Bribery and Graft Affecting Employee Benefit
Plans18 U.S.C. 1954
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
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;
- 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.).
See USAM 9-135.000; USAM 9-135.010; and USAM 9-135.020.
- 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
is not required to hold a position affiliated with the covered plan as
in section 1954(1)-(4).
- In United States v. Palmeri, 630 F.2d 192 (3d Cir. 1980),
denied, 450 U.S. 967 (1981), defendants who were business agents of the
employee organization whose members were covered by the plan argued that
were not in positions whereby they exercised authority to disburse money
plan. The court interpreted the proscriptions of section 1954 to include
the regulated class all persons who exercise control, direct or indirect,
authorized or unauthorized, over the fund. . . . It also discourages
. . . that undermines the purposes of the act but is undertaken by persons
no official position with respect to the fund." United States v.
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
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
the plan document, the plan "administrator" is the plan sponsor (employer if
employer plan, union if an employee organization plan, board of trustees if
Taft-Hartley plan, i.e., collectively bargained and required to be operated
accordance with 29 U.S.C. § 186 (c)(5-8), etc., or a person designated
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
section 1954 to convict the administrator of a jointly-trusteed pension plan
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
accounts at such bank.
Trustee - A "trustee" within the meaning of section 1954 would be
individual named as such within a legal document creating or modifying the
Under ERISA, assets of employee benefit plans are generally required to be
in trust. 29 U.S.C. § 1103. Employee benefit plans established jointly
employers and representatives of employees also must be administered as a
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),
defendant, a union officer and plan trustee, was convicted of receiving
from the borrowers of plan assets "because of" ostensible authority to
influence over the plan as a trustee. The defendant was convicted even
he did not accept things of value to influence his personal actions with
to matters pending before the pension plan's board of trustees. The
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,
organization, or service provider organization is included in all four
of receivers in section 1954 (1-4).
- ERISA does not specifically define the term "officer." An officer,
distinguished from an employee, holds an executive position calling for the
exercise of independent judgment. An individual whose position does not
to a restrictive interpretation of the term "officer" usually will qualify
"employee" or "agent."
- Counsel - A "counsel" of an employee benefit plan, employer,
employee organization, or service provider organization is included in all
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
to a pension plan were convicted under section 1954 for soliciting and
payments from a prospective borrower in return for assistance in obtaining a
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
(a) because of that status, which gave them at least ostensible power to
influence, or (b) with the purpose of exercising influence they either
or ostensibly had over decisions regarding the Fund, then they need not be
to have actually exercised such influence. . . . When counsel to an
pension fund take a kickback for the stated purpose of exercising their
over the fund, then their actions come within the "because of" prong of
Id. at 926-27.
- Agent - An agent of an employee benefit plan, employer,
organization, or service provider organization is included in all four
of receivers in section 1954 (1-4).
- In United States v. Russo, 442 F.2d 498, 502 (2d Cir. 1971),
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
the plan in any dealings with third parties. In giving advice to the plan
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"
- However, in United States v. Marroso, 250 F. Supp. 27 (E.D.
1966), the court paid stricter attention to the common law principles of
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
categories of receivers in section 1954 (1-4). Although section 1954 makes
express reference to the term "employee" as defined in ERISA, title I of
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
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.
of the defendants, an employer's employee and representative of the employer
trustees of an ERISA plan covering the employer's workers, had been
having received compensation from a service provider seeking a service
with the plan under circumstances not excepted by section 1954's
for compensation. Id. at 991, note 19. See discussion of
1954 proviso below.
Status 3: "An officer, counsel, agent or employee of an employee
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
in the management of collectively bargained employee welfare and pension
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
employer in exchange for the defendant's efforts to not reimpose a lien on
employer's business for failure to pay contributions to the welfare plan on
behalf of the employer's employees. In United States v. Uzzolino,
F.2d 207 (3d Cir. 1981), the defendant, a union president and business
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
Employee - Business representatives and employees of a union were
convicted under section 1954 for accepting personal bank loans in exchange
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.
Agent - In United States v. Robilotto, 828 F.2d 940 (2d. Cir.
1987), the defendant, a business agent of a union, was convicted under
1954 for soliciting and receiving favorable bank loans for himself and a
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
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
person providing services as a financial advisor to the plan for having
and accepted secret commissions from the financial institutions where he had
recommended that plan assets be invested. Schwimmer argued that he was
the scope of section 1954 because he had not been formally designated as an
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
the statute's coverage. . . ." Id. at 447.
- In United States v. Norton, 867 F.2d 1354 (11th Cir. 1989),
defendant operated a subcontracted organization which was "ostensibly
verify patients' eligibility for coverage" under a dental and vision
contract awarded by a welfare plan to third party administrator
The court held that the defendant was a person within section 1954(4)
fact that the primary purpose of his subcontracted organization was to act
conduit for kickback payments to the plan trustee rather than providing
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
was convicted of receiving kickbacks from a life insurance broker in return
using his influence to persuade the plan trustees to purchase the proffered
insurance services. The court rejected the defendant's argument that
1954 did not apply to him because his dental service contract did not
plan's life insurance program. The court held that the relevant
purposes of determining the kickback payment's nexus to the defendant's
duties, and other decisions in relation to a plan matter included his
relation to the entire benefit plan and not merely the dental programs for
he was the service provider. Id. at 310.
- A person within a RECIPIENT category must receive or agree to receive
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
but includes intangible things of value. United States v. Schwartz,
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
a thing of value for purposes of section 1954). But compare,
States v. Cervone, 907 F.2d 332 (2d Cir. 1990), holding that the ability
influence corrupt union practices by arranging the payment of a third party
competitor of the defendant was not a "thing of value" for purposes of
1954 and 29 U.S.C. § 186. The government need not prove the market
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
have taken a different view of its value." United States v.
999 F.2d 27 (2d Cir. 1993) (opportunity to purchase stock warrants offered
to a few persons); United States v. Allen E. Rosenthal, 9 F.3d 1016
Cir. 1993) (assistance in generating income tax losses in securities
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
or receipt of gratuities) and "with the intent to be influenced" (i.e. a
provision proscribing the corrupt payment or receipt of things of value as
primary motivation for the recipient's actions, duties, or decisions in
to a benefit plan matter). Section 1954 does not necessarily require that
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
the court held that section 1954 reaches "conflict-of-interest" payments as
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
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
influence" the recipient with respect to the latter's actions, decisions, or
other duties in relation to a plan matter. Bribery requires that the
the motivating factor for the recipient's actions in relation to plan
See discussion in United States v. Friedland, supra.
The courts have upheld section 1954 convictions based on
that prohibited "bribery" payments were made with an "intent to influence"
recipient even though the phrase "intent to influence" is not expressly
in the statute. Section 1954 only forbids the payor to give things of
"prohibited by this section." See United States v. Allen E.
Rosenthal, supra; United States v. Cariello, 536 F. Supp.
(D.N.J. 1982); United States v. Provenzano, 615 F.2d 37 (2nd Cir.
Graft requires only proof of general intent to pay or receive a thing
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
does not require proof that the payment was intended to influence any
action on the part of the receiver. The graft offense does not require that
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
following his approval of some plan action benefitting both the payor and
plan would be prohibited without any prior corrupt arrangement or
The graft offense in section 1954 "reflects Congress's intent to
all fiduciaries who profit (other than by regular compensation) as a result
their decisions to invest pension funds." United States v. Romano,
supra at 1064) (upholding conviction of plan fiduciaries' receipt of
gifts available to all sponsors of new deposits).
Under the graft offense, the defendant's actual capacity to
the plan's operations is not a necessary element of proof. See
States v. Friedland, supra, with respect to persons having only
ostensible or apparent authority over plan operations. In United States
Schwimmer, supra, the court stated, "We have held that `section
. . . does not necessarily require proof that the malefactor actually
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
. ., regardless of capacity to do so.'" Id. (quoting United
Soures, 736 F.2d 87, 90 (3d Cir. 1984), cert. denied, 469 U.S.
(1985)." The court in United States v. Pieper, supra, at
found that "under section 1954, it is not necessary that a defendant have
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
Graft requires no proof of the defendant's specific intent to
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
RENDERED AND GOODS ACTUALLY DELIVERED IN THE REGULAR COURSE OF A RECIPIENT'S
Section 1954 requires that the government rebut the elements of the
following proviso by proof beyond a reasonable doubt once some evidence of
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
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,
employee organization, or organization providing benefit plan services to
The proviso is intended to ensure that criminal conduct proscribed
section 1954 is distinguished both from lawful activity, for example, by
and service providers of the plan who legitimately earn salaries,
brokerage and finders' fees, etc., and from activity which is prohibited by
for purposes of civil enforcement, but was undertaken in good faith.
The phrase "bona fide" as used in section 1954 contemplates proof
a subjective element that the payment or compensation was given or received
good faith. See United States v. Schwimmer, supra at
where the appellate court upheld the trial court's jury instruction to the
that "'bona fide' means 'in good faith, exclusive of fraud or deceit'" and
"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
Consequently, the government's proof had successfully rebutted the
assertion of "good faith" compensation. The court concluded that section
"was meant to reach defendant's intentional failure to inform the trustees
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
compensation or payments be received for services actually performed (or for
goods actually delivered) in the regular course of the recipient's duties,
should be noted that individuals may occupy more than one of the four
of prohibited recipients simultaneously. For example, a plan administrator
also seek to act as a person providing insurance services to the plan as an
insurance broker. Under certain circumstances, compensation received in one
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
(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
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
Duties imposed on an individual by his employment or service contract
Duties imposed by ERISA on persons acting as a fiduciary to an ERISA plan in
particular transaction. A fiduciary with respect to an ERISA plan is
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
and defraying reasonable expenses of administering the plan, and to operate
plan in accordance with documents and instruments governing the plan
with ERISA. 29 U.S.C. § 1104. An ERISA fiduciary also has the duty
refrain from certain prohibited transactions including dealing with plan
in his own interest, acting on behalf of persons whose interests are adverse
the plan, and receiving personal consideration from parties dealing with the
in transactions involving plan assets. 29 U.S.C. § 1106. It should
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
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
by ERISA. See 29 U.S.C. § 1144.
[cited in USAM 9-134.010]