The Ultimate Guide to the Federal Government Fraud Statute - Federal Lawyer
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The Ultimate Guide to the Federal Government Fraud Statute

The Ultimate Guide to the Federal Government Fraud Statute

Defrauding the United States government is a serious criminal offense. Individuals and businesses accused of federal government fraud can potentially face millions of dollars in fines, and individuals who get convicted of government fraud can face a decade or more behind bars.

The federal government fraud statute, 18 U.S.C. Section 1031, is extremely broad. It covers all forms of fraud targeting the U.S. government and federal government programs, and it penalizes both “successful” and attempted fraud. When facing an investigation or charges under Section 1031, a strategic defense is key, and targeted businesses and individuals must engage experienced federal defense counsel promptly.

What You Need to Know About the Federal Government Fraud Statute (18 U.S.C. Section 1031)

Federal government fraud is a white-collar crime that is prosecuted by the U.S. Department of Justice (DOJ). While several federal statutes prohibit fraudulent acts (and “schemes and artifices”) targeting different federal entities and programs, the general prohibition against defrauding the federal government appears in 18 U.S.C. Section 1031.

18 U.S.C. Section 1031 begins by defining the offense of federal government fraud (or “major fraud against the United States”). Section 1031(a) of the statute states:

“Whoever knowingly executes, or attempts to execute, any scheme or artifice with the intent—(1) to defraud the United States; or (2) to obtain money or property by means of false or fraudulent pretenses, representations, or promises, in any grant, contract, subcontract, subsidy, loan, guarantee, insurance, or other form of Federal assistance . . . or in any procurement of property or services as a prime contractor with the United States or as a subcontractor or supplier . . . if the value of such grant, contract, subcontract, subsidy, loan, guarantee, insurance, or other form of Federal assistance . . . is $1,000,000 or more shall . . . be fined not more than $1,000,000, or imprisoned not more than 10 years, or both.”

There are several key takeaways from this statutory provision. Some of the most important aspects of Section 1031(a) include:

  • “Whoever knowingly executes” – To be found guilty under Section 1031(a), an individual or business must act “knowingly.” As with other federal criminal statutes, this does not require knowledge that the conduct in question violates federal law. If an individual or business knowingly commits an act that defrauds the federal government, this is sufficient to satisfy the knowledge element of Section 1031(a)—even if the actor is unaware of the statute’s prohibitions.
  • “Attempts to execute” – The federal government fraud statute punishes “successful” fraud and attempted fraud equally. Thus, even if an individual or business does not fraudulently obtain federal funds or property, if the individual or business “knowingly . . . attempts to execute” a scheme or artifice to defraud, it can still be found guilty under Section 1031(a).
  • “Any scheme or artifice” – Section 1031(a) covers fraud in all forms. Any efforts to obtain federal funds or property without proper authority can be characterized as a “scheme or artifice” to defraud. Crucially, however, to be prosecutable under Section 1031(a), a scheme or artifice must involve efforts to obtain federal funds or property valued at $1 million or more.
  • “With the intent . . . to defraud the United States” – In addition to requiring knowing conduct, Section 1031(a) also requires intent to defraud the United States. If the DOJ’s prosecutors cannot prove both knowledge and intent, then they should not be able to secure a conviction under Section 1031(a) in federal district court. While the knowledge element of federal government fraud does not require evidence that the defendant knew its conduct was illegal, the intent element does require evidence that the defendant affirmatively sought to obtain federal funds or property by illicit means.
  • “Any grant, contract, subcontract, subsidy, loan, guarantee, insurance, or other form of Federal assistance” – Section 1031(a) covers fraud (and attempted fraud) targeting all types of federal assistance programs. This includes grant, contract, and loan programs—among others. If an individual or business is accused of knowingly and intentionally defrauding (or attempting to defraud) any federal assistance program, it can face prosecution under 18 U.S.C. Section 1031.
  • Any procurement of property or services” – Along with covering fraud targeting federal assistance programs, Section 1031(a) also covers fraud involving the federal procurement process. It provides for prosecution of both prime contractors and subcontractors, with no differentiation between the two when it comes to specific charges or penalties.

Due to its breadth, some defendants have attempted to avoid convictions under 18 U.S.C. Section 1031 by arguing that the statute is unconstitutionally vague. However, as noted in the DOJ’s Criminal Resource Manual, Section 1031 “has been upheld against vagueness attacks” both at the trial level and on appeal.

Penalties for Federal Government Fraud Under 18 U.S.C. Section 1031

In most cases, violations of the federal government fraud statute carry up to a $1 million fine and 10 years of federal imprisonment. However, individuals and businesses charged with multiple counts of federal government fraud can face enhanced penalties, and those charged under Section 1031 will often be charged with other federal crimes as well (i.e., mail fraud and wire fraud).

Regarding the penalties for violations of Section 1031 and other federal criminal statutes, subsections (b) through (d) provide that:

  • Violations Involving Gross Gain of $500,000 or Greater – If a violation of Section 1031(a) results in “gross gain to a defendant [of] $500,000 or greater,” Section 1031(b) allows for a maximum fine of up to $5 million.
  • Violations Involving “a Conscious or Reckless Risk of Serious Personal Injury” – Section 1031(b) also allows for a maximum fine of up to $5 million in cases involving “a conscious or reckless risk of serious personal injury.”
  • Maximum Fine for Multiple Counts – Oftentimes, federal prosecutors will pursue charges for multiple counts of the same offense. This could be the case, for example, if a government contractor is accused of fraud under multiple bids or contracts. Section 1031(c) provides that in cases involving multiple counts, the maximum fine under 18 U.S.C. Section 1031 is $10 million.
  • Penalties Under Other Federal Criminal Statutes – While prosecution under certain federal criminal statutes can preclude penalization under other federal criminal statutes in some cases, Section 1031(d) provides that, “[n]othing in this section shall preclude a court from imposing any other sentences available under this title, including without limitation a fine up to twice the amount of the gross loss or gross gain involved in the offense pursuant to 18 U.S.C. section 3571(d).”

Given the wide range of potential sentences under 18 U.S.C. Section 1031, Congress included a provision that provides sentencing-related guidance for federal judges in cases prosecuted under the statute. While stating that judges should adhere to the Federal Sentencing Guidelines, Section 1031(e) also specifically provides that judges should consider three main factors during sentencing. These are: (i) “the need to reflect the seriousness of the offense,” (ii) “whether the defendant previously has been fined for a similar offense,” and (iii) “any other pertinent equitable considerations.”

Defending Against White-Collar Charges Under the Federal Government Fraud Statute

While the federal government fraud statute is extremely broad and allows for prosecution of both individuals and businesses in a wide range of scenarios, there are also several potential defenses to white-collar charges under 18 U.S.C. Section 1031. When facing accusations of federal government fraud—whether during an investigation, in a grand jury indictment, or at trial—it is imperative to work with experienced federal defense counsel to dispute the government’s allegations by all means available.

Some examples of potential defenses to federal government fraud charges under 18 U.S.C. Section 1031 include:

1. Lack of Knowledge or Intent

To prove guilt under Section 1031(a), federal prosecutors must be able to prove both knowledge and intent. If it is possible to call either of these elements into question, this can be enough to prevent a conviction under the statute.

2. No “Scheme or Artifice”

While a “scheme or artifice” to defraud can take many different forms, not everything constitutes a scheme or artifice. Here, too, the burden is on the DOJ to prove its case beyond a reasonable doubt.

3. No Execution or Attempt to Execute

Simply having an idea is not a federal offense. If prosecutors cannot prove that you executed, or attempted to execute, a plan to defraud the federal government, then they cannot secure a conviction under Section 1031.

4. Constitutional Violations During the Government’s Investigation

Violations of the Fourth Amendment, Fifth Amendment, and other constitutional protections during the government’s investigation can render the government’s evidence inadmissible in court. Without admissible evidence, prosecutors will not be able to meet their burden of proof.

5. Constitutional Violations During Prosecution

Prosecutorial miscues and misconduct can also give rise to defenses in federal white-collar criminal cases. As a result, regardless of the underlying facts involved, when facing charges for federal government fraud, it is critical to work with an experienced defense team that can fight your case by all means available.

Speak with a Federal White-Collar Defense Lawyer at Oberheiden P.C.

If you need to know more about the federal government fraud statute or the possible defenses to charges under Section 1031, we encourage you to contact us promptly. Cal 888-680-1745 or request a complimentary consultation online to speak with a federal white-collar defense lawyer at Oberheiden P.C.

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