Fraud and Breach of Trust

A Critical Examination and Recommendations for Improving Legislation

This book examines the most efficient and just way of using criminal law to combat breach of trust by civil servants, since the courts and law enforcement authorities in Israel have not yet formulated a clear policy on the matter. It considers the legal status of this offense in other countries in an attempt to learn from existing approaches and solutions.

In the past few years, media reports of suspicions of corruption among public officials have increased, but the judicial system and law-enforcement agencies do not have a clear policy against government corruption. In many cases, we have witnessed disputes between the courts and the State Prosecutor’s office and even among judges themselves. What is official corruption? What actions should be branded as corrupt? How should we interpret the laws that were intended to give society tools to fight corruption?

At the center of one of the most important and practical legal debates about the war on corruption is the crime of fraud and breach of trust as defined by Section 248 of the Penal Law 5737–1977. This offense is the core of this book, which focuses on finding the fairest and most efficient way of using criminal law to combat breach of trust by public officials. The interpretation currently in use was rendered in the Shimon Sheves decision, but remains vague even after that.

dThis volume is based on the working assumption that a clear and precise definition of the crime of breach of trust would narrow the range of possible interpretations and uncertainty and thereby streamline the legal war on official corruption in Israel. The draft legislation presented here includes several categories of conduct, each of which is deemed to constitute breach of trust when public officials engage in them: actions characterized by a conflict of interest, receiving forbidden benefits, public fraud, improper use of official information, and actions contrary to the public interest. The proposed law also includes alternatives for cases that are defined as a “serious breach of the public trust,” as well as protective measures designed to balance the options in the proposed legislation and present them in the appropriate proportions.

In recent years, suspicions of corruption among public servants have increasingly come to light in Israel. A considerable number of elected officials and public servants have been embroiled in scandals involving improper conduct that constitutes a breach of trust. At the same time, the courts and the law enforcement authorities have not formulated a clear policy for fighting public corruption. Moreover, it seems that in many cases, there has been disagreement between the courts and the State Attorney's Office, as well as among the judges themselves, over what exactly constitutes public corruption, which acts should properly be labeled as corrupt, and how the laws designed to provide society with the tools to fight corruption should be interpreted.

At the center of the important legal and practical debate over the law enforcement's battle against corruption is the criminal offense of "fraud and breach of trust." Set forth in Section 284 of the Penal Law, 1977, this provision states that "[a] public servant who, in the performance of his duties, commits an act of fraud or a breach of trust that harms the public, whether or not the act would have been an offense if committed against a private individual, is liable to imprisonment for three years." This offense, which along with the bribery offense is one of the most important judicial tools in the fight against acts of corruption by public servants (both elected and appointed), is the focus of this book.

The aim of this book is to ascertain the most effective and just application of criminal law to fight against breaches of trust by public servants. The two central questions that have guided us are: First, should the offense of fraud and breach of trust be a general offense, as it is today, or a specific offense that describes a particular behavior, such as a conflict of interest and receipt of a benefit? And, second, in which cases should this offense be applied?

After a great deal of vacillation and with the development over the years of case law dealing with the offense of fraud and breach of trust, a precedent that is still valid today was established in the Sheves case. This ruling determined that this offense entails three safeguarded values: public confidence in the government, the integrity of public servants and proper administrative conduct. The court did not specify which acts are considered a breach of trust; however, it did hold that, under certain circumstances, a conflict of interest could be deemed a breach of trust if it causes material harm to one of these safeguarded values. Moreover, it was held that an act that "harms the public," which is a component of the offense's actus reus (factual element), is circumstantial and not consequential. With respect to the mens rea (mental element), it was held that there is no need to prove a public servant's intent, bad faith or awareness of the illegitimacy of the act, but only awareness of the facts that point, for example, to a conflict of interest that harms the public.

This book examines the legal status of this offense in several countries in an attempt to learn from the various approaches and solutions that have been developed to deal with breaches of trust. It appears that in many nations, for example, in the UK and in Canada, breach of trust is still a general offense, as it is in Israel. Most of the legal systems examined have seen fit to limit the scope of the offense and to add components that do not appear in the written statute. The article that has most frequently been added to the core of the offense is a corrupt motive on the part of the public servant (in some countries, the requirement for this motive has been significantly eroded). Although the offense has been defined in greater detail in many countries (e.g., in some states of the US, in Australia and in South Africa), at the same time, it has been more narrowly defined by including a requirement of intent to obtain a benefit from, or to cause harm to, another person, and in most cases, a dishonest/corrupt motive as well.

Regarding conflicts of interest and the receipt of benefits, there has been an increasing trend to legislate specific prohibitions. In US Federal Law, a statute was enacted prohibiting acts that entail a conflict of interest when a public servant has a financial interest; and in Canada, a law was enacted forbidding public officials from receiving gifts from a person who has a business relationship with the state (in cases that do not include the offense of bribery). Judicial interpretation has left these offenses broad, and almost no restrictive elements have been added to them.

What these provisions have in common, even though they each deal with a particular aspect of the breach of trust offense (conflicts of interest and the receipt of forbidden gifts), is that they are characterized, on the one hand, by a broad definition of the mens rea (without intent, proof of corruption or awareness of harm to the public), and on the other hand, they are counterbalanced with an "escape route" designed to avoid the prohibition – a simple procedure to obtain the prior approval of a superior to carry out an act that involves a conflict of interest or the receipt of a gift.

Taking a critical view, in the wake of the decision rendered in the further hearing of the Sheves case, the prevailing legal situation in Israel is totally unsatisfactory. Despite the detailed judgment rendered by the Supreme Court, the offense remains ambiguous and it is actually impossible to know whether or not certain acts are considered a breach of trust. Not only does the general offense prevent corrupt public servants from being put on trial for fear of violating the principle of legality, but it also provides the legislator with an excuse to not do his or her job, which is to enact specific prohibitions, such as a provision forbidding acts that entail a conflict of interest.

The Israeli courts have frequently altered the definition of the offense, introducing changes to the actus reus and mens rea. Even today, a public servant has no clear guidelines to determine when his or her acts entail a "breach of trust," primarily due to the requirement that a safeguarded value has been materially harmed, which is extremely vague. The problems deriving from this legal situation are as follows:

  • Behavior Guidelines: The existing legal situation does not provide sufficient guidelines for public servants to confront borderline cases and, therefore, is liable to lead to over intimidation, on one hand, and on the other hand, the conviction of those who acted in good faith.
  • Deterrence: The legal situation does not create sufficient deterrence for dishonest public servants, who are aware of the ambiguity of the offense and of the possibility that, due to this ambiguity, they will succeed in evading criminal responsibility (e.g., as the result of a narrow interpretation of the term "material harm").
  • Enforcement: The prevailing situation leads to confusion and places unnecessary obstacles in the path of law enforcement officials, who are indecisive in many cases and who struggle for guidance when they must conduct investigations and decide whether or not to file an indictment. This situation could lead to quasi-arbitrary enforcement that is difficult to rectify through review by the High Court of Justice.

In our opinion, a clearly drafted, detailed breach of trust offense will limit the leeway for interpretation and will reduce uncertainty. Although the courts will still have to interpret the detailed wording of the offense, this situation differs from the current one in which the elements of the offense themselves are unwritten and are created through judicial interpretation. We believe that detailed legislation will solve most of the problems described above: it will provide guidelines to public servants, law enforcement officials and the courts, and will establish effective deterrence as a result of better enforcement and indictment of corrupt public servants.

The legislative proposal presented here includes several categories of behavior, each of which is considered a "breach of trust" when exhibited by a public servant in the performance of his duties:

  • An act of conflict of interest: When a conflict of interest derives from the financial interest of the public servant or of a close associate, as specified in the proposed law.
  • Receipt of a prohibited benefit: When a benefit is obtained from a party that has a business relationship with the state, or from a party in need of government services that is provided by the public servant, and is given to the public servant because of this relationship. In order to prove the mens rea in such a case, it is enough to prove that the average public servant could have been aware of the fact that the benefit was given to him or her because of the business relationship or the party's need of government services.
  • Public Fraud: Misrepresentation before a public servant or the concealment of non-privileged information from a public servant in order to influence his or her judgment in the performance of his or her official duties.
  • Misuse of government information: The use of privileged information or information that has not yet been made public for the purpose of obtaining an economic benefit for the public servant or for another person.
  • An act contrary to public interest: A conscious act contrary to public interest or a failure to act in accordance with public interest. According to our proposal, when there is suspicion that this offense has been committed, a police investigation will not be initiated without the approval of the Attorney General.

This legislative proposal also specifies alternatives for situations defined as "severe breaches of trust," which will carry a sentence of five years imprisonment:

  • When the act entailing a conflict of interest was intended to promote the aforesaid financial interest.
  • When a public servant has placed himself or herself in a position of a conflict of interest with the aim of exploiting the situation in order to promote his or her own financial interest.
  • When a public servant acts contrary to public interest with the aim of promoting an extraneous personal interest.
  • When a public servant exceeds his or her authority or acts illegally with the aim of promoting an extraneous personal interest while acting in an official capacity. It should be noted that this alternative is an exception since it is not considered an "aggravated circumstance," but rather an independent offense for behavior of a higher standard of severity.

The legislative proposal includes safeguards that are designed to provide a counterbalance to the various alternatives and to accord them their proper scope:

  • Specific prior approval: A public servant who thinks that he or she may be in a conflict of interest situation will be able to obtain prior approval for his or her action through the Attorney General or someone authorized by the Attorney General. The Attorney General's approval will be granted on the following grounds:
  1. The conflict of interest does not tangibly endanger the public servant's judgment.
  2. Due to the nature of the governmental activity, the danger of harm to the public interest is minimal.
  3. Public interest requires that the action be taken despite the conflict of interest.
  • General prior approval: The Attorney General, or someone authorized by the Attorney General pursuant to this law, may publish a list of economic interests that, in his or her opinion, will not influence the judgment of a public servant in a conflict of interest.
  • Immediate action: A safeguard that abrogates the responsibility of a public servant if he or she proves that, due to the urgency of the matter, it was reasonably impossible to avoid a conflict of interest, or to get the Attorney General's prior approval, and still fulfill the public interest.

To summarize, the fight against public corruption and breaches of trust by public servants is a daily struggle that must be conducted at various levels and in diverse spheres. In these trying times for the rule of law in Israel when many senior government officials are under investigation on suspicion of corruption, it is particularly vital that the criminal justice system intensify the battle against public servants who have breached their duty of trust to the public – in addition to pursuing the struggle in other arenas, including the parliamentary, civil and administrative spheres.

In order to improve the efficacy of its combat against public corruption, the criminal justice system must be provided with the most effective and appropriate tools to fight unacceptable forms of behavior – improving the prohibition against a breach of trust is without a doubt one of the most important ways to accomplish this. This book seeks to advance this goal and to assist the legislator to improve the formulation of this offense.