The following materials were prepared in part by the Labor-Management Unit of the Organized Crime and Racketeering Section and published in Criminal Case Prosecutions Involving Employee Benefit Plans: Prosecutors Guide (United States Department of Labor, Pension and Welfare Benefits Administration 1994).
OFFER, ACCEPTANCE, OR SOLICITATION TO INFLUENCE OPERATIONS OF EMPLOYEE BENEFIT PLAN
18 U.S.C. § 1954, as amended (1974)
- an administrator, officer, trustee, custodian, counsel, agent, employee of any employee welfare benefit plan or employee pension plan; or
- an officer, counsel, agent, or employee of an employer or an employer any of whose employees are covered by such plan; or
- an officer, counsel, agent, or employee of an employee organization any of whose members are covered by such plan; or
- a person who, or an officer, counsel, agent, or employee of an organization which, provides benefit plan services to such plan receives or agrees to receive or solicits any fee, kickback, commission, gift, loan, money, or thing of value because of or with intent to be influenced with respect to, any of his actions, decisions, or other duties relating to any question or matter concerning such plan or any person who directly or indirectly gives or offers, or promises to give or offer, any fee, kickback, commission, gift, loan, money, or thing of value prohibited by this section, shall be fined not more than $10,000, or imprisoned not more than three years, or both: Provided, That this section shall not prohibit the payment to or acceptance by any person of bona fide salary, compensation, or other payments made for goods or facilities actually performed in the regular course of his duties as such person, administrator, officer, trustee, custodian, counsel, agent, or employee of such plan, employer, employee organization or organization providing benefit plan services to such plan.
Section 1954 was enacted in 1962, in amendments to ERISA's predecessor, the Welfare and Pension Plans Disclosure Act (WPPDA) (29 U.S.C. §§ 301-309). Upon the enactment of ERISA in 1974, section 1954 was amended to expressly apply to employee benefit plans subject to title I of ERISA. It applies to the offer, solicitation, acceptance or receipt of things of value because of or with the intent to be influenced with respect to the operation of an ERISA-covered plan committed after January 1, 1975. It is intended to reach a broad class of persons who are connected with the operation of employee benefit plans. Section 1954 is a predicate offense to the money laundering statutes, 18 U.S.C. § 1956 and 18 U.S.C. § 1957, and the Racketeer Influenced and Corrupt Organizations Act (RICO 18 U.S.C. § 1961 through 1968).
ELEMENTS OF PROOF
In order to establish a violation of 18 U.S.C. § 1954 the government must allege and prove the following essential elements:
- The jurisdictional entity related to bribery or graft occurring after January 1, 1975, is an employee benefit plan subject to title I of ERISA (29 U.S.C. § 1001 et seq.).
- One of the RECIPIENTS of a bribe or graft must be a person specifically described in section 1954(1)-(4).
The GIVER of a bribe or graft payment may be any person; and, as such, is not required to hold a position affiliated with the covered plan as described in section 1954(1)-(4).
In United States v. Palmeri, 630 F.2d 192 (3d Cir. 1980), cert. denied, 450 U.S. 967 (1981), defendants who were business agents of the employee organization whose members were covered by the plan argued that they were not in positions whereby they exercised authority to disburse money from the plan. The court interpreted the proscriptions of section 1954 to include "within the regulated class all persons who exercise control, direct or indirect, authorized or unauthorized, over the fund. . . . It also discourages behavior . . . that undermines the purposes of the act but is undertaken by persons with no official position with respect to the fund." United States v. Palmeri, supra at 199, 200.
Status 1: Employee Benefit Plan Operational Personnel
Employee welfare and pension benefit plans may be established and administered in a great variety of ways. A plan may be a self-administered, independent entity with its own board of trustees, staff of employees, and entourage of specially retained counsel and agents.
- Administrator - 18 U.S.C. § 1954 expressly refers to the definition of "administrator" in title I of ERISA with respect to conduct after January 1, 1975. Frequently, the trustees of the plan may be the designated "administrator" of the plan. If there has been no person designated as such in the plan document, the plan "administrator" is the plan sponsor (employer if an employer plan, union if an employee organization plan, board of trustees if a Taft-Hartley plan, i.e., collectively bargained and required to be operated in accordance with 29 U.S.C. § 186 (c)(5-8), etc., or a person designated by the Department of Labor (DOL) regulation. 29 U.S.C. § 1002(16).
In United States v. Romano, 684 F.2d 1027 (2d Cir. 1982), cert. denied, 459 U.S. 1016 (1982), the court used the broad language of section 1954 to convict the administrator of a jointly-trusteed pension plan who received television sets as gifts from a bank, which were available to the sponsors of new deposits, for directing the deposit of plan monies into savings accounts at such bank.
- Trustee - A "trustee" within the meaning of section 1954 would be the individual named as such within a legal document creating or modifying the trust. Under ERISA, assets of employee benefit plans are generally required to be held in trust. 29 U.S.C. § 1103. Employee benefit plans established jointly by employers and representatives of employees also must be administered as a trust pursuant to the Taft-Hartley Act (29 U.S.C. § 186(c)(5-8)).
In United States v. Pieper, 854 F.2d 1070 (7th Cir. 1988), the defendant, a union officer and plan trustee, was convicted of receiving kickbacks from the borrowers of plan assets "because of" ostensible authority to exercise influence over the plan as a trustee. The defendant was convicted even though he did not accept things of value to influence his personal actions with respect to matters pending before the pension plan's board of trustees. The defendant and an outside bank officer administering such assets had reached a kickback agreement prior to the plan trustees' action relieving the defendant of his personal responsibilities over such investments.
- Custodian - The term "custodian" refers to persons having lawful custody of plan assets.
Officer - An "officer" of an employee benefit plan, employer, employee organization, or service provider organization is included in all four categories of receivers in section 1954 (1-4).
ERISA does not specifically define the term "officer." An officer, as distinguished from an employee, holds an executive position calling for the exercise of independent judgment. An individual whose position does not conform to a restrictive interpretation of the term "officer" usually will qualify as an "employee" or "agent."
Counsel - A "counsel" of an employee benefit plan, employer, employee organization, or service provider organization is included in all four categories of receivers in section 1954(1-4).
In United States v. Friedland, 660 F.2d 919 (3d Cir. 1981), cert. denied, 456 U.S. 989 (1982), attorneys who served as general counsel to a pension plan were convicted under section 1954 for soliciting and receiving payments from a prospective borrower in return for assistance in obtaining a loan from the plan. The court concluded that the defendants, whom the trustees consulted at meetings and on an ad hoc basis but who held no decision-making authority over plan transactions involving loans, were properly convicted of receiving a kickback "because of" their actions, decisions, or other duties relating to the plan:
- So long as [defendants] were counsel to the Fund, and received the kickback (a) because of that status, which gave them at least ostensible power to exercise influence, or (b) with the purpose of exercising influence they either actually or ostensibly had over decisions regarding the Fund, then they need not be shown to have actually exercised such influence. . . . When counsel to an employee pension fund take a kickback for the stated purpose of exercising their influence over the fund, then their actions come within the "because of" prong of section 1954.
Id. at 926-27.
Agent - An agent of an employee benefit plan, employer, employee organization, or service provider organization is included in all four categories of receivers in section 1954 (1-4).
In United States v. Russo, 442 F.2d 498, 502 (2d Cir. 1971), the court held that an individual was an agent of an employee benefit plan even though the individual did not represent and was not expressly authorized to bind the plan in any dealings with third parties. In giving advice to the plan on a regular basis, including advice regarding the financial status of potential borrowers, an implied agency relationship was established with the plan, and therefore, the agent became a member of the class to which the statute is addressed, whether or not he could also properly be described as "counsel" to the Fund.
However, in United States v. Marroso, 250 F. Supp. 27 (E.D. Mich. 1966), the court paid stricter attention to the common law principles of agency in determining an individual's status as agent. The court held that the defendant, an investment broker, was not an agent because there had to be an express manifestation of consent by the fund to create an express agency.
- Employees - An employee (of an employee benefit plan, employer, employee organization, or service provider organization) is included in all four categories of receivers in section 1954 (1-4). Although section 1954 makes no express reference to the term "employee" as defined in ERISA, title I of ERISA broadly defines "employee" as "any individual employed by an employer." 29 U.S.C. § 1002(6).
Status 2: "An officer, counsel, agent or employee of an employer or an employer any of whose employees are covered by such plan."
See the discussion under Status 1 for description of statutory terms. In United States v. Fernandez, 892 F.2d. 976 (11th Cir. 1990), one of the defendants, an employer's employee and representative of the employer trustees of an ERISA plan covering the employer's workers, had been convicted of having received compensation from a service provider seeking a service contract with the plan under circumstances not excepted by section 1954's proviso-defense for compensation. Id. at 991, note 19. See discussion of section 1954 proviso below.
Status 3: "An officer, counsel, agent or employee of an employee organization any of whose members are covered by such plan."
Section 1954 expressly refers to the ERISA definition of "employee organization." 29 U.S.C. § 1002(4). Labor unions participate with employers in the management of collectively bargained employee welfare and pension plans subject to 29 U.S.C. § 186(c)(5-8) and also unilaterally maintain plans funded by their own members.
- Officer - In United States v. Soures, 736 F.2d 87 (3d Cir. 1984), cert. denied, 469 U.S. 1161 (1985), the defendant, a union president, was convicted under section 1954 for having solicited cash from an employer in exchange for the defendant's efforts to not reimpose a lien on the employer's business for failure to pay contributions to the welfare plan on behalf of the employer's employees. In United States v. Uzzolino, 651 F.2d 207 (3d Cir. 1981), the defendant, a union president and business agent, was convicted of conspiracy to receive payments from an employer in exchange for using his influence to escape the employer's $80,000 debt to the union-sponsored pension plan.
Employee - Business representatives and employees of a union were convicted under section 1954 for accepting personal bank loans in exchange for their efforts to arrange for the deposit in the bank of monies held by their union's affiliated employee benefit plans. See United States v. Palmeri, supra.
Agent - In United States v. Robilotto, 828 F.2d 940 (2d. Cir. 1987), the defendant, a business agent of a union, was convicted under section 1954 for soliciting and receiving favorable bank loans for himself and a third party in exchange for his promise to arrange for the deposit in the bank of monies held by his union's affiliated employee benefit plan. Id. at 946.
Status 4: "A person who, or an officer, counsel, agent, or employee of an organization which, provides benefit plan services to such plan."
In United States v. Schwimmer, 924 F.2d 443 (2d Cir. 1991), the defendant was convicted under section 1954 as a de facto agent of the plan and person providing services as a financial advisor to the plan for having solicited and accepted secret commissions from the financial institutions where he had recommended that plan assets be invested. Schwimmer argued that he was outside the scope of section 1954 because he had not been formally designated as an agent or counsel to the plan. The court rejected the argument and held that "a defendant need not formally hold one of the enumerated positions to fall within the statute's coverage. . . ." Id. at 447.
In United States v. Norton, 867 F.2d 1354 (11th Cir. 1989), a defendant operated a subcontracted organization which was "ostensibly created to verify patients' eligibility for coverage" under a dental and vision services contract awarded by a welfare plan to third party administrator organization. The court held that the defendant was a person within section 1954(4) despite the fact that the primary purpose of his subcontracted organization was to act as a conduit for kickback payments to the plan trustee rather than providing services to the plan. Id. at 1358.
In United States v. Cusumano, 943 F.2d 305 (3d Cir. 1991), an officer of an organization providing dental services to a welfare benefit plan, was convicted of receiving kickbacks from a life insurance broker in return for using his influence to persuade the plan trustees to purchase the proffered life insurance services. The court rejected the defendant's argument that section 1954 did not apply to him because his dental service contract did not involve the plan's life insurance program. The court held that the relevant relationship for purposes of determining the kickback payment's nexus to the defendant's actions, duties, and other decisions in relation to a plan matter included his actions in relation to the entire benefit plan and not merely the dental programs for which he was the service provider. Id. at 310.
- A person within a RECIPIENT category must receive or agree to receive or solicit a thing of value because of or with the intent to be influenced with respect to any of his actions, decisions, or other duties relating to any question or matter concerning the plan.
- Any person must give or offer or promise to give or offer, directly or indirectly, a thing of value because of or with the intent to influence a prohibited recipient's actions, decisions or other duties relating to any question or matter concerning the plan.
A THING OF VALUE
A "thing of value" under section 1954 is not limited to tangible property, but includes intangible things of value. United States v. Schwartz, 763 F.2d 1054, opinion withdrawn on other grounds, 785 F.2d 673 (9th Cir. 1986), cert. denied, 479 U.S. 890 (1986) (providing assistance in arranging the merger of two unions). Accord, Robilotto, supra (ability to confer a financial benefit on a third party held to be a thing of value for purposes of section 1954). But compare, United States v. Cervone, 907 F.2d 332 (2d Cir. 1990), holding that the ability to influence corrupt union practices by arranging the payment of a third party and competitor of the defendant was not a "thing of value" for purposes of section 1954 and 29 U.S.C. § 186. The government need not prove the market value of a "thing of value." For purposes of section 1954, "it is enough if the item received was regarded as a benefit by the recipient, whether or not others might have taken a different view of its value." United States v. Ostrander, 999 F.2d 27 (2d Cir. 1993) (opportunity to purchase stock warrants offered only to a few persons); United States v. Allen E. Rosenthal, 9 F.3d 1016 (2d Cir. 1993) (assistance in generating income tax losses in securities transactions).
BRIBERY AND GRAFT
Section 1954 effectively punishes two types of offenses denoted by the statutory phrases "because of" (i.e., a graft provision proscribing the payment or receipt of gratuities) and "with the intent to be influenced" (i.e. a bribery provision proscribing the corrupt payment or receipt of things of value as the primary motivation for the recipient's actions, duties, or decisions in relation to a benefit plan matter). Section 1954 does not necessarily require that the giver and recipient of the prohibited thing of value both act with the same culpable state of mind. In United States v. Romano, supra at 1057, the court held that section 1954 reaches "conflict-of-interest" payments as well as corrupt arrangements and implied that the payor's apparent good faith in giving a thing of value which the statute forbids the recipient to receive is no defense to the prohibited receipt.
Because bribery is a "quid pro quo" offense, it requires proof of the recipient's specific intent "to be influenced" or the payor's specific intent "to influence" the recipient with respect to the latter's actions, decisions, or other duties in relation to a plan matter. Bribery requires that the payment be the motivating factor for the recipient's actions in relation to plan matter. See discussion in United States v. Friedland, supra.
The courts have upheld section 1954 convictions based on allegations that prohibited "bribery" payments were made with an "intent to influence" the recipient even though the phrase "intent to influence" is not expressly included in the statute. Section 1954 only forbids the payor to give things of value "prohibited by this section." See United States v. Allen E. Rosenthal, supra; United States v. Cariello, 536 F. Supp. 698 (D.N.J. 1982); United States v. Provenzano, 615 F.2d 37 (2nd Cir. 1980).
Graft requires only proof of general intent to pay or receive a thing of value with knowledge that the thing of value is connected to a prohibited recipient's actions, decisions, or other duties with respect to plan matters and does not require proof that the payment was intended to influence any specific action on the part of the receiver. The graft offense does not require that the thing of value paid or received be the primary motivation for the connected action related to a plan matter. For example, a trustee's receipt of a gratuity following his approval of some plan action benefitting both the payor and the plan would be prohibited without any prior corrupt arrangement or understanding.
The graft offense in section 1954 "reflects Congress's intent to reach all fiduciaries who profit (other than by regular compensation) as a result of their decisions to invest pension funds." United States v. Romano, supra at 1064) (upholding conviction of plan fiduciaries' receipt of bank gifts available to all sponsors of new deposits).
Under the graft offense, the defendant's actual capacity to influence the plan's operations is not a necessary element of proof. See United States v. Friedland, supra, with respect to persons having only ostensible or apparent authority over plan operations. In United States v. Schwimmer, supra, the court stated, "We have held that `section 1954 . . . does not necessarily require proof that the malefactor actually possessed the ability to influence a welfare fund's investment decisions,'" Robilotto, 828 F.2d at 946, but rather, the statute "proscribe[s] `acceptance of payment with the stated purpose of exercising one's influence . . ., regardless of capacity to do so.'" Id. (quoting United States v. Soures, 736 F.2d 87, 90 (3d Cir. 1984), cert. denied, 469 U.S. 1161 (1985)." The court in United States v. Pieper, supra, at 1025, found that "under section 1954, it is not necessary that a defendant have had actual ability to control investment decisions of a pension fund so long as, because of his status, he had ostensible power over the decisions regarding the fund."
Graft requires no proof of the defendant's specific intent to violate the law or knowledge that his conduct was unlawful. United States v. Soares, 998 F.2d 671 (9th Cir. 1993) and cases cited therein.
THE PROVISO-DEFENSE FOR BONA FIDE COMPENSATION AND PAYMENTS FOR SERVICES ACTUALLY RENDERED AND GOODS ACTUALLY DELIVERED IN THE REGULAR COURSE OF A RECIPIENT'S DUTIES
Section 1954 requires that the government rebut the elements of the following proviso by proof beyond a reasonable doubt once some evidence of the proviso's application is present in the case:
- Provided, That this section shall not prohibit the payment to or acceptance by any person of bona fide salary, compensation, or other payments made for goods or facilities actually furnished or for services actually performed in the regular course of his duties as such person, administrator, officer, trustee, custodian, counsel, agent, or employee of such plan, employer, employee organization, or organization providing benefit plan services to such plan.
- The proviso is intended to ensure that criminal conduct proscribed by section 1954 is distinguished both from lawful activity, for example, by agents and service providers of the plan who legitimately earn salaries, commissions, brokerage and finders' fees, etc., and from activity which is prohibited by ERISA for purposes of civil enforcement, but was undertaken in good faith.
The phrase "bona fide" as used in section 1954 contemplates proof of a subjective element that the payment or compensation was given or received in good faith. See United States v. Schwimmer, supra at 448, where the appellate court upheld the trial court's jury instruction to the effect that "'bona fide' means 'in good faith, exclusive of fraud or deceit'" and that "a fiduciary must disclose the actual commissions he is charging in order to qualify for the bona fide compensation exception." The defendant/service provider had concealed from the plan his receipt of commissions from the financial institutions where he had recommended that plan assets be invested. Consequently, the government's proof had successfully rebutted the defendant's assertion of "good faith" compensation. The court concluded that section 1954 "was meant to reach defendant's intentional failure to inform the trustees [of the plan] that he was extracting a commission from placement of their investments." Id. material in brackets added.
With respect to the objective element of the proviso, namely, the that compensation or payments be received for services actually performed (or for goods actually delivered) in the regular course of the recipient's duties, it should be noted that individuals may occupy more than one of the four categories of prohibited recipients simultaneously. For example, a plan administrator might also seek to act as a person providing insurance services to the plan as an insurance broker. Under certain circumstances, compensation received in one or more of these capacities may conflict with service in another capacity and thereby fall outside the regular course of the recipient's duties toward the plan. See, for example, Prohibited Transaction Exemption 84-24 (formerly 77-9), 44 Fed. Reg. 1479 (January 5, 1979); 44 Fed.Reg. 52365; 49 Fed.Reg. 13208 (1984) (regulating the receipt of insurance commissions by ERISA fiduciaries and other service providers).
Section 1954 places no express limitation on the source of the recipient's duties. Accordingly, the following types of evidence may be relevant:
- Duties imposed on an individual by his employment or service contract with the plan;
Duties imposed by ERISA on persons acting as a fiduciary to an ERISA plan in a particular transaction. A fiduciary with respect to an ERISA plan is defined on the basis of conduct described in 29 U.S.C. § 1002(21). As an ERISA fiduciary, one has statutory responsibilities including the obligation to discharge his duties with respect to the plan solely in the interest of the participants and beneficiaries, for the exclusive purpose of providing benefits and defraying reasonable expenses of administering the plan, and to operate the plan in accordance with documents and instruments governing the plan consistently with ERISA. 29 U.S.C. § 1104. An ERISA fiduciary also has the duty to refrain from certain prohibited transactions including dealing with plan assets in his own interest, acting on behalf of persons whose interests are adverse to the plan, and receiving personal consideration from parties dealing with the plan in transactions involving plan assets. 29 U.S.C. § 1106. It should be noted that some of these duties are subject to both statutory and administratively granted exceptions. See 29 U.S.C. § 1108.
Duties imposed on union (employee organization) officials by 29 U.S.C. § 501(a) [Labor Management Reporting and Disclosure Act (LMRDA)] to account for profits received while transacting business on behalf of the union;
Duties imposed on benefit plan service providers under the various state regulations governing insurance, banking and securities which are not pre-empted by ERISA. See 29 U.S.C. § 1144.
[cited in USAM 9-134.010]