Mail: Federal Mail Fraud Act

The Supreme Court confirmed Congress's power to prohibit the mailing of material based upon its content. Badders v. United States, 240 U.S. 391, 393 (1916), held that Congress has the authority to regulate the act of mailing a letter, and to prohibit any act of mailing "done in furtherance of a scheme that [Congress] regards as contrary to public policy, whether it can forbid the scheme or not." Subsequently, Parr v. United States, 363 U.S. 370, 389 (1960), reemphasized that "the fact that a scheme may violate state laws does not exclude it from the proscriptions of the federal mail fraud statute." The Mail Fraud Act is an appropriate exercise of congressional power because it does not purport to displace the states' general jurisdiction over fraud; it reaches only schemes in which the mails are used.

The scope and application of the act. The twin elements of mail fraud—a scheme to defraud and a mailing—have been given a generous reading, and the Act has evolved into a flexible tool that reaches a remarkably wide range of conduct.

Scheme to defraud. No precise definition of the concept of fraud appears either in the mail fraud statute or in the cases construing it. In defining the statutory phrase "scheme to defraud," the courts have given the concept an extremely broad and flexible reading. In Durland v. United States, 161 U.S. 306, 313 (1896), the Supreme Court rejected the contention that Congress had intended to limit the statute to fraud or false pretenses as defined by common law; the Court held that the statute prohibited "everything designed to defraud by representations as to the past or present, or suggestions and promises as to the future." Following the signal sent by the opinion in Durland, the lower courts have interpreted the term "defraud" in a broad nontechnical sense. Some courts have even said that the act "puts its imprimatur on the accepted moral standards and condemns conduct which fails to match the 'reflection of moral uprightness, of fundamental honesty, fair play and right dealing in the general and business life of members of society'" (Blachly v. United States, 380 F.2d 665, 671 (5th Cir. 1967)).

The Mail Fraud Act has become a favorite prosecutorial tool, and the act has been used to prosecute a wide variety of deceptive schemes designed to deprive victims of money or property, including check kiting, pyramid schemes, and welfare and insurance frauds. The act's flexible definition of fraud proved to be readily adaptable as new kinds of schemes were devised. Before more specific federal legislation was passed, the Mail Fraud Act served as the principal weapon against fraudulent securities transactions, extortionate credit transactions, real estate fraud, and credit card fraud. For this reason mail fraud has been called the federal government's "first line of defense" against fraud (United States v. Maze, 414 U.S. 395, 405 (1974) (Chief Justice Burger dissenting)). Even after the adoption of more specific legislation, the Mail Fraud Act continued to serve an important auxiliary function. Mail fraud charges continue to be combined with, or even used in lieu of, charges under more specialized statutes.

Perhaps even more important, the Mail Fraud Act has been extended to reach cases of public corruption, election fraud, and private breaches of fiduciary duty. What has come to be called the "intangible rights doctrine" developed in a series of cases in lower federal courts that extended the mail and wire fraud statutes to cases in which the victims were deprived of some intangible right or interest other than money or property. In the public sector, judges, governors, aldermen, congressmen, and many other state and federal officials were convicted of defrauding citizens of their right to the honest services of governmental officials. Generally these cases involved officials secretly making governmental decisions with the objective of benefiting themselves or promoting their own interests, rather than looking to the interest of the citizens of the state or local government. Other intangible rights prosecutions involved the use of the mails to falsify votes, thus defrauding the citizenry of its right to an honest election. In the private sector, purchasing agents, brokers, union leaders, and others with fiduciary duties were convicted of defrauding their employers or unions by accepting kickbacks or selling confidential information.

The intangible rights cases substantially extended the concept of fraud. The cases typically involved neither an express misrepresentation, nor the loss of any property by the victim of the scheme. The courts found the element of deceit or misrepresentation satisfied by nondisclosure of dishonest or corrupt actions, and the loss of an intangible right obviated the necessity to determine whether the scheme caused any economic loss.

Although the Supreme Court called a temporary halt to the intangible rights doctrine, its decision was soon nullified by Congress. In McNally v. United States, 483 U.S. 350 (1987), the Supreme Court held that the mail fraud statute reaches only the deprivation of "property" rights. The Court declined to "construe the statute in a manner that leaves its outer boundaries ambiguous and involves the federal government in setting standards of disclosure and good government for local and state officials" in the absence of a clear statement from Congress indicating that it intended the Mail Fraud Act to apply in this context. Congress did not share the Supreme Court's concerns, and one year later it revived the intangible rights doctrine by enacting 18 U.S.C. § 1346, which provides that for purposes of the mail, wire, and bank fraud acts "the term 'scheme or artifice to defraud' includes a scheme or artifice to deprive another of the intangible right of honest services."

Intangible rights prosecutions raise serious concerns in both public and private sector cases. In the public sector the chief issues are the question whether it is appropriate for the federal government to police the integrity of state and local government officials, as well as concerns about fair warning and prosecutorial abuse that arise from the amorphous quality of the federal concepts of "fraud" and "honest services." Prosecutions in the private sector raise concerns that traditional matters of employment law and contract will be converted into issues of criminal liability.

The Supreme Court's reluctance to place its imprimatur on the intangible rights doctrine may reflect an uneasiness with what had become, in effect, a common law offense. A similar unease seems to be animating some of the lower courts, which are placing various restrictive glosses on the act, and may also provide an explanation for the Supreme Court's decision in Neder v. United States, 119 S.Ct. 1127 (1999). The precise holding in Neder—that materiality is an element of mail, wire, and bank fraud—is unsurprising, and it accords with most of the lower court decisions. In reaching this result, however, the Supreme Court emphasized that in interpreting the mail, wire, and bank fraud acts the courts should presume that Congress intended to incorporate the common law definition of fraud unless the statutory language rebuts that presumption. This is at odds with the general understanding of the Court's decision in Durland as cutting the Mail Fraud Act free from its common law moorings. While Neder may have little direct impact on the honest services prosecutions brought under the authority of 18 U.S.C. § 1346, it suggests that the federal courts may be prepared to rein in the Mail Fraud Act.

The history of the Mail Fraud Act illustrates both the institutional pressures that produce such broad open-textured laws, and the techniques the courts have used in responding to them. The difficulty of reaching agreement among hundreds of senators and members of Congress places practical limitations on the number and specificity of the federal laws that can be enacted. Congress has an incentive to enact broad and often incomplete legislation. This virtually guarantees that there will be various gaps in federal law, including federal criminal law. Federal prosecutors respond by asking the courts to extend broadly framed existing statutes—particularly the Mail Fraud Act—to new kinds of conduct. In other contexts, the common law role of the courts in making interstitial law under the authority of broadly worded statutes is relatively uncontroversial. But in the criminal context this common law role conflicts with the tradition of legislative supremacy in making criminal law, and it also raises concerns about due process and fair warning. Although the courts have often embraced their common law role, interpreting the mail fraud statute as a stopgap, other decisions reflect either a disagreement on the policy choice made by the courts, or a preference by individual judges for a return to greater fidelity to the rule of legislative supremacy.

Use of the mails. The second element of mail fraud is use of the mails "for the purpose of effectuating" a fraudulent scheme. As interpreted, this requirement is not difficult to meet. The defendant need not mail or receive anything himself. The statute applies to anyone who "causes" the mails to be used, and this requirement is met whenever the defendant acts with knowledge that use of the mails will ordinarily follow or is reasonably foreseeable. So long as the defendant causes a use of the mails that effectuates his scheme, the mailing itself need not contain any fraudulent representation, it need not be to or from the intended victim, and it need not be an essential element of the fraudulent scheme. In Schmuck v. United States, 489 U.S. 705, 710–11 (1989), the Supreme Court held that it is sufficient if a mailing is "incident to an essential part of the scheme . . . or a step in [the] plot." Under Schmuck a mailing that is quite peripheral to a fraudulent scheme may be sufficient to trigger federal jurisdiction under the Mail Fraud Act.

The Mail Fraud Act and the parallel wire fraud statute are so broad that they permit federal prosecution even where there is arguably no significant federal interest. A minor local fraud may involve the mailing of one letter or the placing of one interstate telephone call. To prevent federal prosecutions of petty local fraud, the Justice Department has adopted a policy that mail fraud prosecutions are ordinarily not appropriate for schemes involving isolated transactions or minor losses. There is, however, no real mechanism for enforcement of this limitation, and the local United States attorney exercises substantial discretion in deciding whether federal prosecution is appropriate in a particular case.