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Conrad Black
Conrad Black

'Honest services' key issue in Black appeal Add to ...

Conrad Black has tried almost everything to get out of jail - legal appeals, public pleas and even a failed attempt at a presidential pardon. Nothing has worked so far, and while five former executives of Hollinger International Inc. were convicted of fraud, Lord Black is the only one still in jail.

Tuesday, he'll get one last chance to make his case. The U.S. Supreme Court will hold a one-hour hearing on whether to reverse the criminal convictions of Lord Black and two other former Hollinger International Inc. executives (the other two aren't participating). Lawyers for Lord Black and the others will have 30 minutes to make their arguments. Prosecutors will have the same amount of time and a ruling is expected by June.

There is a lot riding on the outcome.

The court's ruling will not only determine Lord Black's fate, it will reshape how U.S. justice officials go after white-collar crime and political corruption. And, it will affect dozens of cases currently before the courts.

The central issue in Tuesday's hearing is a legal theory known as "honest services," a key component of U.S. anti-fraud statutes. Prosecutors have used the theory in many high-profile cases, including those involving former executives at Hollinger, Enron and former Illinois governor Rod Blagojevich, which may affect his trial in 2010 (Mr. Blagojevich has denied federal charges of corruption). But many observers say the concept is ill defined and has criminalized conduct that would normally be a civil matter.

"This is probably the most used statute in the world of white-collar crime," said John Coffee, a law professor at Columbia University in New York. He added that when prosecutors are in doubt, they just say "'Oh, he breached a duty of honest services.' We don't know quite what that means but it makes life a lot simpler for prosecutors."

The concept first surfaced in the 1970s when prosecutors made a big push against corrupt politicians. Prosecutors started arguing that these politicians violated mail and wire fraud statutes by depriving the public of its tangible right to good government and honest services. That new interpretation of the law caused controversy, and in 1987 the Supreme Court ruled that prosecutors had gone too far. The court said the fraud statutes did not protect the intangible right to honest services because the concept was too vague.

Infuriated at the court's decision, Congress responded a few months later by passing a one-sentence amendment to the fraud statute, saying it included any "scheme or artifice to deprive another of the intangible right of honest services."

Armed with the new version of the law, prosecutors once again set their sights on corrupt politicians. But it wasn't long before they also found the concept useful in taking on corporate crime cases as well, further expanding the interpretation of law.

Appeal courts have been grappling with the law for years, issuing conflicting rulings on how to interpret "honest services." In February, Supreme Court Justice Antonin Scalia weighed into the debate, making it clear he believes the concept is too broad.

This "expansive phrase invites abuse by headline-grabbing prosecutors in pursuit of local officials, state legislators and corporate CEOs who engage in any manner of unappealing or ethically questionable conduct," Justice Scalia wrote in a dissenting opinion in an honest services case the court declined to hear.

In May, the Supreme Court agreed to tackle the honest services issue once again. The court selected three cases for review, including the Hollinger matter. In each case, the honest service theory was used by prosecutors in a different way.

Picking three cases on one topic was unusual because the court usually only reviews one case to deal with a major legal issue. The justices will be reviewing the very section lawmakers passed to get around a previous Supreme Court ruling.

The issue raised in Lord Black's case is whether the honest service theory can apply even when there was no "economic harm" to the company.

Lord Black and his co-defendants have argued that the money they received from Hollinger, $6.1-million (U.S.), wasn't stolen from the company but represented money they were owed. The amounts were reclassified as non-competition payments for tax purposes in Canada. Despite that, they argue, Lord Black and the others were convicted under the honest services theory for depriving the company of their duty of loyalty. They argue that that decision stretched the law too far and resulted in jail terms for conduct normally judged by a civil court.

The fraud statute "is a model of vagueness," Lord Black's lawyers said in their brief to the court. The approach used by prosecutors "effectively licenses prosecutors to target anything that offends their ethical sensibilities, especially when the defendant is likely to generate career-building headlines."

In their briefs, prosecutors counter by arguing that Lord Black and the others did steal the money. They say the payments were not approved by the company's board, documents were falsified and the men lied about the non-competition agreements.

The honest services section of the law does not require proof the men contemplated economic harm to Hollinger, they add. There was enough harm done to the company through the falsification of corporate records and the damage to the company's reputation to justify the jury's verdict on honest services, prosecutors note.

Adopting the arguments of Lord Black's lawyers would weaken the law too much, they argue, and "exclude [conduct]courts have universally characterized as the 'core misconduct' covered by the statute - cases involving legislative votes or bureaucratic decisions paid for by bribes or based on a public officials undisclosed conflict of interest."

However the court rules, Lord Black might not get out of jail. The court could reverse his conviction and order a new trial. Or, it could rule in favour of his arguments on the honest services theory and still dismiss Lord Black's appeal on other grounds. It's also not clear how the court will rule on Lord Black's conviction for obstruction of justice, which doesn't directly involve the honest services issue. Unfortunately for him, that conviction resulted in his longest jail sentence - 6.5 years as opposed to three years for fraud (all served concurrently). That means Lord Black could win at the Supreme Court and still stay behind bars.

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