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Federal fraud reconsidered: What's at issue in Kousisis v. United States, and what are the white-collar and government contracts implications?

The U.S. Supreme Court recently granted cert in Kousisis v. United States in which the Court may narrow the scope of the mail and wire fraud statutes (codified at 18 U.S.C. §§ 1341 and 1343). What's at issue in Kousisis, and what are its implications for white-collar and government contracts practitioners?

What's at Issue

To understand Kousisis, some background might help.  In general, the mail and wire fraud statutes criminalize schemes to “deprive” others of “property.”  But what counts as a “deprivation” and what kinds of “property” fall within the statutes?

Consider a hypothetical based loosely on the facts of Kousisis.  A party submits a bid in an effort to win a contract from a local governmental entity.  As part of the bid, the party promises to employ a certain number of veterans to do the job.  In part because of that promise, the party wins the contract.  The party ultimately does a wonderful job, and the government is pleased with the work.  But it turns out that the party did not employ the number of veterans that it said it would.  The U.S. Department of Justice decides to prosecute the party for fraudulently inducing the government to enter into this contract.  The theory is this:  Had the party provided accurate information, the government would not have awarded the contract to the party.  In this way, the theory continues, the government was “deprived” of “property,” thereby supporting a mail or wire fraud prosecution.

Kousisis is expected to answer whether any “deprivation” of “property” occurred in the above example.  First, there was arguably no “deprivation” of property at all, even granting that the money that the government paid the party under the contract counts as “property” under the mail and wire fraud statutes.  The argument here is that the government did not pay out more for the contract and did not receive less vis-à-vis the work performed.  As the hypothetical posits, the party did a wonderful job, and the government was pleased with the work.  In this situation, it may be odd to say that the government was meaningfully “deprived” of property.  

But wasn't the government in fact deprived of something?  The government wanted a certain number of veterans to do the work, and that didn't happen.  One of the many rights the government enjoys as a sovereign party to federal contracts, for example, is the right to advance national socioeconomic policies through the approximate $700 billion it spends annually to procure goods and services from the private sector.  Requiring prime contractors to subcontract with veteran-owned or other disadvantaged business enterprises is one of the top socioeconomic goals the government achieves through federal contracting.  So it may not be a stretch to say there is some form of “deprivation” in a situation like that in Kousisis since the government did not get the benefit of the bargain from the contract at issue—i.e., an agreed amount of veteran-owned business participation—irrespective of the contractor’s stellar performance, or the fact that no more than the contractually agreed amount was paid.    

But even if that qualifies as a “deprivation,” was it a deprivation of “property”?  Kousisis encompasses this second question as well.  One might argue that a contract provision of this sort is not a traditionally recognized property interest, and nor is the interest undergirding the contract or any interest in accurate information during the contracting process, consistent with recent Supreme Court precedent.  That said, under federal law, government property includes “any right or other intangible interest that is purchased with Government funds, including the services of contractor personnel.”  5 C.F.R. § 2635.704(b)(1).  While the Supreme Court in Ciminelli v. United States recently cautioned against “interpret[ing] the mail and wire fraud statutes to protect intangible interests unconnected to traditional property rights,” a party might nevertheless use this federal regulation to argue that the right or interest under a contract like that in Kousisis constitutes the government’s “property,” of which it was deprived when the contractor did not perform the services in the manner the parties agreed.  


As the mail and wire fraud statutes frequently serve as predicates for federal white-collar investigations, including Foreign Corrupt Practices Act and money laundering investigations, it's important to understand this potential limitation to their application.  Identifying early on a lack of any “deprivation” of “property” under a government contract or otherwise—to the extent doing so is feasible—may be a way to help narrow or wind down an investigation.

Kousisis is also notable in that it has an appreciable federalism and over-criminalization dimension, which can and does inform courts' view of federal criminal cases.  Just last Term in Ciminelli v. United States, the Court cautioned against an expansion of federal criminal jurisdiction, particularly at the expense of the states.  Kousisis arguably raises this same concern; that is, one might argue that the facts in Kousisis are more apt for a state breach-of-contract action than a federal criminal prosecution. 

That said, the federalism principle may dissipate where the underlying contract is one between the federal government and a private company/contractor.  In this scenario, state courts would not have jurisdiction over a breach-of-contract claim as the Contract Disputes Act provides such jurisdiction only to the Court of Federal Claims or the appropriate Board of Contract Appeals.

As the foregoing shows, Kousisis raises important issues in the white-collar and government contracts space.  Next Term will reveal just how important.


government contracts, fraud, regulation, regulatory & investigations