What makes a conflict of interest a crime?

By Patrick J. Egan

 COI is at the heart of a myriad of crimes, ranging from insider trading to FCPA violations, but when does a COI alone rise to the level of criminality? Standards differ between the public and private sectors. Congress and State Legislatures have sought to criminalize COI standing alone for public officials as well as for individuals in the private sector who do business with them, but there have been very few attempts to criminalize COI in strictly private enterprise without some related overtly criminal act.

 Congress has passed extensive legislation in an attempt to punish public corruption. The most fundamental of these are Bribery, Graft, and Conflicts of Interest: 18 U.S.C. §§ 201,203 and 205. These provisions impose sanctions on public officials who lose sight of whose interests they are expected to serve and the private individuals who help corrupt them. Four federal statutes also address bribery and kickback schemes that do not involve public employees or public funds: 18 U.S.C. §§ 1341, 1343, 1346, and 1952.  These impose criminal liability for the exchange an item of value for influence or personal benefit in the private sector.

 The above statutes typically require more than just a COI.  They require action taken as a result thereof, such as payments or favors.  Efforts to criminalize the existence of a COI without more have met with skepticism from legal scholars and in the courts.  They have been described as vague and endlessly elastic. The U.S. Supreme Court’s decision in Skilling made clear that there must be more than just a COI to convict on theft of honest services.

 The fundamental problem with COI is that they often lead to just such activity. COI are the fertile soil in which the overtly criminal act grows. They also create the appearance of impropriety which can lead to investigation and prosecution. Unfortunately, as a practical matter, the answer to the question, “When does a COI become a crime?” is often “When a prosecutor decides to charge it as one.” 

 Patrick J. Egan  is a partner and co-chair of the White Collar Compliance and defense Group at Fox Rothschild LLP.  He is an adjunct professor of Trial Advocacy at the Temple University James Beasley School of Law and author of Avoiding and Defending Government Actions for International Trade Violations.  He can be reached at PEgan@foxrothschild.com.

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