This article appeared in Business Crimes Bulletin, an ALM/Law Journal Newsletters publication that features the news and analysis you need to stay on top of the fast-changing, multi-faceted world of financial and white-collar crime.

In an environment of aggressive federal prosecution and regulation both businesses and public officials are challenged to identify the permissible line between proper financial transactions — things like campaign contributions and business entertainment — and unlawful payments. And, in what the First Circuit called a "novel theory of Hobbs Act extortion," public officials now have to struggle with the scope of permissible advocacy — when does advocacy for constituents become extortion? United States v. Brissette, 919 F.3d 670, 684 (2019).

The federal regulators have long taken an expansive approach with regard to policing official / constituent interactions at both the state and federal level. For decades, the U.S. Supreme Court has more or less methodically tried to limit these various assertions of federal power, by repeatedly imposing a quid pro quo requirement for federal criminal prosecutions.

The DOJ pushed for years to expand corruption prosecutions to almost any situation where a public official receives a personal benefit. And, the Supreme Court's resistance can be traced back nearly a generation. In McCormick v. United States, 500 U.S. 257 (1991), the Court grappled with the dilemma of the Hobbs Act's seeming prohibition on public officials obtaining anything of value "under color of official right" while also recognizing campaign contributions are made every day with an expectation that the official will be acting in an official capacity as to matters of concern to donors. The Court decided, in the campaign contribution context, that the Hobbs Act requires proof of a quid pro quo transaction. Id. at 266-67, 274. It is only a crime, "if the payments [we]re made in return for an explicit promise or undertaking by the official to perform or not to perform an official act" — i.e., when "the official asserts that his official conduct will be controlled by the terms of the promise or undertaking." Id. at 273. Campaign contributions with a mere hope or even unilateral expectation of benefit are not Hobbs Act violations.

The Court wrestled with a similar issue when it considered the appropriate interpretation of 18 U.S.C. §201, a federal statute making it illegal to, among other things, "giv[e] 'anything of value' to a present, past, or future public official 'for or because of any official act performed or to be performed by such public official.'" United States v. Sun-Diamond Growers of Cal., 526 U.S. 398, 400 (1999). Again, the Court curtailed the prosecutors. The Court required the government to show a quid pro quo even for a "gratuity." Id. at 404-05, 414. Specifically, the court clarified that an illegal gratuity requires the government to "prove a link between a thing of value conferred upon a public official and a specific 'official act' for or because of which it was given." Id. at 414.

Federal prosecutors frequently seek to regulate public official and constituent interactions with the "honest services" mail fraud theory. The Court again weighed in to limit prosecutorial power (this time in a purely private context) and construed the term "scheme or artifice to defraud" by "depriv[ing] another of the intangible right of honest services, 18 U.S.C. §1346, to apply solely to "bribes and kickbacks." Skilling v. United States, 561 U.S. 358, 409-11 (2010).

After restricting prosecutors to proving that benefits had to be explicitly exchanged for official acts the Court next curtailed the prosecutors' expansive view of what "official acts" could not be for sale. In McDonnell v. United States, 136 S. Ct. 2355 (2016), the Court considered the appropriate interpretation of the term "official act" as used in section 201(a)(3). The Court asked: 1) whether "arranging a meeting, contacting another official, or hosting an event," without more, can be considered a "question, matter, cause, suit, proceeding or controversy"; and 2) if not, whether it could be considered a "decision or action" on a "question, matter, cause, suit, proceeding or controversy." Id. at 2368. The Court answered no to both questions. Id. at 2372. The Court reasoned that something more than hosting an event or planning a meeting was needed, concluding that a "question, matter, cause, suit, proceeding or controversy" required a "formal exercise" of government power, like that of a lawsuit or agency proceeding, to constitute an "official act." Id. at 2370, 2372. An "official act" also requires the official to take action on that "question, matter, cause, suit, proceeding or controversy" — or agree to do so — which could include exerting pressure on another, but does not include "[s]etting up a meeting, talking to another official, or organizing another event." Id. at 2372.

Despite McDonnell, DOJ pursued prosecutions using its own more expansive view of "official act" in state, local and foreign corrupt practice cases. The Second Circuit approved. For example, in United States v. Boyland, 862 F.3d 279 (2d Cir. 2017), the Second Circuit refused to apply the limitations set out in McDonnell to 18 U.S.C. §666, which criminalizes bribery in federally funded programs. According to the court, Section 666 is "more expansive than" the statutory provision at issue in McDonnell. Boyland, 862 F.3d at 291. Likewise, in United States v. Ng Lap Seng, 934 F.3d 110 (2d Cir. 2019), the Second Circuit held that the Supreme Court's McDonnell standard of an "official act" does not necessarily limit or circumscribe other bribery statutes like the FCPA. The Second Circuit compared the text of the FCPA to section 201 in reasoning that the textual differences between the two statutes precluded reading the Court's definition of an "official act" as applying across-the-board in all bribery statutes. Id. at 132-34. In these cases, the Second Circuit seemingly concluded that Congress deliberately intended the scope of proscribed official action to be broader in the state, local and foreign context than it did for federal officials. See, id. It is not obvious why that would be the goal and the Supreme Court may yet revisit the issue since, as the District Judge in the novel Hobbs Act prosecution in Boston noted, "the Supreme Court has repeatedly admonished against stretching [federal corruption law] beyond its common law application where the conduct of public officials, acting on behalf of political constituencies is involved." United States v. Brissette, No. 16-cr-10137 (D. Mass. Mar. 19, 2018) (order denying motion for reconsideration).

Recently, DOJ has taken aim at public officials' advocacy for constituents, again using the Hobbs Act. Two Boston City Hall officials were convicted under the Hobbs Act for pressuring musical festival organizes into hiring union labor for the festival. The officials were alleged to have met with festival organizers just days before the concert for the purpose of pressuring them into hiring local union members. See, Brisette, 919 F.3d at 672-73. According to the organizers, they believed that they might be denied essential city permits if they refused the officials' request. See, id.

The officials' indictments were dismissed in early 2018 after the district court judge concluded, in an opinion in line with the general quid pro quo requirement found in the Supreme Court cases, that even if the government could prove that the officials engaged in these actions it could not prove that the officials personally benefitted from them, a requirement the judge found in the statute. Brissette, 919 F.3d at 672, 675. The First Circuit reversed, holding that the government did not need to show a personal benefit in order to "obtain" property under the Hobbs Act and that, instead, causing property be given to a third party was sufficient. Id. at 684. The jury thereafter convicted.

But the First Circuit ruling came with a caveat that echoed the Supreme Court's history in this area. After calling the governments charge "novel" it declined to rule as to whether the defendants' conduct was "wrongful," as it must be for a Hobbs Act conviction:

We are mindful, though, that the defendants are local officials who have been charged under a federal criminal statute for using their putative permitting authority to benefit others without personally receiving any gain. We are mindful, too, of the concerns expressed by the Supreme Court that an overly broad application of the Hobbs Act could unduly chill official conduct.

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And, the defendants have been charged with threatening "fear of economic harm" — a "type of fear," we have explained, that "is not necessarily 'wrongful' for Hobbs Act purposes." In fact, just as "fear of economic harm is part of many legitimate business transactions," fear of economic harm may also be a necessary consequence of many legitimate exercises of official authority.

Id. at 685 (citations omitted) (quoting United States v. Burhoe, 871 F.3d 1, 9 (1st Cir. 2017)).

Whether by requiring a quid pro quo, or narrowing the definition of official act, the Supreme Court repeatedly has attempted to balance the DOJ's enthusiasm for prosecution with preserving the legitimate functions of public officials in a democracy. But, as recent Circuit Court cases reflect, there is much yet to be resolved.

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Joseph F. Savage Jr. ([email protected]), a member of Business Crimes Bulletin's Board of Editors, is a partner in the Boston office of Goodwin Procter LLP and a former federal prosecutor. Christopher J.C. Herbert ([email protected]) is an associate in the same office.