Informal fiduciary duties and criminal liability

No, I don’t mean a fiduciary duty wearing loafers and khakis. (That, of course, is a casual fiduciary duty.)  An “informal” fiduciary duty is a duty of trust that arises even absent traditional fiduciary relationships, such as agent-principal or employee-employer.

In an important recent decision, a federal appeals court held that that independent contractors who have no formal fiduciary relationship with the government nonetheless can be prosecuted for “honest services” fraud for taking bribes based on a breach of “a comparable duty of loyalty, trust, and confidence.”  See US v Milovanovic.     There are several things about this holding that are worth noting, as described in this analysis by the Jenner &  Block law firm (registration required).    First, the court’s “formulation of an informal fiduciary relationship, the breach of which could trigger criminal liability for honest services fraud where the alleged fiduciary takes bribes or kickbacks, is extremely broad…. Second, the …opinion arguably makes even subcontractors susceptible to prosecution for honest services fraud…Finally, the Milovanovic case does not appear to be limited to government contractors.”

The decision – which has been the subject of some criticism for its breadth  – indeed appears to be a significant addition to the landscape of COI-related legal risk, at least from a criminal law perspective.  (Here is an article on informal fiduciary duties and civil liability.)

However, from an ethics-based  risk assessment logic standpoint, informal fiduciary relationships have always been worth paying attention to because even in the absence of a legal duty betraying the trust of others could have an adverse reputational impact and, under any mainstream ethical standard (e.g., utilitarianism, deontology or virtue ethics) , is clearly wrong.  And perhaps the Milovanovic opinion will serve as a reminder of the need to consider these types of relationships in identifying and addressing COI risks.

 For more on what makes a COI a crime, see this post  by criminal defense attorney Patrick J. Egan