Of all the federal charges filed by the United States Attorney, probably the most frequently used charge in white collar criminal cases would be mail fraud. The mail fraud statute is Title 18, United States Code, Section 1341. The reason for its prevalence in white collar prosecutions is that it applies to almost any scheme or fraud that involves the mail.
In summary, 18 USC 1341 says that it is a federal offense to use the mail to carry out a scheme to defraud. Specifically, the statute says the following:
“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…
… places in any post office or authorized depository for mail matter…
… shall be fined under this title or imprisoned not more than 20 years, or both.”
See 18 USC 1341.
The maximum sentence for mail fraud where the victim is a financial institution, or where the fraud involves federal disaster relief, is 30 years. The fine can be $1,000,000 in these instances.
In order to prove a defendant guilty of mail fraud, federal prosecutors have to establish the following elements:
- A scheme to defraud another of money or property.
- Intent to defraud.
- The fraud was based on material misrepresentations.
- The defendant used or caused another to use the mails in furtherance of the scheme.
Proof of intent is almost always accomplished by circumstantial evidence. But if during questioning the defendant admitted that the purpose was to defraud, then the prosecutor would have direct evidence of intent to defraud.
There is a distinction between an intent to deceive and intent to defraud. For example, in direct mail marketing many businesses will disguise their advertisements as something they are not.
Mortgage lenders will package their mailers with envelopes and letterhead that make it seem as though the refinancing offer comes from the government (eg, Equal Housing Opportunity or Federal Housing Authority), when the service is actually a private company.
Other sales campaigns will market their products as though purchasing them results in tax deductions or credits from the Internal Revenue Service that are paid directly through the company.
Still some others will use fake or fictitious names for their businesses. For example, a business may promote its products through a lottery or sweepstakes and call itself the ‘Federal Sweepstakes/Prize Distribution Center.’
In these circumstances, there is a sales solicitation that is intended to deceive, but the product or service may be legitimate. The sales pitch may engage in some trickery, but it is intended only to get new customers and clients to buy an otherwise lawful product or service.
The courts have recognized this distinction and determined that there is a difference between intent to deceive and intent to defraud. For the defendant to be found guilty, the prosecution must show the defendant intended some injury or harm. If the service or product is offered in good faith and without intent to cause harm, then arguably there is no intent to defraud.
Additionally, the documents that are placed in the mail arguably do not have to be fraudulent themselves. They may be true and contain no misrepresentations, but if they are used to further a scheme to defraud, then arguably a mail fraud prosecution can go forward.
The misrepresentations that are the basis of the scheme have to be material. This means the deceit or trickery must involve a fact that, without which, the victim probably would not have acted as he or she did.
The law does not say whether an omission is a misrepresentation. This is a question for the jury to decide. Basically, the materiality of the misrepresentation means it is something that makes a difference in the end.
Mail fraud prosecutions are based on defrauding another of money or property. However, Congress added a statute in 1988 to broaden the definition of a scheme to defraud, 18 USC 1346. The statute reads:
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.
See 18 USC 1346.
Federal prosecutors in Houston, Texas used this statute to prosecute former Enron CEO Jeffrey Skilling for mail and wire fraud. Skilling made a fortune through his stock shares in Enron. The corporation relied on controversial mark to market accounting and energy trading. Enron’s energy trading is considered to be at least partially responsible for the rolling blackouts in California after the year 2000. Skilling was convicted on May 25, 2006 and sentenced later to 24 years and 4 months in federal prison.
On appeal, he challenged the constitutionality of the “honest services” statute, and the Supreme Court ruled for the defendant. The court held that the mail fraud statute should apply only to “fraudulent schemes to deprive another of honest services through bribes or kickbacks supplied by a third party who ha[s] not been deceived.” See Skilling v. US, 130 S.Ct. 2896 (2010).
The ruling applied to the conviction of former Illinois Governor George Ryan. He was convicted under the honest services statute, but because the evidence at trial indicated that he accepted bribes and kickbacks, his sentence was upheld.
It remains to be seen how the US Attorney will use the honest services law in the future.
The mail fraud statute applies to schemes to defraud others from money or property, and property includes intangible property. For example, a person or corporation may be defrauded of business and trade secrets or other confidential information. This fraud can constitute the basis of mail fraud.
The last element of the federal mail fraud charge is using the mails in furtherance of the scheme. Federal law says that the mails are used in furtherance if it is “part of the execution of the scheme as conceived by the perpetrator at the time. See Schmuck v. US, 489 U.S. 705 (1989).
Mail fraud charges are not restricted to instances where the defendant used the Postal Service. It applies equally to mail or packages delivered by private companies such as FedEx, UPS, DHL, etc.
Federal prosecutors do not have to prove that the mail crossed state lines. The offense can be committed within one state. It does not have to be interstate.
The venue for prosecution may be determined by the mail passing through the territorial jurisdiction of a federal district court. Venue may also lie where the victim of the fraud was present.
Mail fraud can be the basis of a RICO prosecution (Racketeer Influenced and Corrupt Organizations Act, 18 USC 1962). Mail fraud is one of the crimes that can serve as the predicate to a RICO prosecution.
18 USC 1961 provides:
(1) “[R]acketeering activity” means (A) any act or threat involving murder, kidnapping, gambling, arson, robbery, bribery, extortion, dealing in obscene matter, or dealing in a controlled substance… which is chargeable under State law and punishable by imprisonment for more than one year;
(B) any act which is indictable under any of the following provisions of Title 18… section 1341 (relating to mail fraud).
See 18 USC 1961(1).