Honest Services Fraud as a Criminal Breach of Fiduciary Duties: A Comparative Law Approach for Reform

From a comparative perspective, the challenges that American courts and legislators are facing when trying to construe an honest services fraud statute are familiar. Almost all European countries have a general provision that criminalizes any breach of fiduciary duties that brings about economic harm to the principal. The comparative inquiry also helps shed light on the way in which the offense should be defined in a future statute. First, honest services fraud should be treated as a separate offense that is different from fraud; more specifically, the offense of honest services fraud should be conceived as a midpoint between fraud and embezzlement. Second, this offense—which could be defined as a “disloyalty” or “mismanagement” crime—should be construed along the lines of a derivate action for breach of fiduciary duties, although with higher standards, given that its violation triggers criminal sanctions. Third, this new disloyalty offense should include elements that are not required by current law, including whether “actual” or “reasonably foreseeable harm” is caused and whether the breach of the fiduciary duty is the proximate cause of the actual harm. The time has come to create a freestanding general disloyalty offense that requires an actual or reasonably foreseeable harm to the corporation as a prerequisite to criminal liability.