Federal Wire Fraud Crimes – 18 USC 1343by Douglas C. McNabb (McNabb Associates, P.C.)
Wire fraud is an act of fraud using electronic communication. Black’s Law Dictionary 687 (8th ed. 2005). This electronic communication can be via wire, radio, or television. 18 U.S.C. § 1343.
The Supreme Court has “several times observed that the wire fraud statute has a long arm, extending to ‘everything designed to defraud by representations as to the past or present, or suggestions and promises as to the future.’” Pasquantino v. United States, 125 S. Ct. 1766, 1784 (2005) (Ginsburg, J., dissenting) (citing Durland v. United States, 161 U.S. 306, 313 (1896)). But the Court has also noted that an “incautious reading of the statute could dramatically expand the reach of federal criminal law, and we have refused to apply the proscription exorbitantly.” Id. (citing McNally v. United States, 483 U.S. 350, 360 (1987)). In short, there is some recognition by the Supreme Court that given the statute’s broad applicability, “a sweeping expansion of federal criminal jurisdiction in the absence of a clear statement by Congress” is discouraged. Cleveland v. United States, 531 U.S. 12, 25 (2000).
Despite the Court’s warnings, however, the wire fraud statute has been applied to a wide range of activities, as well as having been applied in conjunction with a wide range of other criminal statutes. See Pasquantino (statute used to prosecute U.S. citizens for smuggling cheap liquor into Canada); United States v. King, 590 F.2d 253 (8th Cir. 1978) (statute used to prosecute individual in scheme to sell herbicide); Neder v. United States, 527 U.S. 1 (1999) (defendant charged with wire fraud, mail fraud, and bank fraud violations); United States v. Autuori, 212 F.3d 105 (2d Cir. 2000) (defendant charged with wire fraud and mail fraud violations); United States v. Zichettello, 208 F.3d 72 (2d Cir. 2000) (defendant charged with wire fraud and RICO violations).
18 U.S.C. § 1343.
Under section 1343, it is a crime for a person
who has devised or intends to devise a scheme or artifice to
- defraud, or
- to obtain money or property by means of false or fraudulent
- – pretenses
- – representations, or
- – promises
- to transmit, or cause to be transmitted by means of wire, radio, or television communication, any
- – writings
- – signs
- – signals
- – pictures, or
- – sounds
- for the purpose of executing the scheme or artifice. 18 U.S.C. § 1343.
Much like the wire fraud statute, 18 U.S.C. § 1341, it is simpler to say that wire fraud consists of devising a scheme or artifice to defraud and then using the nation’s telecommunications networks to carry that scheme out.
A violation of section 1343 can be punished by
- a fine,
- imprisonment for not more than 20 years, or
If a violation of section 1343 affects a financial institution, the punishment will be
- a fine of not more than $1,000,000,
- imprisonment for not more than 30 years, or
- both. 18 U.S.C. § 1343.
Case Law Interpreting Section 1341
The essential elements of a violation of section 1343 are fairly simple. To sustain a charge of wire fraud under section 1343, the government must prove two things: 1) the existence of a scheme to defraud, and 2) the use of wires for the purpose of executing the scheme. See United States v. Andrade, 788 F.2d 521, 527 (8th Cir. 1986); United States v. Gordon, 780 F.2d 1165, 1171 (5th Cir. 1986); United States v. Cen-Card Agency, F. Supp. 313, 316 (D.N.J. 1989).
Recently, however, a “materiality” requirement has developed. A matter is material if “a reasonable man would attach importance to its existence or nonexistence” in determining a course of action, or “the maker of the representation knows or has reason to know that its recipient regards or is likely to regard the matter as important” in determining a course of action, even though a reasonable man might not. Neder v. United States, 527 U.S. 1, 22 n.5 (1999) (quoting RESTATEMENT (SECOND) OF TORTS § 538 (1976)). The court explains that based “solely on a ‘natural reading of the full text,’ materiality [is] not an element of the fraud statutes.” Id. at 21 (1999) (internal citations omitted). However, because a statute is presumed to incorporate common-law understanding of an issue when it is codified, and fraud required a material misrepresentation in the common law, “under the rule that Congress intends to incorporate the well-settled meaning of the common-law terms it uses, [the Court] cannot infer from the absence of an express reference to materiality that Congress intended to drop that element from the fraud statutes.” Id. at 21-23. Therefore, materiality is a requirement.
Recently, the Supreme Court has noted that the “object of the fraud” needs to be money or property “in the victim’ hands.” Pasquantino at 1771 (quoting Cleveland v. United States, 531 U.S. 12, 26 (2000) (interpreting the mail fraud statute, 18 U.S.C. § 1341 (2000))). In Pasquantino, “Canada’s right to uncollected excise taxes on the liquor petitioners imported into Canada is ‘property’ in its hands. This right is an entitlement to collect money from petitioners, the possession of which is ‘something of value’ to the Government of Canada.” Id.
Scheme to Defraud
There are many different types of fraudulent schemes. In Pasquantino, the scheme was to import liquor into Canada without paying excise taxes. Pasquantino at 1770. The wire fraud statute was employed because the defendants, in Buffalo, New York, had used the telephone to call a Maryland “discount package store.” In Carpenter v. United States, the fraud was committed by a writer of a newspaper financial column who deprived the newspaper of its right to exclusive use of information prior to disclosing it to the public. Carpenter v. United States, 484 U.S. 19, 25 (1987). The use of wire services provided a “sufficient nexus with the scheme” to justify using the wire fraud statute. Id. at 24. The words “to defraud” in this case take on the meaning of appropriating “to one’s own use of the money or goods entrusted to one’s care by another.” Id. at 27 (quoting Grin v. Shine, 187 U.S. 181, 189 (1902)). In United States v. Rybicki, 287 F.3d 527 (2d Cir. 2002), the wire fraud charges were “based on [the defendants] practice of making payments through middlemen or expediters to insurance company adjuster in return for more favorable settlements in personal injury lawsuits.” Rybicki at 259.
18 U.S.C. § 1346.
Section 1346 merely states that the term “scheme or artifice to defraud” includes a scheme or artifice to defraud another of the intangible right of honest services. Section 1346 was enacted to counter the Supreme Court’s decision in McNally v. United States, 483 U.S. 350, 360 (1987). See United States v. Sawyer, 239 F.3d 31, 39 (1st Cir. 2001).
According to United states v. Rybicki, 287 F.3d 257 (2d Cir. 2002), the elements necessary to establish the offense of honest services fraud are:
1) a scheme or artifice to defraud
2) for the purposes of depriving another of the intangible right of honest services
3) where it is reasonably foreseeable that the scheme could cause some economic or pecuniary harm to the victim that is more than de minimis and
4) use of the mails or wires in furtherance of the scheme. Rybicki at 266.
The enactment of section 1346 has greatly complicated statutory analysis of the wire fraud statute. “While the legislative history of § 1346 seems to indicate an intention to resurrect the pre-McNally case law relating to the deprivation of intangible rights by use of the mails,” some case law has determined that “pre-McNally cases construing the prior statute are not binding, and that the new offense was defined by statute, … not by pre[-]McNally judicial decisions.” United States v. Adler, 274 F. Supp. 2d 583, 586 (S.D.N.Y. 2003) (interpreting the mail fraud statute). In short, the effect of section 1346 remains to be seen, but there is general acceptance of the notion that “convictions under § 1346 that involved schemes …in which the defendant breached or induced the breach of a duty owed by an employee or agent to his employer or principal that was enforceable by an action at tort” must be upheld. Rybicki at 264.