It has been said that you can’t be too rich, you can’t have too many friends, and you can’t be too thin. Today, it also seems that you can’t have too many federal fraud statutes. Congress has enacted plenty of them even though the two basic fraud statutes—the acts criminalizing mail fraud and wire fraud—would cover every crime that the federal government should bother to prosecute.
Such repetition would be merely a cute quip if it appeared in a prime-time TV show—“Hi, I’m Larry. This is my brother Darryl, and this is my other brother Darryl.”—but it creates problems when multiple examples of the same offense are scattered across the U.S. Code. The foremost problem that repetition creates is the risk that a person can be charged with multiple offenses and be sentenced to consecutive terms of imprisonment if convicted of them, even though he committed only one crime. A related problem is identifying whether there is one fraudulent act or, alternatively, there are multiple instances of fraud.
There is a way to address the problem: Repeal the superfluous laws and, if necessary, revise the mail and wire fraud acts. That would eliminate the risk of oversentencing without preventing the Department of Justice from protecting the public. It would also indicate that Congress is taking the problem of overcriminalization seriously.
The History of the Law of Fraud
Greece has left the world a rich legacy. It has given us logic, democracy, the Parthenon, the Olympic Games, the gyro and souvlaki, along with Plato, Aristotle, King Leonidas I, Homer, Alexander the Great, Melina Mercouri, and Hegestratos—the man who committed the world’s first known fraud.
In 300 B.C., Hegestratos, a Greek merchant, insured a corn shipment, all the while intending to sell the corn and sink his ship, leading his insurer to think the corn was lost at sea and allowing Hegestratos to double his money. As the Moirai (in English, the Fates) would have it, Hegestratos drowned before the deed was done, but not before giving fraud law a colorful start. Unfortunately, not all heed the lesson of Hegestratos’s demise, and we have perhaps ever-increasing, certainly ever more expensive incarnations of his scheme with us today.
To keep the imagery going, what is the Aristotelian “essence” of fraud? Is it a single course of conduct that simultaneously involves the transfer (or loss) of property and that perplexing term, deceit? Or is it something else? The historical sources on which contemporary judges would draw do not offer a clear and precise definition. In some accounts, Judeo–Christian ethics contains a variety of theories explaining fraud.
The Bible, for example, describes at least three forms: (1) “wronging another in the selling or buying of property”; (2) a lie that is “tantamount to larceny”; and (3) a category of more “particular prohibitions on fraud against strangers, widows and orphans, and slaves.” The common law embraced all three concepts in a single rule of fraud conceptualized as an offense against property. The elements of Anglo–American common-law fraud were five: “(1) a false representation of a material present or past fact (2) which causes the victim (3) to pass title to (4) his property to the wrongdoer, (5) who (a) knows his representation to be false and (b) intends thereby to defraud the victim.” Deceit leading to the loss of property seems to be the common denominator in those understandings of fraud, but the matter may not be as clear as one would like for the criminal law.
The federal law governing fraud traces its lineage to the mail fraud act. Congress seems to have adopted that common-law framework in drafting its general fraud statute in the 1870s. Congressmen thought the mail fraud statute was necessary “to prevent the frauds which are mostly gotten up in the large cities…by thieves, forgers, and rapscallions generally, for the purpose of deceiving and fleecing the innocent people in the country” of property and money in particular. As long as the one general prohibition is sufficiently clear, as Sir William Blackstone observed of the common-law rule, legislators can and should “judiciously avoid laying down any minute rules as to what shall, or shall not, constitute fraud.”
The Mail and Wire Fraud Laws
There were only nine felonies at common law, and fraud was not among them. Fraud did not come along until later, and when it did, there was only one such crime. Since then, to quote Bob Dylan, “things have changed.”
The principal federal fraud laws today are the mail and wire fraud statutes. The federal mail fraud statute, Section 1341 of Title 18, provides as follows:
Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, or to sell, dispose of, loan, exchange, alter, give away, distribute, supply, or furnish or procure for unlawful use any counterfeit or spurious coin, obligation, security, or other article, or anything represented to be or intimated or held out to be such counterfeit or spurious article, for the purpose of executing such scheme or artifice or attempting so to do, places in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Postal Service, or deposits or causes to be deposited any matter or thing whatever to be sent or delivered by any private or commercial interstate carrier, or takes or receives therefrom, any such matter or thing, or knowingly causes to be delivered by mail or such carrier according to the direction thereon, or at the place at which it is directed to be delivered by the person to whom it is addressed, any such matter or thing, shall be fined under this title or imprisoned not more than 20 years, or both. If the violation occurs in relation to, or involving any benefit authorized, transported, transmitted, transferred, disbursed, or paid in connection with, a presidentially declared major disaster or emergency (as those terms are defined in section 102 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5122)), or affects a financial institution, such person shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.
Supplementing the mail fraud statute is Section 1342, which provides as follows:
Whoever, for the purpose of conducting, promoting, or carrying on by means of the Postal Service, any scheme or device mentioned in section 1341 of this title or any other unlawful business, uses or assumes, or requests to be addressed by, any fictitious, false, or assumed title, name, or address or name other than his own proper name, or takes or receives from any post office or authorized depository of mail matter, any letter, postal card, package, or other mail matter addressed to any such fictitious, false, or assumed title, name, or address, or name other than his own proper name, shall be fined under this title or imprisoned not more than five years, or both.
The federal wire fraud statute, Section 1343 of Title 18, parallels the mail fraud law:
Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice, shall be fined under this title or imprisoned not more than 20 years, or both. If the violation occurs in relation to, or involving any benefit authorized, transported, transmitted, transferred, disbursed, or paid in connection with, a presidentially declared major disaster or emergency (as those terms are defined in section 102 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5122)), or affects a financial institution, such person shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.
Also relevant is Section 1346 of Title 18, which states that “For the purposes of this chapter, the term ‘scheme or artifice to defraud’ includes a scheme or artifice to deprive another of the intangible right of honest services.”
Those statutes should be sufficiently broad to reach any fraud of concern to the federal government. People commit fraud to gain something, usually money (or something equally valuable), but perhaps occasionally to gain a benefit or advantage that the government can bestow, such as a government construction contract. Whatever that McGuffin may be, a con artist will need to communicate his plan to someone else through the mail, over the telephone, or via the Internet—in other words, by using the communicative mechanisms of interstate commerce at which the mail and wire fraud statutes are aimed. All large-scale deals involve some use of one or more of those services to communicate an offer, complete a form, schedule a meeting, transmit the relevant documents, or wire the funds.
Use one of those communications networks for the purpose of executing a fraudulent scheme, and you have committed a federal offense. The federal mail and wire fraud statutes reach all frauds in which the use of the mails or wire communications is part of the execution of the fraud. Use of the mails need not be “an essential element” of the scheme as long as it is “incident to an essential part of the scheme” or “a step in the plot.” Once that occurs, fraud becomes not just a state-law crime, but a federal offense, and the responsible parties can be charged under Section 1341, Section 1343, or both.
Of course, that is not where the code ends.
The Law of Fraud Today
Today, “fraud offenses [are] among the most frequently charged, but they are also the most widely and variously codified…reflecting a protean and proliferating range of meanings.” The mail and wire fraud statutes are not the only fraud laws on the books. There also are the bank fraud, bankruptcy fraud, computer fraud, food fraud, health care fraud, marriage fraud, securities fraud, and tax fraud statutes, to name but a few.
Professor Ellen Podgor, a white-collar crime scholar who has tried to count all of the federal fraud laws, has observed that at the turn of the 21st century, “the terms ‘fraud,’ ‘fraudulent,’ ‘fraudulently,’ or ‘defraud’ appear[ed] within the text of a total of ninety-two substantive statutes in title 18 of the United States Code” alone. By another count, there then existed “exactly three hundred and twenty-five provisions that prescribe criminal penalties for fraud.” There are now so many iterations of fraud that it can be difficult to know exactly what behavior triggers criminal liability, even for people with scrupulous morals.
At least one group, however, can find advantage in that dilemma. As Judge Alex Kozinski of the U.S. Court of Appeals for the Ninth Circuit has stated, “a ubiquitous criminal law becomes a loaded gun in the hands of any malevolent prosecutor or aspiring tyrant.”
Multiplicity Problems: How Many Frauds Can Stem from One Act or Transaction?
The large number of fraud statutes offers prosecutors the opportunity to engage in charge stacking. Consider the following hypothetical.
High school seniors complete online a portion of college applications, and the online forms are transmitted to the colleges identified by the students. Suppose College A receives 100 online application components from 100 seniors, but only 20 of them complete the admissions process by obtaining teacher recommendations and paying the application fee. The question is: Did the school receive 100 applications or only 20? The answer is important because third parties, such as U.S. News & World Report or The Princeton Review, rely on acceptance rates in ranking colleges, high school seniors use those rankings in deciding where to apply for admission and to enroll, and—as a hypothetical—12 banks use college rankings in making loan decisions by offering a reduced interest rate to schools in the top 10 percent of a third party’s rankings.
Suppose College A admits ten of the twenty students. Using the number of incomplete applications, the admissions officer reports online that the college had an acceptance rate of 10 percent for the class entering in 2020 rather than 50 percent if the number of completed applications were used as the denominator. Suppose also that the 10 percent bumps the school up in the college ranking system, that the step-up attracts 150 new applications, that all 150 seniors are accepted, and that all of them receive an interest-rate discount for attending a college in the top 10 percent in the rankings.
Now assume for argument’s sake that using the number of incomplete applications as the denominator constitutes fraud. The question is: Was one crime committed or more than one, and if the latter, how many were committed?
Part of the difficulty in answering that question is deciding exactly what the “unit of prosecution” for that fraud should be. The issue deals with the application of the definition of an offense to a particular act or transaction. For example, if a bank robber takes 100 $20 bills, has he committed one bank robbery or 100? Here, the admissions officer made only one statement, but 150 students relied on it, as did 12 banks. So was there one fraud because there was only one misleading statement, or were there 162 of them?
The problem only worsens when there are multiple statutes at issue. If the prosecutor can bring charges under the mail and wire fraud laws, the number of charges at least doubles to 324. If you include the bank fraud statute, the number of charges increases again by at least 12 ( (the number of affected banks), resulting in 336, but could treble if each student’s application is treated as a separate fraud, resulting in 486 charges. If the fraud also amounts to a major fraud against the United States, under the theory that the federal government is the ultimate guarantor of the banks’ stability, the number of possible charges could be 648. If the prosecutor also charges College A on a respondeat superior basis (a theory that renders the institution for which an employee works liable for the crimes of its employee), the number doubles again to 1,296. And if the prosecutor charges the two university officials in the chain of command above the admissions officer (the college chancellor and its president)—by now, the point is obvious. With a possible sentence of 20 years’ imprisonment for each fraud conviction, the admissions officer could potentially end up serving the rest of his life in prison for his one misleading statement.
The above hypothetical shows that the existence of multiple fraud statutes can multiply the number of convictions for what is really only one misleading statement. What purpose does that serve? As argued elsewhere:
Piling on punishment after punishment distorts society’s judgment regarding the seriousness of a crime. If five years’ imprisonment is the maximum penalty that should be imposed on someone who commits fraud, the number of fraud statutes he violated should be immaterial. Under today’s double jeopardy law, however, it is not. Counting statutory violations independently also allows a prosecutor to throw the book at someone in an effort to coerce a guilty plea. Such a tactic is not unconstitutional, but it is hardly desirable behavior that society wants to encourage in a legal system ostensibly committed to guaranteeing every defendant a fair trial—especially when that threat leads an innocent person to plead guilty to avoid long-term imprisonment. And there is no effective control over a prosecutor’s decision.
Congress should stop reflexively passing new fraud statutes every time a novel fraud is committed. Most new proposals resemble the hypothetical posed by Stetson University School of Law Professor Ellen Podgor: Do we need a separate “Beanie Baby” fraud statute to address the surprisingly voluminous number of frauds related to the miniature plush dolls? That anyone would have to ask the question suggests that fraud law is now asked “to do too much work.”
The federal code contains “redundant, superfluous, and unnecessary” criminal laws. They create a number of moral hazards that degrade the fairness of the criminal process by overarming prosecutors against defendants.
Only Congress has the constitutional authority to enact the necessary reform. Article I vests “[a]ll legislative Powers” in Congress, including the power to repeal statutes. Congress should repeal redundant fraud laws[,44] and, if necessary, revise the mail and wire fraud acts. That would eliminate the risk of oversentencing without preventing the Department of Justice from protecting the public and would also indicate that Congress is taking seriously the task of addressing the problem of overcriminalization.
—Paul J. Larkin, Jr., is Senior Legal Research Fellow and John-Michael Seibler is a Legal Fellow in the Edwin Meese III Center for Legal and Judicial Studies at The Heritage Foundation.