For four years, Vince Anello was mayor of Niagara Falls, New York. But thanks to a recent U.S. Supreme Court decision, he’ll likely be in prison for a significantly shorter duration. On September 2, Anello pleaded guilty in Buffalo federal court to submitting false claims of pension benefits through his union, International Brotherhood of Electrical Workers Local 237. He faces a sentence of at least 10 months and a restitution order of up to $120,000. In return, prosecutors agreed to drop a separate charge that Anello had engaged in influence-peddling on behalf of a local businessman in return for $40,000 in kickbacks. The case is local. Yet it does have national implications in the wake of the Supreme Court’s interpretation this June of a federal law making it a crime for public or private officials to deprive constituents of “honest services.”
Anello, 64, served as Niagara Falls mayor during January 2004-December 2007. He already had shown that when it came to labor relations he could be on the right side of things. Back in 1999, during his tenure as a city councilman, he openly criticized goon-squad tactics employed by Laborers International Union of North America Local 91 during a council meeting. He would soon find his car vandalized. Most of the union’s leadership went to prison following guilty pleas or jury verdicts in federal court for acts of violence, extortion and property destruction committed over several years. Once he became mayor, however, Anello succumbed to temptations of his own. As Union Corruption Update explained this June, he faced corruption charges stemming from his background as an IBEW member electrician, a career he resumed once his mayoral term was up.
Annello faced two federal charges. In the first, he allegedly obtained at least $94,000 by inflating his reported work hours covered by the IBEW Local 237 pension fund. A joint probe by the FBI and the Labor Department yielded the following conclusion by FBI Special Agent Brian Burns: “Vincenzo Anello did knowingly and intentionally embezzle and steal [from] an employee pension benefit plan.” In the early part of 2008, shortly after leaving office, Anello began doing electrical work for at least seven companies owned by a local contractor, Joseph M. “Smokin’ Joe” Anderson, while simultaneously collecting his union pension. Federal pension regulations prohibit beneficiaries from performing more than 40 hours of electrical work a month if they already are collecting plan-related income. Prosecutors argued that contrary to documents Anello had filed, the former mayor worked far more than his claimed seven hours a week.
In the second case, Anello, shortly before becoming mayor, had accepted three checks totaling $40,000 from Anderson, justifying the payments as an interest-free loan to his business, Anello Electrical Construction Co. A few months later, in March 2004, Anello, now mayor, recommended that the City Council approve a no-bid lease with a company controlled by Anderson to operate concessions at the downtown East Pedestrian Mall. Prosecutors argued that the connection between the two events was no coincidence; Anello used his office to secure an illegal quid pro quo.
In 2008, Anello, now ex-mayor, was indicted for wrongful receipt of a payment by a public official, conspiracy to affect commerce by extortion, and depriving citizens of honest services from a government official. That last charge was based on a federal statute defining honest services fraud. The term “honest services,” as recently interpreted by the U.S. Supreme Court, has everything to do with his September guilty plea.
“Honest services” refers to a sentence Congress added in 1988 to an existing mail and wire fraud statute (18 U.S.C. Sec. 1346): “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.” Deprivation of honest services can be seen as a crime of omission. That is to say, it makes an officer of a public or private organization subject to prosecution if that person’s actions had the effect of denying constituents their right to intangible services. Prosecutors must prove all the elements of tangible fraud in order to make a charge of intangible fraud stick. As such, they often have applied the law as a supplement to other charges, such as racketeering or embezzlement, just in case the tangible charges don’t hold up.
A number of persons, including U.S. Supreme Court Justice Antonin Scalia and former U.S. Attorney General Richard Thornburgh, have criticized the law as vague, a potential tool for prosecutors to transform ethical lapses into federal crimes. A challenge to the law’s constitutionality at the Supreme Court level was almost inevitable. It came in the form of three unrelated appeals from persons convicted of honest services fraud during 2006-07: Newspaper magnate Conrad Black; former Enron CEO Jeffrey Skilling; and former Alaska state legislator Bruce Weyhrauch. On June 24, 2010 the High Court unanimously ruled in Skilling v. United States (08-1394) that while the law itself was not unconstitutional, its usage here had blurred distinctions between tangible and intangible theft. The defendants’ conduct as government or corporate officers, however unethical, hadn’t risen to the level of an outright bribe or kickback and hence wasn’t subject to the honest services statute.
By restricting the basis for honest services prosecutions, the decision yielded an early beneficiary in Vince Anello. Had Anello been convicted of depriving residents of Niagara Falls of his honest services in receiving the $40,000 loan from Joe Anderson, he would have faced four years in prison. But with the ruling handed down, prosecutors decided to drop that case and allow the former mayor to plead guilty to the lesser offense of making false statements to cover up padding his retirement benefits. U.S. Attorney William J. Hochul admits as much:
The Supreme Court’s ruling really does come into play. If we had gone to trial on the honest services case, we would have had to prove that there was a direct quid pro quo between the money [Anello] received from Anderson and things that he did for Anderson. I’m not saying it would have been an impossible case. It would have taken a lot more litigation than we originally thought…I decided that it would be to the advantage of everybody to accept a felony plea in the union case, which carries a guarantee of prison time and restitution.
Lead defense attorney Joel Daniels put it a bit more succinctly: “The Supreme Court was definitely Vince Anello’s friend in this case.”
The long-term impact of the court ruling, on corruption in unions as well as in government and corporations, will be to force prosecutors to rely more heavily on existing anti-fraud and racketeering statutes to secure convictions and less on the “honest services” statute. All too often, the 1988 honest services law, itself a hasty reaction to a Supreme Court decision from the previous year, has been a shortcut to proving guilt. Even with a defendant very likely guilty of theft – like Vince Anello – it is still a stretch to assume his actions denied constituents specific “services.” Breach of fiduciary duties is a serious matter, but the means to prosecute it should be subject to a high bar of proof. The Supreme Court decision was a reality check in this direction.