Case Study: US V. Milovanovic

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Originally published in Law360, New York on June 13, 2012.

Government contractors know to train their employees, agents and subcontractors to comply with the myriad laws and regulations governing their business relationships with the public sector. Although contractors are often most closely attuned to the requirements of the Federal Acquisition Regulation and analogous state and local procurement rules, they should not neglect the criminal laws when training employees.

A recent Ninth Circuit decision underscored the serious criminal consequences that can result from bribery or kickback activity undertaken by individual independent contractors. Notably, the court held that liability under the “honest services” statute can extend even to contractors who have no formal fiduciary relationship with the government. When devising and improving their training and compliance programs, government contractors should be aware of the scope of the honest services fraud statute and the consequences, up to and including suspension or debarment from government contracting, that can result from an indictment or conviction under the statute.

Government contractors at all levels — federal, state and local — need to be aware of potential criminal liability for so-called “honest services” mail and wire fraud under 18 U.S.C. § 1346. In 2010, the U.S. Supreme Court narrowed the scope of the honest services fraud statute, holding in Skilling v. United States that the statute criminalizes only bribe-and-kickback schemes committed in violation of a fiduciary duty. 130 S.Ct. 2896, 2930–31 (2010). However, the Supreme Court did not clarify who may owe such a “fiduciary duty.”

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