Criminal Liability -- 2005



Pasquantino v. United States   (U.S. Supreme Court)

Use of fraud statutes to enforce foreign tax claims

The Supreme Court held 4/26/05 that a scheme to defraud a foreign government of tax revenue violates the federal wire fraud statute, 18 U.S.C. ยง 1343. Petitioners, who were based in New York, carried out a scheme to avoid paying Canadian excise taxes by placing telephone orders for liquor with discount package stores in Maryland and then, after receiving the liquor, smuggling it into Canada. The Court held that petitioners' conduct fell within literal terms of the wire fraud statute, which prohibits the use of interstate wires to carry out "any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises." First, Canada's right to the uncollected excise taxes, the Court concluded, was property, and petitioners' scheme was aimed at depriving Canada of this property. Second, the petitioners' failure to declare the liquor concealed in their cars was plainly a scheme designed to defraud the Canadian customs officials through misrepresentations. The Court also rejected the petitioners' alternative argument that the common-law "revenue rule" barred this prosecution. The "revenue rule" precludes one nation from enforcing the collection of tax obligations of other nations. The Court held that the present case did not fall within the ambit of the "revenue rule," because petitioners were not prosecuted to recover a foreign tax liability. Rather, this was a criminal prosecution brought by the United States in its sovereign capacity to punish domestic criminal conduct. This decision is important to any business that may be subject to foreign tax laws.

The NAM joined with the National Association of Criminal Defense Lawyers in two amicus briefs opposing the outcome. We argued that the mail and wire fraud statutes protect against crimes against property that is already in the hands of the victim, and that they should not be expanded to apply to the right of a foreign government to collect allegedly accrued but unassessed and uncollected taxes. This is another attempt by federal prosecutors to expand criminal law in the business context. Brief in support of petition (2/27/14); brief on the merits (6/29/04).

Decision Below: 336 F.3d 321 (4th Cir. 2003)