On October 7, 2024, the U.S. Supreme Court declined to hear a case concerning the “willfulness” element of the Anti-Kickback Statute (the “AKS”). This decision leaves intact a recent Second Circuit holding, which established a high threshold for proving that defendants acted with knowledge of the illegality of their actions in False Claims Act cases. The Court’s decision not to review the case may create new obstacles to the Government’s enforcement of kickback and fraud cases, and it could create practical issues for potential whistleblowers in the future.
The corruption case at issue involves a whistleblower and former employee of a healthcare company. The whistleblower filed a lawsuit in 2015, alleging that the company violated the False Claims Act by providing free business tools to oncology centers as an incentive to purchase drugs. The whistleblower argued this constituted a kickback scheme and challenged the Second Circuit’s interpretation that to prove a violation of 42 U.S.C. § 1320a-7b(b) — the AKS — a defendant must “willfully” know that their conduct is illegal. The U.S. Court of Appeals for the Second Circuit upheld the lower court’s dismissal of the claims. The court ruled that a violation of the AKS requires proof that the defendant had knowledge of the illegality of their actions, thereby affirming a higher threshold for establishing willfulness.
The Court also recently limited the scope of another federal corruption statute designed to aid in the prosecution of corruption crimes. On June 26, 2024, the Supreme Court limited the scope of a federal corruption statute used to prosecute state and local officials in schemes involving federal programs or funds. In Snyder v. U.S., the Court held that 18 U.S.C. § 666 (“Section 666”) only criminalizes bribery, not ex post facto gratuities, for state and local officials. The ruling substantially narrowed the range of prosecutable conduct in federal cases involving alleged corruption at the state and local level. The Government prosecuted James Snyder, the mayor of the City of Portage, Indiana (the “City”), for accepting gratuities from a trucking company. According to the indictment, Snyder received $13,000 from the truck company after the City awarded it two contracts to purchase trucks. Snyder claimed the $13,000 was for consulting services, but the Government believed that the payment was in fact a gratuity for the two contracts. The Government prosecuted Snyder on a gratuities theory under Section 666.
In overturning Snyder’s conviction, the Justices resolved a circuit split as to whether the statute prohibits gratuities as well as bribes. The Court reasoned that neither the statute’s text, statutory history, structure, statutory punishments, federalism principles, nor the principle of fair notice supported interpreting Section 666 to prohibit gratuities. Section 666 was crafted to resemble 18 U.S.C. § 201(b), which prohibits bribery involving federal officials, but has distinct variances from 18 U.S.C. § 201(c), which prohibits gratuities involving the same. Under Section 201, bribery and gratuities are distinct offenses with different elements and different ranges of punishment, the Court explained. Further, state and local governments take different approaches as to whether and how they prohibit gratuities, and expanding Section 666 to cover gratuities would override the policy decisions each state and locality has made. Finally, it would not be clear where the lines between ordinary and permissible conduct, on the one hand, and a federal crime, on the other, would fall under the Government’s position. Rather than turn Section 666 into a “vague and unfair trap for 19 million state and local officials,” the Court read the statute to only prohibit bribes, reversing the Seventh Circuit’s affirmation of Snyder’s conviction.
State and local officials, as well as companies that do business with them, now have better clarity as to what conduct does or does not rise to the level of a federal criminal offense. While it remains important to understand the requirements of state and local law, which may prohibit or even criminalize what Section 666 does not, there is now no longer ambiguity at the federal level.
Payments to Government Officials Still Present Risk
Even though the Court has declined to revisit the mental state to prove an AKS case and overturned Snyder’s conviction, the Government is not likely to shy away from investigating, and if the evidence is there, prosecuting, domestic corruption cases. Prosecutors may look for other charges that apply, such as tax offenses or bank fraud, where there is prosecutable conduct secondary to a gratuities scheme. Regardless of whether the Government could develop a viable theory or prevail at trial, gratuities can look a lot like bribes from the outside, and the Government will not be able to tell whether a payment is a prohibited bribe or a gratuity until after it conducts a thorough (and for the subjects, expensive) investigation. Given that the investigation risk for all parties involved in gratuity payments remains the same as before Snyder, neither companies nor state and local officials should view the decision as a license to share gratitude with gifts. And being able to prove that the payment was an after-the-fact gratuity, not agreed upon before a contract award or other favorable decision by the recipient, may turn on the payor’s recording of the gratuity. Maintaining records reflecting the nature of the gift, transparently and accurately recording the cost of the gift, and giving gifts of reasonable value will help demonstrate that the payment — regardless of its timing — was not a quid pro quo agreement between the payor and the recipient.
Government contracting regulations further impose strict limitations on interactions between companies and government officials, aiming to prevent undue influence and ensure fair competition. Those regulations are not impacted by the decision in Snyder. Moreover, such payments might violate the ethical guidelines and codes of conduct within the recipient’s own agency, risking ongoing and future business opportunities for the giver and disciplinary action for the recipient. Therefore, while the Snyder decision delineates federal criminal liability, companies and officials alike must remain vigilant and compliant with a complex web of federal, state, and local regulations governing interactions and transactions with governmental entities.
These rulings illustrate the evolving landscape of federal anti-corruption laws, highlighting the balance between ensuring accountability and providing clarity. The narrowing of prosecutable offenses under both the AKS and Section 666 underscores a judicial reluctance to expand federal reach into areas traditionally managed at the state and local levels, which may affect the effectiveness of anti-corruption enforcement but should not negate the need for robust anti-corruption compliance overall.
