Legal Background on the Stevens Indictment

        This post sets forth a little legal background that may be helpful in understanding this week’s indictment of Senator Ted Stevens (R-AK).   

Stevens is charged with failing to disclose, on his annual financial disclosure form (FD), hundreds of thousands of dollars in goods and services he received from a private corporation and its CEO from 1999 to 2007.  Prosecutions of Members of Congress (or, I suspect, anyone else) for failing to make disclosures on their FDs are rare, but not unheard of.  As Dennis Thompson notes in Ethics in Congress, “[l]ike mail fraud and income tax evasion, disclosure offenses are sometimes used to reinforce charges that investigators regard as more serious but for which they have less conclusive evidence.”

The seminal case is United States v. Hansen, 772 F.2d 940 (D.C. Cir. 1985). Hansen was a former Representative from Idaho, who was indicted on four counts “for failing to disclose, respectively, a $50,000 bank loan to his wife, cosigned by Nelson Bunker Hunt, on his form for 1978, an $87,475 silver commodities profit on his form for 1979, a $61,503.42 loan from Nelson Bunker Hunt on his form for 1980, and $135,000 in loans from private individuals on his form for 1981.” Hansen was convicted, and raised a number of arguments on appeal, all of which were rejected by a panel that included then-Judges Antonin Scalia (who authored the opinion) and Ruth Bader Ginsberg.

Hansen’s primary argument was that the Ethics in Government Act, which established the requirement of filing annual FDs, provided for only civil, not criminal, penalties for false filings, and that it was therefore contrary to congressional intent to impose criminal sanctions for such filings under the False Statements Act. The court reviewed the text and legislative history of the Ethics in Government Act and concluded that, while it was clear that this statute provided for only civil penalties and that provisions for criminal sanctions in earlier versions of the legislation were dropped because of opposition by some members of Congress, there was no clear and manifest indication of an intent to repeal the False Statements Act with respect to this particular area. Judge Scalia, not surprisingly, gave no weight to the fact that 123 members of Congress filed an amicus brief supporting Hansen on this point.

Hansen also argued that the omissions from his financial disclosure form were not material. As described by the court, “[t]he test of materiality is whether the statement ‘has a natural tendency to influence, or was capable of influencing, the decision of the tribunal in making a [particular] determination.’” Hansen pointed out that in his case there was no tribunal conducting any type of investigation or making any type of determination that might have been affected by the failure to disclose the debts and transactions in question.

The court, however, rejected this argument as well. Judge Scalia noted that the FDs are forwarded to the House Ethics Committee, which is charged by the House with the duty of investigating potential ethical violations by its members. He observed that there could be no doubt that the particular omissions in question had the natural tendency to influence an investigation by the Committee because “after [the omissions] came to light, the Committee undertook an investigation and concluded that the transactions violated House Rules.” In any event, the court concluded that the question of materiality “does not require judges to function as amateur sleuths” by determining whether omitted information would actually been sufficient “to alert a reasonably clever investigator that wrongdoing was afoot.” It was enough that “[h]ere the falsifications related to financial transactions within the Committee’s charge, and tended to conceal information that would have prompted investigation or action; no more is needed.”

The court’s conclusion in this regard may have been affected by its holding, following D.C. Circuit precedent, that the question of materiality was an issue of law for the court, not an issue of fact for the jury. That holding, however, was overruled 10 years later by the Supreme Court in United States v. Gaudin, 515 U.S. 506 (1995) in an opinion written by none other than Justice Scalia. No longer bound by D.C. Circuit (or Supreme Court) precedent, Justice Scalia found that “[d]eciding whether a statement is ‘material’ requires the determination of at least two subsidiary questions of purely historical fact: (a) ‘what statement was made?’; and (b) ‘what decision was the agency trying to make?.’” The Court held that it was for the jury to answer these questions and to make the ultimate determination of materiality by applying the materiality test (did the false statement have a natural tendency to influence, or be capable of influencing, the decision in question).

Another aspect of the Hansen case was overruled by the Supreme Court in United States v. Hubbard, 514 U.S. 695 (1995). In Hubbard the Court held that (longstanding precedent to the contrary notwithstanding) the False Statements Act applied only to statements made to the executive branch, as opposed to statements made to the legislative or executive branches. In the aftermath of Hubbard, therefore, there were no criminal penalties applicable to filing of false FDs.

However, Congress responded to the Hubbard case by enacting amendments to the False Statements Act (codified at 18 U.S.C. § 1001) in 1996. These amendments made clear that the Act did in fact apply to matters within the jurisdiction of the executive, legislative or judicial branches. The 1996 amendments, however, did not make the False Statements Act applicable to all statements made to the legislative branch. Instead, the amendments provided that the law would apply only to (1) administrative matters, including a claim for payment, a matter related to the procurement of property or services, personnel or employment practices, or support services, or a document required by law, rule, or regulation to be submitted to the Congress or any office or officer within the legislative branch or (2) any investigation or review, conducted pursuant to the authority of any committee, subcommittee, commission or office of the Congress, consistent with applicable rules of the House or Senate.

The House Report on the amendments (H.Rep. 104-680) notes that “[o]ver the last four decades, section 1001 has been used to prosecute Members of Congress who lie on their financial disclosure forms, initiate ghost employee schemes, knowingly submit false vouchers, and purchase personal goods and services with taxpayer dollars,” and specifically cited Hansen for the proposition that the False Statements Act had been applied to filings under the Ethics in Government Act. The report leaves no doubt that it was Congress’s intent to reinstate holdings such as Hansen and ensure that the False Statements Act would apply to “all financial disclosure filings, including those required pursuant to the Ethics in Government Act.”