limited facts you have given me, 

I think that is right. 

Senator SESSIONS. Right, cannot be prosecuted in Federal court. 

One of the things we need to understand and I have always 

9 

learned from being a Federal prosecutor is that every crime is not 

a Federal crime. Every crime is just not a Federal crime. Interstate 

transportation of stolen motor vehicles has to be interstate transportation of the vehicle, interstate shipment. The Mann Act is taking a person in interstate commerce for the purpose of prostitution, 

not a local prostitute. This is one of the things we do have to recognize. There are limits on Federal reach historically and constitutionally, I think, but certainly historically. 

Now, this is a pretty broad phrase, would you not agree, that a 

public official can go to jail for undisclosed self-dealing All right. 

So that is the broad—so you define that in your legislation. I do 

not know that—it did not say willfully. The public official knowingly fails to disclose material information regarding the financial 

interest, that is required to be disclosed by Federal, State, or local 

statute, rule, or regulation. So let us say we are having a tax debate. I put money in a dividend fund, and the question is: Should 

the dividends be taxed at 15 percent or normal income rate of 35 

percent? And if I failed to disclose that on my ethics form somehow, 

would that be a violation by a State legislator or a U.S. Senator? 

Mr. BREUER. Senator, in your hypothetical I think not. But if I 

could work with you on that for a moment or two, I could share 

my thinking. 

If you were a State legislator, and you were supposed to disclose 

your interest in some sort of a fund, and we could establish that 

you knowingly failed to do that on purpose, and, moreover, you 

took an official action that was—— 

Senator SESSIONS. Well, knowingly is just—you just—that is not 

with intent to defraud. Knowingly is just—— 

Mr. BREUER. Well, I was going to take—— 

Senator SESSIONS. [continued] That you did not mistake—you did 

not see the form somehow. I do not—— 

Mr. BREUER. So I have two parts to it. The first part is simply 

I think it would be our obligation in the first instance to establish, 

right, that you knew that you had this obligation, the local official 

knew he had the obligation, we would have to establish, and knowingly did not fulfill that obligation. And then, in addition, we would 

have to show that that same person, that same official had the specific intent to defraud, that he took an official action, let us say, 

to support the fund somehow. He did some—— 

Senator SESSIONS. Where is that specific intent to defraud element in the legislation? 

Mr. BREUER. Well, Senator, we have not proposed yet specific 

legislation; rather, we have discussed principles that we think are 

required in any kind of legislation that we think would address 

your concerns, which is not to be overly broad and to survive the 

test of time. And so we are very much guided, I should say, by 

what you referred to, Justice Ginsburg’s footnote in the Skilling decision. And there the Justice, I think, gives us all guidance that if 

we are not going to have the same problem that we have had with 

the former honest services fraud statute, we need to address those 

due process concerns. And in doing that, I think we tried very 

much to narrow it and be very, very specific. I can go into it if you 

want, but it is really more principles—— 

10 

Senator SESSIONS. OK. Well, let us stay at the larger principle 

question, and the panelists maybe should also discuss this. Let us 

take a situation in which a State has said you should disclose certain things in order for an individual city councilperson to be able 

to perform their duties, and they set a penalty for that. Let us say 

it is 6 months in jail. And so the person violates that. They do not 

disclose an interest. They vote on a matter that has some potential, 

even a small part of it could impact them favorably. You now could 

prosecute it as a mail fraud Federal felony of 5 years in jail. Is that 

right? 

Mr. BREUER. So the way I would address that, Senator, is the following: That disclosure requirement simply in your hypothetical 

situation is a disclosure requirement that says that something 

needs to be disclosed. 

Senator SESSIONS. This is what the local people have felt public 

officials, standards they ought to be held to, and they set a penalty. 

Mr. BREUER. Exactly. But that is just a disclosure requirement. 

We are not going to prosecute the mere failure to disclose. That is 

a local or a State decision that the mayor or the legislator has to 

disclose something. 

What we will prosecute is if that person, one, does not fulfill or 

disclose what is required, that deals with our notice requirement. 

That deals with our goal of fairness because that local official knew 

that he or she had to disclose because the municipality or the State 

required it. 

We then are going to look to see if there is a scheme or artifice 

to defraud under the mail and wire fraud statutes. And in looking 

at that, in looking to see if there is a scheme or artifice to defraud, 

we both have, first, a failure in the first instance to disclose, but 

now what we look for is to see did you knowingly do that and did 

you specifically intend to defraud by on purpose taking advantage 

of your concealed interest. That is the difference. And if you took 

advantage of your concealed interest by engaging in a scheme to 

defraud by, let us say, acting on legislation that benefited you that 

no one knew about, that would be the circumstance very specifically where we would want to address that component of honest 

services fraud. And that is why we think we are not simply duplicating or Federalizing a local or a State statute. 

Senator SESSIONS. So you have a different element, an additional 

element. 

Mr. BREUER. Yes, exactly, Senator. 

Chairman LEAHY. Thank you. Thank you very much. 

Senator Kaufman. 

Senator KAUFMAN. Thank you, Mr. Chairman. Welcome. 

Mr. BREUER. Thank you, Senator. 

Senator KAUFMAN. You talked about the problems with prosecuting under security law. Can you go through some of the problems with using security laws to prosecute the honest services 

fraud? 

Mr. BREUER. So in the private situation, Senator, we do believe 

that, unlike in the public sector, we probably have more resources 

to go after securities fraud. Where we have concerns about honest 

services being used in the securities fraud setting is that if I am 

a mayor, I am a local official, my official actions are not intended 

11 

to benefit me personally. They are just not. They are meant 100 

percent to benefit the people who elected me. 

But if I am a corporate official, it is part of the free enterprise 

system that if I take steps that benefit my company, they inure to 

my own personal benefit as well. So it is just something that if we 

do have a private sector fix, I think we have to address. 

And, similarly, we have to—so that is the first. And the second 

issue is I just think we have to look very hard at what the securities laws require with respect to disclosure. And some disclosure 

requirements are more disclosure requirements that are aimed at 

the corporation as opposed to the individual. That is not to say that 

there cannot be a private sector piece. It is just we think that there 

are more issues involved. And as of now, we feel for the most 

part—for the most part—we have been able to address most circumstances in the private sector where we see a wider gap of circumstances post Skilling that we cannot address in the public sector. 

Senator KAUFMAN. But what about the case—just like the mayor, 

the mayor is really 100 percent right to help the citizens of the 

town that he or she represents. What about the case where you 

have someone in a corporation Aren’t they there to represent the 

shareholders? So, really, if they do something that benefits themselves but disadvantages the shareholders, wouldn’t that be a similar case 

Mr. BREUER. It would. The difference is that in most circumstances we looked at—and, again, I do not want to be exhaustive, but in most circumstances that we have looked at, those actions, if they inure to the personal benefit of, let us say, the officer, 

there is more likely a chance that it is a direct money or property 

fraud in a sense and that it has hurt directly the shareholders; 

whereas, in the mayor’s context it is harder typically to find that 

direct nexus. And it could very well be that the mayor benefits, but 

we cannot show a money or property loss to the constituents. 

Senator KAUFMAN. All right. For a legislative fix to Skilling, it 

is important as a matter of constitutional law to place a significant 

minimum monetary value in order to constitute fraud. Do you 

agree with that? 

Mr. BREUER. I do think that if we put a monetary limit with respect to the private sector, that helps to address that issue, yes. 

Senator KAUFMAN. And do you have a preference as to whether 

Congress enacts this legislative response to Skilling in the fraud 

statute, Section 1346, as opposed to the conflict of interest statute, 

Section 208? 

Mr. BREUER. So, yes, we do. We really would urge the Congress 

to deal with this under 1346. First, there is now quite a bit of case 

law with respect to dealing with honest services in the context of 

wire and mail fraud, and so we do think 1346 is appropriate. 

Also, it gives us as prosecutors a greater ability to describe and 

prosecute the crimes because, of course, we are talking about a 

scheme or artifice to defraud, and those are well-understood terms. 

And, last, frankly, we just think it more appropriately deals with 

the gravamen of the situation. The penalties are higher, and we 

think they are more appropriate in that context than in the conflict 

of interest. 

12 

Having said that, though, we do think the conflict of interest 

statute, 208, addressing Senator Sessions’ point, is a very good way 

of dealing with the issue of notice or the scope. Justice Ginsburg 

asks, ‘‘So what is going to be the scope of this? Who is involved?’’ 

And 208, I mean, obviously Congress might decide to change it, but 

208 right now tells us who are the people who a Federal employee 

cannot take actions on behalf of because of conflict of interest. And 

so we think that is well established, too, and would give the kind 

of notice that we think after Skilling is required. 

Senator KAUFMAN. Great. Thank you. 

Thank you, Mr. Chairman. 

Chairman LEAHY. Senator Sessions, do you have anything further? 

Senator SESSIONS. Well, I think before we go forward, we would 

like to see statutory language, and I think the fundamental question we all need to ask is: Is this an area of prosecution that the 

Federal Government needs to prosecute We have certain other tools 

in statutes that allow prosecutions. There are no problems, Mr. 

Breuer, are there, with regard to Federal officials who violate the 

laws, because we have ethics and other statutes that cover this 

kind of self-dealing and conflicts of interest and Senate ethics rules 

that apply. It is only a weakness you find as a result of this opinion 

in Skilling. It eliminated some ability to prosecute State and local 

officials. Is that right 

Mr. BREUER. That is correct, Senator. 

Senator SESSIONS. Thank you, Mr. Chairman. 

Chairman LEAHY. Thank you. I will probably have some followup questions for the record, but we are somewhat limited in time 

with the votes coming up, and many of us are going to the burial 

ceremony at Arlington for our former colleague Ted Stevens. I especially want to be there. Senator Stevens was not only a very, very 

close friend; he was one who followed the old school. He always 

kept his word. I mentioned to Senator Sessions last night on the 

floor that he follows that rule, too, but I recall when I first came 

to the Senate, the first thing that Senator Mansfield, who was then 

the Leader, Mike Mansfield, told me, he said, ‘‘We may disagree on 

issues, and that is fine. Just keep your word.’’ And Senator Stevens 

was the epitome of that. You could go to the bank with whatever 

he told you, and I think it is good that—I understand there is going 

to be a very large number of Senators from both parties who will 

be at the burial. I served with him for 36 years, and we will be 

there. 

Anything further? 

Senator SESSIONS. No. Thank you. 

Chairman LEAHY. Mr. Breuer, thank you very much. I just would 

add, as we said, we are trying to put together statutes which address what I think all of us instinctively know is criminal conduct, 

and we will look forward to working with the Department of Justice in doing that. 

I am also well aware of those things that should be handled by 

the local authorities, and I do not want to go to a situation where 

we are taking on things that local authorities should be able to do. 

But there are some major areas where only the Federal Government has the ability to do it, and we will work with you on that. 

13 

Mr. BREUER. Well, thank you, Mr. Chairman. Thank you, Senator Sessions. We very much at DOJ look forward to working with 

you. Thank you. 

Chairman LEAHY. Thank you. 

Chairman LEAHY. Good morning. We are joined first by Samuel 

Buell, who is a professor of law at Duke Law School. Prior to that 

he was lead prosecutor for the Department of Justice’s Enron Task 

Force. During his time at the Department, he also served as a prosecutor in New York, Boston, Washington, and Houston. He twice 

received the Attorney General’s Award for Exceptional Service that 

I would note for others is the Department’s highest honor. Immediately prior to coming to Duke, he was a visiting assistant professor at the University of Texas School of Law and an associate 

professor at the Washington University School of Law. He received 

his undergraduate degree from Brown University and his law degree from New York University School of Law. 

Following our normal procedure, we will hear from each of you, 

and then we will ask questions. Professor Buell, please go ahead, 

and your full statement will be made part of the record. 

STATEMENT OF SAMUEL W. BUELL, PROFESSOR, DUKE 

UNIVERSITY SCHOOL OF LAW, DURHAM, NORTH CAROLINA 

Mr. BUELL. Chairman Leahy, Ranking Member Sessions, members of the Committee, and staff, I will express two points this 

morning. 

First, the problem of defining criminal fraud is both difficult and 

important. This is not a new problem, and it is not limited to the 

particular formulation that Congress chose when it enacted the 

honest services statute. 

Second, the worries raised by the Court’s narrowing of the mail 

and wire fraud statutes in the Skilling decision include the possible 

loss of serious cases of fraud involving breaches of fiduciary duty. 

Allow me to begin with a quote: ‘‘[B]ecause fraud and deceit 

abound in these days more than in former times . . . all statutes 

made against fraud should be liberally and beneficially expounded 

to suppress . . . fraud.’’ The date of this quote? 1601. Its author? 

The famous English jurist Sir Edward Coke, reporting a decision 

interpreting an Elizabethan statute. 

Fraud is, by definition, a form of wrongdoing that evolves rapidly 

and is committed by actors who design their behaviors with one eye 

on the constraints of the law. This was true in the 1600s—at the 

dawn of the Anglo-American legal system and the beginnings of 

modern markets. It has never been more true than now after we 

have witnessed a decade marked by massive and elaborate financial deceptions. 

Current U.S. law is, without controversy, full of highly general 

prohibitions against fraud, nowhere more prominently than in our 

law of securities regulation—a pillar of which is Rule 10(b)(5)’s 

edict against any and all schemes to defraud in connection with the 

purchase or sale of a security. 

There is thus a somewhat unrealistic quality to what the Supreme Court said in the Skilling case. There is nothing novel, or 

unworkable, or imprudent about the idea of Congress passing general prohibitions on fraud and the courts working out how to apply 

14 

those general concepts to new forms of harmful deception as they 

arise. 

What, then, explains the particular controversy over the honest 

services statute? This brings me to the second point. What has distinguished this statute is its effort to target frauds that involve less 

tangible harm than simple and direct deprivations of money or 

property. 

This legislative effort alone should not be especially controversial. As our society and economy have become more sophisticated 

and complex, it has become more and more apparent that information is critical and valuable, and that fiduciary and other trust relationships are both essential to the functioning of a highly specialized economy and subject to harmful abuse. The legal concept of 

fraud must be permitted to adapt, as it always has, with such 

changes in society. 

The Court’s somewhat arbitrary decision in Skilling that frauds 

inflicting less tangible or less measurable harms can only be prosecuted when they involve a bribe or kickback payment risks leaving important forms of abusive deception outside the scope of Federal criminal law. 

Suppose a senior officer of a company uses a loan program, approved in general terms by the board of directors, to spend lavishly 

and abusively on real estate, art, and luxury goods for him and his 

family. I am thinking here of the former Tyco chief Dennis 

Kozlowski. 

Or suppose that the financial officer of a large public company 

obtains general approval to run a private investment partnership 

in order to engage in hedging transactions with the company, and 

then arranges those transactions to line his own pockets, often with 

undisclosed and mischaracterized payments. I am thinking, of 

course, of former Enron CFO Andrew Fastow. 

How are these cases to be prosecuted? One might say these are 

securities frauds because they involve public companies. But these 

are not traditional accounting fraud cases. They are cases of selfdealing, hidden conflicts of interest, and looting of corporations. 

Some of the requirements of the law of securities fraud, such as 

its particular doctrine of materiality, could pose problems for prosecutors in such cases. 

Perhaps more significantly, the law of securities fraud is limited 

to fraud in connection with the purchase or sale of a security. 

These forms of harmful and deceptive self-dealing and looting can 

arise, with equal seriousness, in institutions and relationships 

ranging from law firms to hospitals to accounting firms to major 

nonprofit organizations. 

One might also argue that these kinds of cases can be reached 

through property theories under the mail and wire fraud statutes 

and are thus unaffected by the Skilling case. But a prosecutor can 

often be confronted in such cases with defenses asserting that the 

general form of the conduct had been approved and that any property obtained by the defendant was within the bounds of such approval. 

In addition and as importantly, abusive self-dealing is not always 

engaged in directly for profit. A defendant’s objective may be to enhance his power or prestige or his control over an institution or reVerDate Nov 24 2008 14:27 Mar 28, 2011 Jkt 064789 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\64789.TXT SJUD1 PsN: CMORC
15 

lationship in which others are depending importantly on him not 

to engage in abuse and are counting on transparency to allow them 

to prevent and sanction such abuse if it occurs. 

The honest services statute became controversial not so much for 

its conceptual structure but because of the occasional but worrisome exercise of prosecutorial discretion to apply the statute to 

marginal cases that most people would readily identify as not belonging in Federal court. 

The concern about vagueness, I submit, was really a concern 

about overbreadth. I thus want to conclude by suggesting some 

ways Congress might retain a fraud prohibition flexible enough to 

deal with serious, novel forms of intangible harm but confined 

enough to allay fears about overbroad application in the hands of 

imprudent prosecutors. 

First, it has long been a hallmark of criminal fraud prohibitions 

that they have demanding mental state requirements. Not only do 

such laws generally require proof beyond a reasonable doubt of the 

defendant’s specific intent to defraud, but they have often been interpreted to require that the defendant act with consciousness of 

wrongdoing. 

One might draft a statute that applies only to willful violations 

and include within the statute an explicit definition of willfulness 

that embodies the requirement that violators must know that what 

they are doing is wrongful. 

Second, a new statute might be limited to important fiduciary 

and trust relationships and made inapplicable, for example, to ordinary employment and contractual relationships. 

Third, and finally, Congress might consider thresholds for identifying serious cases of harm. One might choose, for example, to require that the relationship in which the intangible harm occurs be 

one involving a single transaction or a course of conduct in which 

the victim had at risk something of value of at least $50,000. 

I urge this Committee and Congress to uphold the centuries-long 

commitment of our legislatures, courts, and other legal institutions 

to deal with the ever challenging and evolving problem of fraud. 

Thank you for the opportunity to testify today. 

[The prepared statement of Mr. Buell appears as a submission 

for the record.] 

Senator WHITEHOUSE [Presiding.] Thank you very much, Professor Buell. I did not have the chance to be here when you began 

your testimony, so let me highlight the most important part of the 

materials that I have on you, which is you were born in Rhode Island. 

[Laughter.] 

Senator WHITEHOUSE. Delighted to have you with us. 

Mr. BUELL. I was raised in the great State of Rhode Island, yes, 

Senator. 

Senator WHITEHOUSE. Thank you. 

Professor Michael Seigel is professor of law at the University of 

Florida’s Levin College of Law, where he specializes in criminal law 

and white-collar crime. Mr. Seigel has also served as an AUSA in 

Tampa, Florida, and Philadelphia. During his time in Philadelphia, 

Mr. Seigel worked on the Department of Justice’s Organized Crime 

Strike Force. Mr. Seigel received his bachelor’s degree from PrinceVerDate Nov 24 2008 14:27 Mar 28, 2011 Jkt 064789 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\64789.TXT SJUD1 PsN: CMORC
16 

ton University and his law degree from Harvard Law School, and 

we are delighted to have him with us today. 

Professor Seigel. 

STATEMENT OF MICHAEL L. SEIGEL, UNIVERSITY OF FLORIDA 

RESEARCH FOUNDATION AND PROFESSOR OF LAW, 

FREDRIC G. LEVIN COLLEGE OF LAW, GAINESVILLE, FLORIDA 

Mr. SEIGEL. Thank you, Senator Whitehouse, Senator Sessions, 

and distinguished members of the Committee. I am going to limit 

my remarks to issues surrounding the impact of Skilling on the 

prosecution of public sector honest services fraud only. 

I do not take issue with the Supreme Court’s conclusion in 

Skilling that the concept of honest services found in Section 1346 

was unconstitutionally vague. As the Court held, the term was so 

general that it did not provide citizens with fair notice of potential 

criminal conduct; it allowed for the potential abuse of prosecutorial 

discretion, both by vindictive prosecution and by the waste of precious resources, law enforcement resources, on trivial cases; and it 

risked intrusion, as Senator Sessions has indicated, on the rights 

of States to regulate their own politics. 

However, the solution that the Court devised—it was really limited in devising because it cannot legislate—limiting the application of the statute to cases involving bribery and kickbacks is far 

from ideal. In fact, the newly narrowed statute suffers from the 

very same ills as before. One example will suffice to prove this 

point. Even after Skilling, Federal prosecutors could charge a State 

Department of Motor Vehicles employee with honest services fraud 

for taking a $20 bribe to allow a driver’s license applicant to cut 

in line. I think we would all agree that making a Federal case out 

of such minor conduct would be an improvident use of DOJ’s resources in an area in which the State would surely be equipped to 

handle the infraction itself. 

At the same time, the Skilling limitation has made the scope of 

honest services fraud considerably too narrow, causing serious malfeasance meriting the attention of Federal law enforcement to be 

beyond its reach. As noted by Assistant Attorney General Breuer 

and also by Professor Buell, one of those main areas is failure to 

capture undisclosed self-dealing by a public official. But it has 

other failures as well that I would like to point out. 

I think one of its greatest failures is in not defining bribery and 

kickbacks. Lacking direct guidance, lower courts are likely to import the definitions of these terms from the Federal bribery statute, 

18 U.S.C. Section 201. According to the Supreme Court’s decision 

in the Sun Diamond Growers case, conviction for an illegal bribe 

or gratuity requires proof of a quid pro quo—in other words, proof 

that the bribe or gratuity was paid in connection with a specific official act. Sometimes, despite obviously corrupt behavior, this element is impossible to prove beyond a reasonable doubt. 

For example, a State legislator might secretly be on the payroll 

of a corporation that has an interest in a wide variety of matters 

that are the constant subject of legislation. The employer and employee use all kinds of deception to conceal the illicit income, 

which, say, adds up to half a million dollars a year. Although the 

17 

legislator is a routine champion of causes that benefit the company, 

there is no evidence of a direct link between any particular official 

act and his undisclosed conflict of interest. Under the post Skilling 

status quo, this arrangement, so obviously antithetical to a healthy 

political environment, lacks a Federal criminal remedy. 

Unless Congress acts, two other categories of public sector honest 

services fraud cases will likewise go unaddressed. The first is composed of cases involving a public employee or official who receives 

a non-monetary benefit as a result of an undisclosed conflict of interest. Cases falling into this category might include a prosecutor 

whose purposeful failure to reveal his ties to the victim in a murder investigation leads to an overturned conviction requiring retrial 

at taxpayer expense; or a legislator—and, unfortunately, this is alleged in Florida, my home State—who secretly directed an appropriation to his alma mater by disguising the recipient’s identity 

through deceptive language in the legislation that was buried pretty deep; or a judge who failed to disclose that he was negotiating 

with a party to a case that is before him while the case is going 

on if that relationship never comes to fruition. 

The last type of undesirable conduct that is now beyond the 

reach of the mail and wire fraud statutes is a public employee’s use 

of outright deception to obtain something other than money or 

property. Consider, for example, a disturbed employee of the Department of Homeland Security who exaggerates a threat for the 

sheer evil pleasure of causing a public panic; or a civil servant who 

has repeatedly falsified test scores to secure the promotion of one 

racial or ethnic group over another. It might be that these actions 

violate some other Federal law, but honest services fraud, properly 

construed, would be a useful and straightforward means of punishing and deterring this antisocial conduct. 

Congress should, when it enacts legislation in reaction to the 

Skilling case, follow the principles suggested by Justice Ginsburg, 

Justice Scalia, and others here to make sure that the legislation is 

not vague. 

In short, the new legislation should define each of its terms with 

precision; it should require that, to be cognizable, the conduct of 

the public official must violate a Federal, State, or local law, rule, 

or regulation; it should impose a minimum, though flexibly measured, level of intended or caused benefit or harm; it should spell 

out in clear terms the mens rea involved, whether it be willful or 

some other kind of specific intent. And this all should be done before the prosecution can prove that the statute was breached. 

Properly redrafted, the mail and wire fraud statutes can continue 

to serve a very important role in the constant battle against serious 

and corrosive public corruption. 

Thank you. 

[The prepared statement of Mr. Seigel appears as a submission 

for the record.] 

Senator WHITEHOUSE. Thank you very much, Professor Seigel. 

Our final witness in this panel is George J. Terwilliger III. Mr. 

Terwilliger is currently a partner at White & Case, LLP, where he 

is head of the white-collar practice group. Previously, Mr. 

Terwilliger served for 5 years as the United States Attorney in 

Vermont and as Deputy Attorney General of the United States. Mr. 

18 

Terwilliger received his undergraduate degree from Seton Hall 

University and his law degree from Antioch School of Law, and we 

are delighted to have him here today. 

Mr. Terwilliger. 

STATEMENT OF GEORGE J. TERWILLIGER III, PARTNER, 

WHITE & CASE, WASHINGTON, DC 

Mr. TERWILLIGER. Thank you, Senator Whitehouse. I appreciate 

that. Senator Sesions. 

Public corruption investigations and prosecutions continue to deserve to be among the highest priorities of Federal prosecutors. 

Public corruption is an insidious wrong that engenders in our citizens disrespect for the rule of law and cynicism about the rectitude 

of public institutions. When the legislative process is corrupted by 

personal financial gain or the deliberative process is warped by corrupt practices, fundamental guarantees made to the people by law 

are thwarted and the democratic process itself is undermined. 

To briefly relate some aspects of my professional experience that 

inform my testimony today, during the time that I was privileged 

to serve as Deputy Attorney General of the United States, I was 

called upon on several occasions to make final judgments concerning recommended prosecutions of Members of this body and 

other public officials. In private practice, I have been counsel to 

Members of this body and the other House of Congress, as well as 

for appointed officials in the executive branch and high-ranking 

State officials. 

I have seen firsthand the toll that investigations and accusations 

alone, short of indictment, can exact on an individual. I am thus 

especially grateful to have the opportunity you have afforded me 

today to participate in the Committee’s consideration of further 

anti-corruption legislation. 

I agree with the Committee’s apparent goal of providing Federal 

prosecutors the tools they need to address certain conduct by corporate and other private officers and employees. When such persons deal to themselves under the table, all the attributes of a free 

market are put in jeopardy. 

As to all aspects of the matter under discussion, I respectfully 

urge the utmost care in defining clearly that conduct which is to 

be proscribed by Federal law. Justice Ginsburg’s observation concerning the need for clarity I think is indeed a warning. Ambiguous 

statutory terms and requirements present interpretive problems 

that can require substantial judicial and other resources to resolve 

and, frankly, are unfair to public officials and others who deserve 

to be able to refer to and abide by clear lines between what is lawful and unlawful behavior. 

Perhaps most relevant to the legislation on the table for discussion today are issues that arise where public or corporate officials 

have private or personal financial interests which may affect, or be 

affected by, their execution of their official duties. These circumstances present an even greater challenge in trying to write 

clear laws that both recognize the complex financial and regulatory 

world we live in today and nonetheless provide the clarity necessary to delineate conduct which could subject individuals to 

criminal conviction. Given the complexity of determining corporate 

19 

and other disclosure obligations, heeding Justice Ginsburg’s admonition may well suggest that further study and consideration be 

taken before the legislative action goes forward on this type of activity. 

While I urge the Committee to defer this legislation pending further study and consideration, I thank it for the opportunity to appear. I have more specific observations in my prepared statement, 

which Senator Leahy has said would be accepted for the record. I 

have just two comments on the testimony that the Committee has 

heard thus far. 

First, I appreciate very much and agree I think with about 90 

percent with what we heard from Assistant Attorney General 

Breuer. The one question that I think lingers after his formulation 

of principles for a testimony is when he talks about a specific intent to defraud. I think one has to ask the question: Defraud whom 

and for what? And if that gets us back to defrauding the citizens 

or the people from their honest services that they have a right to 

or some other intangible, I think it continues to beg the question. 

In terms of Professor Buell’s testimony, I would only observe that 

Coke was talking about common law fraud, and one of the elements 

of common law fraud has always been the occasion of economic injury to someone. When we went beyond economic injury into the 

concept of the deprivation of intangible rights, I think this became 

a very difficult endeavor. 

Senator Sessions mentioned the importance of clarity. I think it 

was Judge Learned Hand who once wrote, or words to the effect, 

that the true dimensions of fraud are only limited by the human 

imagination. Fraud is in and of itself a very expansive concept. 

Adding onto it concepts of intangible rights as deprivations that 

can support an allegation of fraud I think is very difficult. 

The bottom-line problem with all of that has come down to—and 

I think the Court will never accept going back to this, and that is 

that it puts prosecutors in the position of setting the standards instead of the legislature writing what they may be, or at least writing what they may be by reference to some other disclosure obligation that already exists. 

Thank you very much, Senator Whitehouse, Senator Sessions. 

[The prepared statement of Mr. Terwilliger appears as a submission for the record.] 

Senator WHITEHOUSE. Thank you, Mr. Terwilliger. We appreciate 

your testimony. 

I will defer to the Ranking Member, Senator Sessions. 

Senator SESSIONS. Well, thank you, Senator Whitehouse, and I 

know as a former United States Attorney you are familiar with 

these issues. 

I do think the Supreme Court has raised an important issue. 

This is not something we can just respond to in a knee-jerk fashion. Apparently, the new version of the mail fraud statute as a result of the McNally decision, we just promptly came in and passed 

1346 that said, well, you struck that down, so we now make it a 

crime to deprive a person of an intangible right of honest services. 

Now, that is a bit of a stretch, I got to tell you. That is all it 

takes to do that consistent with the traditional mail fraud statute. 

Now that is not holding up, so we say we want to redo it to respond 

20 

to the Supreme Court in Skilling and make it a crime to undisclosed self-dealing, which is a bit nervous to me. 

And then, Professor Buell, I do not think you were suggesting 

this, but some might think it appropriate that a judge develop the 

law as it goes forward and just case by case decide what a statute 

means. But I do think it is incumbent on Congress to pass a law 

that means what it says and is clear so a person can adjust their 

conduct to it. If they do not have internal moral standards that 

would otherwise cause them to behave better, they at least know 

what the law is and where the line is. And when you leave it vague 

for a judge to decide, obviously the defendant did not have a very 

good chance to know what it was either before he or she committed 

the crime. 

Professor Seigel, with regard to the McNally standard that the 

Supreme Court struck down, I am not sure when that developed. 

That was not really in the original understanding of mail fraud 

when I was prosecuting cases, I do not think. 

Mr. SEIGEL. That is correct. 

Senator SESSIONS. Somewhere along the line, prosecutors figured 

out how to stretch this to include honest services, and eventually 

the Supreme Court said, ‘‘Uh-uh.’’ Do you know when it first started in—— 

Mr. SEIGEL. I believe it started somewhere in the 1920s or 1930s, 

maybe a little later than that. Congress had amended the statute 

adding money or property for a completely different reason, trying 

to make it clear that fraud was not the common law concept of 

fraud but was a more modern version of fraud. And as I understand it, Congress left a comma in there which later on prosecutors 

used to argue separated out the money and property from the notion of fraud, and that is how they developed this intangible rights 

theory, which the courts let them go along with. 

But really I agree with you, Senator Sessions, I think that not 

only has the law been unclear—I mean, one of the main pieces of 

evidence of the lack of clarity for the law is that most of the circuits that have—everybody has recognized that this is way too 

broad, and so each circuit has tried to narrow the concept to what 

they felt comfortable with in terms of making it a Federal prosecution, and they have come up with four, five, or six different methods of narrowing it. And I think that is really where the Supreme 

Court was coming from, saying it needs to be narrowed and it 

needs to be narrowed very precisely and carefully by the legislative 

body, because if the courts are doing it all over the place, there is 

no notice to the citizens. 

Senator SESSIONS. Well, Mr. Terwilliger, you were a long-time 

Federal prosecutor, very familiar with these cases, and as a Federal prosecutor, you know that certain crimes or wrongs that you 

would like to vindicate did not fall within Federal law. They just 

do not. And I have been there. This is horrible and you dig into 

it, and it just did not violate the Federal law. Maybe it violated 

State law, but maybe we do not think they are good enough or got 

enough money or time or effort to prosecute this case. And so an 

injustice will be done. 

But perfect justice is not possible in this world. I think it was 

a judge on the Supreme Court of California who said perfect justice 

21 

is a mirage, that in the pursuit of perfect justice, we destroy what 

justice we can achieve. 

And so where do you feel this line ought to be drawn? You were 

the Deputy Attorney General, and you were a line prosecutor, and 

you were a U.S. Attorney. Are we leaving too much out, in other 

words, as a matter of policy, or are we leaving too many wrongs 

outside of Federal prosecution, or are we, in an attempt to eliminate all wrongs, reaching beyond the historical role of the Federal 

Government and trying to criminalize things that are too vague to 

criminalize? 

Mr. TERWILLIGER. Well, Senator Sessions, I think you have really 

put your finger on what the challenge here is. It certainly is not 

a partisan issue. I think, to coin a phrase, this is a post-partisan 

issue given the level of corruption that exists at various levels of 

Government. But I think you can parse the challenge into two 

parts. 

One part is writing a law that is clear enough, that is going to 

pass muster with the Supreme Court along the standard that Justice Ginsburg’s admonition sets; and, second, that really does give 

people fair notice of what they can do and not do. 

The second, which really applies more to the issue of dealing 

with State and local corruption and perhaps corruption in the business and private world, is how far should the Federal Government 

go. And the problem that we have—and I think everybody here is 

a former Federal prosecutor, recognizes that the more space that 

there is in a statute, the more prosecutors will find a way to fill 

that space and expand perhaps even what the Congress originally 

intended. 

Really, I am not—I do not think anybody has all the answers, 

and I know that I do not at this point. But I do think that sort 

of framing the issue as let us deal with what is appropriate to deal 

with Federal officials, let us deal with what is appropriate to deal 

with State and local officials, and then let us deal separately with 

what is appropriate in terms of conflicts of interest and undisclosed 

financial interests in the private world makes sense, because each 

one of those is a different kind of wrong that offends a different notion of justice and what the Federal Government should be doing. 

For me, frankly, one thing that occurs to me on the State and 

local issue, which I think is really where this is perhaps difficult 

to focus, Congress passed a statute which is now 18 U.S.C. 666, 

bribery in Federal programs. The courts, including the Supreme 

Court, have really expanded the coverage of that statute to cover 

any bribery in a State or jurisdiction in a State that gets Federal 

assistance, which is literally everybody. 

It seems to me that rather than grapple with this issue that Mr. 

Breuer’s suggestion to put this in the wire and mail fraud statute 

brings up—and, that is, a scheme to defraud whom of what—it 

might be easier to put this in 666 and to criminalize conflicts of interest arising from undisclosed financial obligations by any official 

in a jurisdiction that receives Federal funds—constitutionally, then 

it goes right to the spending power—and to have that dependent, 

as Mr. Breuer I think rightfully suggests, on some pre-existing 

State or local obligation to make that disclosure. 

22 

If you will permit me just one more minute here, when I saw 

Senator Leahy, I was actually reminded we both were in Vermont 

for a long period of time. We have very localized governments. A 

road commissioner in Vermont is in charge of plowing the snow 

and keeping the roads clean, which can be a real challenge in 

Vermont. If a town were to allow a circumstance where, instead of 

investing in all the heavy equipment necessary to do that, the road 

commissioner was allowed to contract that service out and he contracted that service out to a contractor who made the capital investment in that equipment, thus saving the town those capital 

costs, who happened to be his brother-in-law, or his brother for 

that matter, and everybody in town knew it, one would expect that 

nobody would have a problem with that, including on the Federal 

level. And I think what we need to do is make sure that when we 

write the standards that would govern what can be a Federal crime 

under State and local law, we take into account those very localized 

sets of circumstances and keep those off limits. 

Senator SESSIONS. Well, I think 666 is a suggestion that I had 

thought might be a way to proceed also. 

Well, thank you, Mr. Chairman. These are not little-bitty matters, and I do not think that Congressmen or Senators should be 

condemned if they say we do not need to Federalize every wrong. 

You know, we would rather have a clear line, make sure this line 

is clear on what it is that amounts to a Federal crime. And if people can maneuver out of it on occasion and you miss a few cases 

that have to be prosecuted in State court, I do not know that the 

Republic will decline. Certainly we did not have this language previously in our statutes. 

Mr. SEIGEL. Senator Sessions, may I address that? Again, we all 

are former members of the Department of Justice, and I do think 

that it is important also to balance the countervailing notion that 

it seems to me it has always been a special province of the United 

States Department of Justice to root out local corruption, because 

as we know for a wide variety of reasons, that is a particularly difficult area for local law enforcement to do on their own. There are 

lots of local political pressures and other reasons, budget reasons, 

but there are lots of reasons why it is often not done at the local 

level. And it always made me proud as a Federal prosecutor that 

that was one of the areas that we spent time on. And if it was local 

law enforcement or local political environment or whatever it was, 

it seemed to me that that was a very legitimate area of Federal interest because, in effect, it is the central government assuring the 

citizens that they are being fairly treated by all of their governments. 

So although I agree with you, you know, we do not need to Federalize everything and maybe there are things that already are 

Federal that probably ought not be, I do think we want to make 

sure, as we are looking at a fix for this, that we not leave out any 

significant area of corruption that will not otherwise be addressed. 

And at the same time, I remind the Congress that, as I pointed out, 

right now if you did nothing, you have an honest services fraud 

statute that can apply to a $20 bribery on the State level. And I 

am not saying a Federal prosecutor would take that case, but there 

is nothing in the law at the moment that even after Skilling would 

23 

stop a Federal prosecutor from taking that case. So I think it is 

both overbroad and underinclusive. 

Senator SESSIONS. Thank you. We need to work on it, and to me 

it is a bit of a sad thing that the Federal Government has had the 

burden of prosecuting more of these cases. In truth, it would be 

better that they could be prosecuted locally. I think the police departments, State investigators, State prosecutors are more skilled 

than they used to be, but still they are overworked, stressed, and 

often the objectivity that occurs in a Federal courtroom as opposed 

to a judge and his friend who is the mayor and he is trying the 

case, it just becomes very difficult, in my personal view, and we do 

not want to eliminate the Federal ability to—its historic role. But 

these phrases I do not believe when I was prosecuting in the early 

1980s, particularly I tried a number of cases, I do not believe the 

honest services was available, or maybe there was a case or two 

that were just touching on it, and I successfully prosecuted mayors 

and county commissioners and water and sewer board people. In 

Georgia, I think, Mr. Terwilliger, they prosecuted 40 sheriffs over 

a period of years out of the 170 that I think they have. But the 

result—the tools existed for pretty effective Federal prosecution, 

even without these newer powers. 

Senator WHITEHOUSE. I would tend to agree with Senator Sessions on this, and I think a lot of it has to do with resources. I can 

remember as United States Attorney in Rhode Island running a 

very lengthy and very complex undercover investigation into municipal corruption in our capital city. It involved confidential informants. It involved undercover agents who had to be backstopped 

and brought in and the cover created and all of them, you know, 

run as agents. It involved wiretaps and surveillance. It involved a 

very complex array of techniques and strategies, and in doing all 

of that, it was a quite well established Federal process to go 

through all that. If anything, the Department of Justice’s role was 

to push back a little bit on the U.S. Attorneys and say, Wait a 

minute, let us double-check, let us take a second look, what are you 

doing And, you know, you had to push for your case against that 

pressure. 

I then was elected Attorney General for the State of Rhode Island, and we did the first public corruption wiretap in the State’s 

history. As Professor Buell knows from his time growing up there 

and from his time at Brown University, Rhode Island is not a State 

that has been immune to political corruption. And yet it was tradition of the State that wiretaps were used for narcotics investigations, not for public corruption investigations. The State police 

knew how to do it. It just had never been sort of—that skill set had 

never been picked up from the narcotics unit, moved over to the 

public corruption unit, and deployed against public officials. And 

we were able to deploy it effectively against a local public official 

and get him on tape in a bribery scheme. 

And so I agree that there is an important Federal role. I think 

it has a lot to do with resources. I think that the idea that the Federal Government can sometimes be the only place that comes in to 

clean up a local corruption problem is one that we have to bear 

keenly in mind. But I think Senator Sessions is dead right that 

that goes to the definition of what local is, and that should not be 

24 

the bar. The definition of what corruption is needs to be clear and 

bright, and I think that is what we are talking about. 

It strikes me that—I would like to ask you to comment on Lanny 

Breuer’s testimony in one respect, and here is how I read it. The 

vast bulk of these public corruption cases can be pursued under a 

bribery, extortion, racketeering, RICO even, existing rubric. And in 

those cases, you need a payment of some kind made, some thing 

of value being delivered to the principal or to a party in interest 

with him or her. And then you kind of have the law in place to go 

ahead and do that. 

Then you have the problem of these conflicts of interest, and 

what he has brought together is a notion that if two things occur 

in tandem—one is somebody concealing a financial interest, and 

the second is them taking official action to benefit themselves or 

a party in interest with them—in relation to or as, you know, 

bound together in a common scheme with the failure to disclose, 

then you have a sound basis for a Federal prosecution. You are not 

going to go after a public official who has missed a contribution in 

a filing schedule and 4 years later voted for a bill that helps the 

insurance industry, and it turns out that that contribution 4 years 

ago was from an insurance executive and, boom, if you are targeting that public official, now you have a case. It requires more 

than that. It requires this common scheme that the failure to disclose relates to the misconduct or the advancement of that financial 

interest. 

I think that seems like a sensible place to begin, and we are buttressed a little bit in this, as I understand it, by—with respect to 

many of the reporting statutes, particularly those that govern public official, a willful failure to file, a knowing failure to file has its 

own set of adverse consequences. So you can pick up the filing 

problem on its own. You can pick up the bribery payment extortion 

problem on its own. And this seems to me like a good foundation 

for looking at the remainder without getting into terms as abstruse 

as denial of honest services. 

I would like to have each of you just react to that observation, 

you know, if you think I am off base on that, if Assistant Attorney 

General Breuer is off base. 

Mr. BUELL. Thank you, Senator. I addressed my comments primarily to the problem of private sector cases, but I think part of 

what I said, and particularly in my written testimony—— 

Senator WHITEHOUSE. For purposes of this question, let us focus 

on public—— 

Mr. BUELL. Yes, and what I was going to say is I think an important part of what I had to say about that translates over here to 

what I would want to stress in the public sector context as well, 

which is that I do not think enough attention has been given in 

this entire discussion to the importance of mental state, mens rea 

in criminal statutes, and particularly in fraud statutes. And the Assistant Attorney General kept emphasizing you would have to have 

the specific intent to defraud, that that is how we know it is more 

than just a non-disclosure or even a—you knew you did not fill the 

form out right. And I think Mr. Terwilliger is right to ask, well, 

what do we mean by that? And maybe more thought needs to go 

into what we mean by that—— 

25 

Senator WHITEHOUSE. Doesn’t connecting the concealment with 

the official act act as a very, very good proxy for the adequate mental state? 

Mr. BUELL. I would say in general, yes, but what we really need 

to be talking about—and, I mean, this really draws from my experience as a prosecutor and will probably resonate with others 

here—is the kinds of evidence that you normally look for in a case 

to say what we have here is a specific intent to defraud, isn’t just 

the conduct itself, but it’s what traditionally we refer to as the 

badges of fraud. You know, it is some kind of creation of fictitious 

entities, destruction of evidence, covering up, the kind of conduct 

that can allow you to say, look, this person was not just hiding 

something, they knew they were doing it in a wrongful manner. 

And I believe that that kind of an inquiry and how you embody 

that in a statute, whether it is with a willfulness requirement or 

something else, I believe that kind of an inquiry goes a long way 

to guarding against the worries about overapplication of an overly 

vague law. The Supreme Court has said over and over again—— 

Senator WHITEHOUSE. Professor, if you could wrap up really 

quickly, I just got passed a note that says we have 10 minutes left 

on the vote on the floor—— 

Mr. BUELL. OK. Well, I was just going to say—— 

Senator WHITEHOUSE [continuing]. And I would like to give time 

to the other two—— 

Mr. BUELL [continuing]. That the Supreme Court itself has emphasized again and again that demanding mental state requirements can go a long way to dealing with vagueness problems in 

criminal statutes. 

Senator WHITEHOUSE. Very good. 

Professor Seigel. 

Mr. SEIGEL. My reaction very briefly would be I think you are 

right, and I just want to point out, the reason why you need this 

additional tweak after Skilling is that in these kinds of arrangements, let us say that the decisionmaker in Government is on the 

payroll secretly of the company that he has voted to give the work 

to. The reason why that is not traditional money or property fraud 

is the prosecutor may not be able to prove that the taxpayers did 

not get their money’s worth. They may very well have gotten good 

services. The point is they did not know that he was getting a cut 

of the pie. So it is not traditional, you know, mail and wire fraud, 

and now it is not covered because—— 

Senator WHITEHOUSE. Because there is no loss. 

Mr. SEIGEL. There is no monetary loss. 

Senator WHITEHOUSE. To the injured party. 

Mr. SEIGEL. That is right. 

Senator WHITEHOUSE. At least not provable loss. 

Mr. SEIGEL. Correct. Correct. And yet there is this deception resulting in this personal gain which I think we all agree is corruption. So I do think that is a very important area to address, and 

I do think with the various safeguards requiring some—you know, 

it has to be more than a trivial amount of money and so forth that 

we can—and adding in the other requirements, we can make sure 

that it is specific and puts sufficient notice to the public. 

Senator WHITEHOUSE. Mr. Terwilliger. 

26 

Mr. TERWILLIGER. Thank you, Senator Whitehouse. I really must 

say I compliment the Committee on the substantive nature of this 

hearing. I do not want to say it does not happen that often, but 

in my experience, this one is sort of above the line considerably. I 

think it does provide a good foundation, but I think you have just 

put your finger on exactly where the problem lies and where this 

can go awry. 

If we assume we have a local official who does his job to the nth 

degree, takes care of the citizens and does everything, and in the 

process finds a way to enrich himself or herself in a way that is 

undisclosed, that is the problem we are talking about. The question 

then becomes: Is that purely a Federal crime And I think the answer to that is it is probably not purely a Federal crime, unless the 

State or locality has set some kind of a standard of disclosure of 

that very interest that would, in fact, make it an actionable wrong 

under Federal law. 

The federalism issue, I could not agree with you more, and your 

experience, Senator Whitehouse, in Rhode Island is probably one of 

the quintessential great examples of what the Federal role really 

is and needs to be. And I compliment you on the success of that. 

But I think we have to be very, very careful that we do not have 

anything as amorphous, again, as honest services that lets Federal 

prosecutors set the standards for what may be disclosed or even 

what self-dealing is allowed. Those lines ought to be drawn by the 

State and local jurisdictions, and then Federal prosecutors are the 

safety net under whatever kind of enforcement mechanism they 

have to make sure, if that job does not get done on the State or 

local level, that it does get done on the Federal level. 

Senator WHITEHOUSE. We are winding down toward the end of 

the vote, so why don’t I give Senator Sessions closing words, and 

then we will adjourn, and the hearing will remain open for an additional week if anybody wishes to add further testimony. 

Senator SESSIONS. I think it is a good discussion. What we do not 

want to get into is something like you have in Russia with a bunch 

of oligarchs and one of them here takes the President and it is easy 

to find he did something wrong. Most American business and public officials try to stay within the law, and you do not want to be 

in one of these situations where the perception is among the private sector and the public sector that anybody that wants to ‘‘get 

me’’ can go out and find something and prosecute me for it. That 

is an overreach, too, and we do need to think through that. Otherwise, it can become—the prosecution can become a tool of political 

power and punishment of opponents. Usually that is raised when 

you prosecute somebody, as I found, but I always felt I could defend clearly what I charged and what the law was, and that this 

person violated it. The vaguer you get, the harder it is to defend 

against accusations of political and abusive prosecution. 

Thank you, Mr. Chairman. 

Senator WHITEHOUSE. The hearing is adjourned. I thank very 

much the witnesses for their testimony. One of the reasons that the 

hearing was substantive was because you were all so expert and 

helpful. Thank you. 

Mr. BUELL. Thank you. 

Mr. SEIGEL. Thank you. 

27 

Mr. TERWILLIGER. Thank you. 

[Whereupon, at 11:42 a.m., the Committee was adjourned.] 

[Questions and answers and submissions for the record follow.] 

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