Cite as: Shannon L. Snider, Sorting Out the Mess: International Smuggling Schemes, Foreign Policy, and a Little Thing Called Justice, 9 Gonz. J. Int’l L. 1 (2005), available at http://www.gonzagajil.org.
SORTING OUT THE MESS:
International Smuggling Schemes, Foreign Policy, and a Little Thing Called Justice
Shannon L. Snider
I. Introduction
From the early days of prohibition[1] up through modern day, as long as there has been a demand, there has been a supply. From the back-house speakeasy of the 1920s, to the large organized crime rings of the 1980s, to today’s epidemic of medium-sized operations utilizing the proximity of Indian reservations to the Canadian border,[2] smuggling operations have long been a problem plaguing the United States and foreign nations.[3] The legislative and executive branches have struggled to construct a solution to this re-occurring problem. Yet, in the process of legislative activism and statutory interpretation, a muddled mess found its way to the Supreme Court for review in the case of Pasquantino v. United States.[4]
To combat smuggling operations that affect both the United States and foreign entities, Congress enacted the Anti-Smuggling Statute.[5] In doing so, Congress expressly included a reciprocity clause, stating that prosecution of individuals who smuggle goods into another country will not occur unless that country has a reciprocal law prosecuting the same crimes committed in the United States.[6] At the time of this article, no nation has enacted such a reciprocal law.[7] Therefore, federal prosecutors have found a “work-around” in the Mail and Wire Fraud Statutes.[8] In such cases, as long as there is some use of U.S. mail or wire systems across interstate borders in furtherance of the smuggling scheme, federal prosecutions are sought under these statutes.[9]
Charging export smugglers under the Mail and Wire Fraud Statutes may be in conflict with the common law revenue rule.[10] As its name indicates, the common law revenue rule is a historical common law rule that states one country will not enforce or recognize the revenue laws of another country.[11] Because the “property” defrauded by export smugglers is a foreign country’s customs and tax revenue, defendants argue that they cannot be prosecuted because to do so would amount to recognition and enforcement of the revenue laws of another country.[12] The Supreme Court granted certiorari to the case of Pasquantino II to determine if this revenue rule prohibits export smuggling convictions under the Mail and Wire Fraud Statutes.[13]
The issues that export smuggling schemes present are three-fold:By utilizing the Mail and Wire Fraud Statutes to prosecute export smuggling crimes, federal prosecutors are acting against clear congressional intent and thus undermining the foreign policy Congress set when enacting the Anti-Smuggling Statute.
The second issue pertains to the intended purpose of the Mail and Wire Fraud Statutes; regardless of the revenue rule implication, does the term “fraud” in the Mail and Wire Fraud Statutes include the act of smuggling?
Finally, the paramount issue that brought this case before the Court was determining whether unassessed tax revenue owed to a foreign sovereign constitutes “property” for purposes of the Mail and Wire Fraud convictions. It is here that the revenue rule is implicated, potentially barring any U.S. court from engaging in the analysis of this question.
This article will investigate the history, background, and purpose of the implicated laws, as well as discuss the various states of the law in circuits that have addressed this issue. Additionally, this article will methodically address each issue as it logically arises rather than prematurely address the issue of the revenue rule.[14] The article will then analyze the Supreme Court’s recent decision in Pasquantino v. United States. Finally, the article will summarize the information and arguments presented herein.
II. The Applicable Laws
Several laws are implicated in the prosecution of international export smuggling under the Mail and Wire Fraud Statutes. The proper application of these laws is at the heart of this debated issue. These laws include: the Anti-Smuggling Statute,[15] the Mail and Wire Fraud Statutes,[16] and apparently most importantly, the common law revenue rule.[17] The crime of export smuggling is specifically addressed by the Anti-Smuggling Statute, yet federal prosecutors charge defendants under the Mail and Wire Fraud Statutes, because they are unable to obtain convictions under the Anti-Smuggling Statute.[18] Facing such charges, defendants argue that they cannot be prosecuted under these statutes because of the common law revenue rule.[19]
A. Congressional Intent - The Anti-Smuggling Statute
In 1998, Congress attempted to tackle the problem of international smuggling by enacting the Anti-Smuggling Statute, which made the smuggling of goods from the United States into foreign territories illegal.[20] The statute states that any person who smuggles “merchandise into the territory of any foreign government in violation of”[21] that foreign government’s laws “shall be fined under this title or imprisoned not more than two years, or both.”[22] When it enacted this law, Congress clearly imposed a reciprocity clause; the statute would only be enforced “if under the laws of the foreign government any penalty or forfeiture is provided for violation of the laws of the United States respecting the customs revenue[.]”[23] By nature of the reciprocity clause, Congress intended to prosecute acts of export smuggling only when the targeted country was committed to prosecuting smuggling into the United States.[24] As of today, no foreign government has enacted such a reciprocal statute.[25] Since no foreign government maintains a law that makes smuggling into the United States illegal, it follows that the Anti-Smuggling Statute cannot be utilized.[26]
One may wonder what the intent of Congress was when enacting a statute that, at least at the time of enactment, was moot for lack of reciprocal laws in foreign nations. In 1935, Congress passed the Anti-Smuggling Act making it a crime to smuggle goods into the United States.[27] Congress intended to fight a two-front battle against smuggling. Therefore, Congress enacted the 1948 Anti-Smuggling Statute, making it a crime to smuggle legally obtained goods out of the United States into a foreign territory.[28] This was intended to be an incentive for foreign governments to also make smuggling goods into the United States a crime.[29] As stated above though, no foreign government has yet to take a bite of this apple by enacting a reciprocal law.[30]
B. Federal Prosecutors Find a Work-Around:
The Mail and Wire Fraud Statutes
In 1872, in order to make it a federal crime to use the United States mail system as a vessel to perpetrate or intend to perpetrate a fraudulent scheme, Congress enacted the Mail Fraud Statute.[31] Under this statute, defendants found guilty of mail fraud may be fined or imprisoned up to twenty years unless the scheme affects a financial institution, in which case they may be fined up to one million dollars or imprisoned up to thirty years.[32]
To keep up with the evolution of technology, in 1952 Congress enacted a nearly identical statute pertaining to the use of wire, radio and/or television communications, commonly known as the Wire Fraud Statute.[33] Similarly, the statute makes it a federal crime to use interstate wires, radio and/or television signals in connection with a scheme to defraud.[34] It is worth noting though, that neither the Mail nor the Wire Fraud Statute enumerates against whom exactly the illegal fraud must be perpetrated.[35] Although the penalty clause of each statute states that schemes directed at financial institutions will carry a greater penalty,[36] the statute is ambiguous regarding any other potential targets for such schemes.[37] It is for this reason that federal prosecutors are able to liberally use the Mail and Wire Fraud Statutes to prosecute defendants who commit or intend to commit almost any fraudulent scheme, as long as they at some point use the mail or pick up the telephone.[38]
In export smuggling cases, there is often an issue of whether the crime qualifies as “fraud” for purposes of mail and wire fraud convictions. “It is a well-established rule of construction that ‘[w]here Congress uses terms that have accumulated settled meaning under...the common law, a court must infer, unless the statute otherwise dictates, that Congress means to incorporate the established meaning of these terms.’”[39] At the time of the enactment of both the Mail and Wire Fraud Statutes, the well-established common law meaning of fraud required a misrepresentation or concealment of a material fact.[40] In application to the crime of smuggling, “the essence of the crime is concealment and fraud.”[41] According to the Restatement (Second) of Torts, Section 527, where a representation is made that has two meanings, one of which the maker knows to be false, there is fraudulent misrepresentation.[42] Using the Mail and Wire Fraud Statutes, coupled with the common law meaning of “fraud” as described in the Restatement, federal prosecutors seek to prosecute export smuggling.[43]
C. The Common Law Revenue Rule: Existence and Justifications
The common law revenue rule resonates back to English common law,[44] and provides that no U.S. court will recognize, apply, or rule upon the validity of any revenue law of a foreign government.[45] The original purpose of the revenue rule was to protect lucrative British trade from oppressive foreign taxes and customs and encourage British commerce.[46] Regardless of its original intent, American courts accepted and implemented the rule, often referring to it as the rule of private international law.[47] One of the primary justifications for adoption of this rule in the United States is that “[o]ur courts customarily refuse to enforce the revenue and penal laws of a foreign state, since no country has an obligation to further the governmental interests of a foreign sovereign.”[48] In their interpretation of the revenue rule, the authors of the Restatement (Third) of Foreign Relations find that non-recognition of foreign revenue laws is discretionary, not mandatory;[49] however, some U.S. courts interpret the common law revenue rule to be a mandatory rule imposed upon all U.S. courts.[50] In 2004, the Supreme Court granted certiorari to Pasquantino II in order to determine the scope and proper application of the common law revenue rule, particularly in cases where recognition of another country’s revenue laws is necessary to determine if a U.S. defendant defrauded that country of “property”.[51]
There are three primary justifications that proponents of the revenue rule typically argue. The first argument leans heavily on the issue of U.S. foreign policy, and argues that the revenue rule is necessary to maintain respect for other countries’ laws by not passing judgment upon them.[52] While the original purpose of the revenue rule was to protect British trade,[53] in 1929, Judge Learned Hand restated the purpose of the rule as one of foreign policy:To pass upon the provisions for the public order of another state is, or at any rate should be, beyond the powers of a court; it involves the relations between the states themselves, with which courts are incompetent to deal, and which are [entrusted] to other authorities. It may commit the domestic state to a position which would seriously embarrass its neighbor. Revenue laws fall within the same reasoning; they affect a state in matters as vital to its existence as its criminal laws. No court ought to undertake an inquiry which it cannot prosecute without determining whether those laws are consonant with its own notions of what is proper.[54]The concern is that American courts would be in a position to pass judgment on foreign laws that may conflict with American ideals.[55]
The second argument for upholding the revenue rule is a separation of powers argument. Proponents of the revenue rule argue that where a court makes a judgment on the application of a foreign revenue law, such a ruling interferes with the executive and legislative branches’ right to make and set foreign policy.[56] Which branch of government is empowered to set foreign policy has been hotly debated?[57] The Constitution itself does not expound upon the proper source of foreign policy, but it does list the powers the President and Congress have which affect foreign policy.[58] While Congress has the power “[t]o regulate Commerce with foreign Nations,”[59] the President has the power “to appoint...and remove ambassadors,...recognize foreign states and governments, establish diplomatic relations with them, communicate official positions of the United States..., conduct negotiations, conclude international agreements, dispatch agents on international missions..., and protect the secrecy of diplomatic and intelligence documents.”[60] Despite the uncertainty of foreign policy power among the executive and legislative branches, it is clear that the judicial branch has no power to make foreign policy.[61] Proponents of the revenue rule argue that should the rule not be applied to export smuggling cases, courts would affect foreign policy by passing judgment on the validity of implicated foreign laws.[62]
A third justification for the revenue rule is the argument that U.S. courts are not required to, nor should they seek to, interpret and apply a foreign body of law of which they know nothing about.[63] Where the conviction or suit in the United States is contingent upon a finding of fact that the defendant violated the laws of a particular foreign nation, the finder of fact would have to determine whether those foreign laws have been violated, assuming that the defendant does not admit to violation of the foreign law.[64] In other federal criminal cases, where the court is compelled to try the issue of a violation of foreign law,[65] the Government must obtain foreign experts to testify that the foreign law was violated, a process that is ripe with difficulties.[66] Because of these inherent difficulties, coupled with the burdens placed on the U.S. courts, proponents of the revenue rule argue that the rule should remain as a bar for export smuggling prosecutions under the Mail and Wire Fraud Statutes.[67]
III. Circuit Splits: The Current State of
the Common Law Revenue Rule
Like many difficult areas of law, the application of the common law revenue rule and the Mail and Wire Fraud Statutes is fractured among the circuit courts. Only the First, Second, and Fourth circuits have addressed this application.[68] The likely reason that only three circuits have addressed this issue is simply because of the geographic limitations inherent in the fact scenarios. In the three cases discussed in detail below, the defendants were all operating their schemes in the northeast region of the United States, advantageously using their proximity to the Canadian border to carry out their smuggling operations.[69] While the defendants in the three cases discussed below acted similarly, the three circuits have not.[70] The varying methods the circuits have used to address export smuggling prosecutions under the Mail and Wire Fraud Statutes is exhibited in the opinions of the courts.
A. First Circuit: United States v. Boots[71]
In March 1996, the First Circuit Court of Appeals decided the case of United States v. Boots, setting the First Circuit’s precedent where the Mail and Wire Fraud Statutes and the common law revenue rule conflict.[72] In Boots, defendants engaged in a scheme to transport legally obtained tobacco into Canada “without paying the taxes and excise duties levied upon the importation of tobacco by Canadian laws.”[73] Defendants’ scheme came to the attention of the Federal Bureau of Investigation (“FBI”) when informant Frederick Moore, chief of police, was approached by defendants to aid in the scheme.[74] In furtherance of the crime, defendants obtained large amounts of tobacco products on Indian reservations located in northern New York.[75] The tobacco was then transported into Canada via border crosspoints from the reservation, passing across the St. Lawrence River in a boat.[76] Defendants would meet their Canadian contacts, who paid for the illegally imported tobacco.[77] Over the course of the scheme, approximately 1,850 kilograms of tobacco was smuggled into Canada by defendants.[78] According to a witness for the prosecution, $106.47 was due to Canada per kilogram of tobacco as excise duties,[79] totaling nearly two hundred thousand dollars in unpaid Canadian taxes. As there were several intrastate telephone conversations made in furtherance of the crimes, prosecutors were able to bring actions against defendants under the Wire Fraud Statute.[80]
As part of defendants’ defense, they argued that their intent was not to defraud Canada out of its due taxes, but rather that they carried out their activities with “a good faith belief in an aboriginal right to trade tobacco freely with Canada.”[81] In its analysis of the district court’s finding, the First Circuit addressed two issues that pertained to the wire fraud convictions.[82] First, the court addressed whether defendants’ act of transporting tobacco into Canada could be considered “fraud,” an element necessary for conviction under the statute,[83] in the absence of any affirmative misrepresentation.[84] Second, the court addressed the issue of whether unpaid Canadian tax revenue constituted “property,” as intended under the Wire Fraud Statute.[85]
As support for its proposition that an act “not to declare the tobacco was a sufficient form of deceit to meet the requirements of § 1343[,]”[86] the prosecution cited several cases where similar failures to declare were sufficient for a finding of fraud;[87] however, the court distinguished the prosecution’s supporting citations from the case at hand, noting that “the object of the scheme...was exclusively to defraud a foreign government, rather than our own, of customs and tax revenue imposed under foreign law.”[88] In one paragraph of the opinion, the court simply reasoned that because the intent to defraud was directed at a foreign country, “this added factor pushe[d] defendants’ scheme beyond the parameters of the frauds cognizable under § 1343 [the Wire Fraud Statute].”[89]
Regarding the second issue, the prosecution again relied on case law to support its argument that unpaid tax revenues constituted “property” for purposes of prosecution under the Wire Fraud Statute.[90] The court noted that all of the Government’s citations failed to deal specifically with the instance where the fraud “involved a scheme to deprive a foreign government of its own taxes and similar exactions.”[91] Thus the court rejected the Government’s argument that “[f]ederal wire prosecutions have been based on frauds against private foreign businesses and individuals[,]”[92] and distinguished that “schemes aimed at depriving a foreign government of duties and taxes are not the same as domestic tax frauds, nor are they even the same as private commercial frauds aimed at foreign business entities or individuals.”[93] The court further stated that because a foreign sovereign’s revenue laws may conflict with the ideals of the United States citizenry, it has long been held that no such laws would be enforced in United States courts.[94] In its analysis, the court alluded to the supporting arguments of the revenue rule: that courts are not competent to, nor should they be burdened with interpretation of foreign tax laws, and to do so interjects the judicial branch into the arena of foreign policy, an area reserved for the legislative and executive branches.[95] The court stated:
The rationale of the revenue rule has been said to be that revenue laws are positive rather than moral law; they directly affect the public order of another country and hence should not be subject to judicial scrutiny by American courts; and for our courts effectively to pass on such laws raises issues of foreign relations which are assigned to and better handled by the legislative and executive branches of government.[96]
Finally, the court stated that in the case of export smuggling, Congress manifested its intent in the Anti-Smuggling Statute. Specifically, Congress meant to affect foreign policy by prosecuting such crimes only where the foreign country possess a reciprocal arrangement to do the same.[97] To allow prosecutions for the same crimes the Anti-Smuggling Statute is intended to curtail would undermine the clear intent of Congress.[98] Although the court addressed and argued on behalf of upholding the revenue rule’s application, it ultimately rested its reversal of defendants’ wire fraud convictions on the rule stating that “foreign tax and customs frauds... are not schemes to defraud within the meaning of § 1343[.]”[99] Boots set the First Circuit precedent that export smuggling schemes could not be prosecuted under the Mail and Wire Fraud Statutes, not because such prosecutions were barred by the revenue rule, but because such schemes did not constitute “fraud” under the meaning of the statutes.[100]
B. Second Circuit: United States v. Trapilo[101]
In 1997, the Second Circuit Court of Appeals, in United States v. Trapilo, held that the revenue rule did not bar prosecutions under the Mail and Wire Fraud Statutes.[102] In Trapilo, the defendants engaged in a scheme in upstate New York on the St. Regis Mohawk Indian Reservation, which extends into both United States and Canadian territory.[103] Defendants’ scheme included ordering large quantities of liquor, and making use of interstate wires via phone calls, facsimiles, and wire transmissions.[104] The legally-obtained liquor was then transported into Canadian territory from the United States via the St. Lawrence River.[105] Other participants then delivered the products to black marketers operating in Montreal and Toronto.[106] Criminal actions were brought against defendants under the Wire Fraud Statute.[107] Defendants moved to dismiss, arguing the reasoning in Boots, that “the government did not have the authority to prosecute wire fraud aimed at defrauding a foreign government of tax or customs revenue.”[108] The district court agreed with the reasoning in Boots, and concluded that “the common law ‘revenue rule’ and other prudential considerations precluded application of the federal Wire Fraud Statute in alleged schemes to defraud foreign governments of tax revenue.”[109] Accordingly, the district court dismissed defendants’ indictment.[110]
On appeal, the Government argued that the court in Boots erred, and that “the Wire Fraud Statute condemns any scheme to defraud where interstate or foreign telecommunications systems are used, and does not require the court to determine the validity of Canadian tax law prior to finding a violation of the statute.”[111] The Second Circuit agreed.[112] The court’s analysis began with the application of statutory interpretation principals, reasoning that the plain meaning of the statutory language must be applied in absence of clear Congressional intent to the contrary.[113] Applying this reasoning, the court stated that a plain reading of the Wire Fraud Statute clearly prohibits any scheme intended to defraud.[114] The court further stated that the focus on the Mail and Wire Fraud Statutes is not on the property that is defrauded, but rather on the intent to defraud.[115] As such, the Mail and Wire Fraud Statutes prohibit the scheme, rather than the actual defrauding of property.[116] To support its determination that the scheme is the focus, the court further stated that Second Circuit precedent has upheld convictions where the defendant intended to defraud the state of New York of tax revenue, but ultimately failed to do so.[117] The court stated, “[t]he identity and location of the victim and the success of the scheme are irrelevant.”[118]
In applying this reasoning to schemes where the intent is to evade foreign taxation, the court reasoned that as long as the scheme involves the misuse of wires in furtherance of the scheme, the conviction is valid under the statute.[119] “The intent to defraud does not hinge on whether or not the appellees were successful in violating Canadian revenue law, as ‘[s]ection 1341 punishes the scheme, not its success.’”[120] In a footnote, the court alluded that their reasoning was, at least partly, couched in conspiracy law application and analysis, noting that their reasoning is “consistent with the law of conspiracy.”[121] For these reasons, Second Circuit Court of Appeals held that the common law revenue rule was improperly implicated in the analysis of this case, and accordingly, defendants’ indictments were reinstated.[122] With this case, the Second Circuit set the precedent that the revenue rule was not implicated in export smuggling cases because the determination of “property” was an irrelevant part of the convictions.[123]
IV. United States v. Pasquantino II:
A. Facts of the Case and Case History[124]
Defendant brothers David and Carl Pasquantino engaged in a smuggling operation that began in 1996 and continued through May 2000.[125] Defendants smuggled vast quantities of legally obtained liquor into Canada to be sold on the black market, an operation envisioned after Canada significantly increased its sin taxes on liquor[.][126] The intent of the scheme was to circumvent the excise duties and tax revenues that would otherwise be paid on legally-imported goods and reap the profits.[127]
The defendants were residents of Niagara Falls, New York, where they placed large orders for low-end liquor by telephone with various discount liquor stores located in Maryland.[128] A driver, usually not one of the defendants, would rent a truck, pick up the liquor orders and transport them back to New York for storage.[129] Later, another driver would smuggle smaller quantities of the liquor across the Canadian border in the trunk of a car.[130]
The United States Bureau of Alcohol, Tobacco and Firearms (“ATF”) became suspicious after discovering that eight discount liquor stores in Maryland had purchased unusually large quantities of low-end liquor from their wholesalers.[131] With cooperation from several liquor store owners, ATF agents were able to pursue an investigation which netted “numerous telephone, truck rental, and motel records, all which evinced the scheme.”[132] A joint investigation by ATF agents and the Royal Canadian Mounted Police led to surveillance of defendants and associates “loading liquor in Maryland and unloading it in Canada;” marked bottles of liquor were subsequently found in Canada.[133]
On April 13, 2000, the three defendants and four other individuals were indicted on six counts of wire fraud and aiding and abetting wire fraud.[134] Defendant petitioners moved to dismiss “on the ground that the United States did not have a justiciable interest in their putative smuggling scheme against Canada, a foreign sovereign.”[135] The motion was denied.[136]
Prior to the trial, the Government failed to give notice under Federal Rule of Criminal Procedure 26.1 that it intended to prove violation of a foreign law.[137] Instead, during the Government’s case in chief, Canadian Customs Intelligence Officer Gina Jonah (“Officer Jonah”) presented testimony that a Canadian federal excise tax and general sales tax existed, which approximated about one-hundred American dollars per case of liquor imported from the United States into Canada.[138] Officer Jonah’s testimony did not include her procedure for calculating such an amount, nor did her testimony explain the Canadian excise tax laws.[139] Defendants were subsequently convicted and sentenced to fifty-seven months imprisonment each, which included “an enhancement based on the government’s estimate of ‘intended loss’ to Canada and the province Ontario pursuant to U.S.S.G. § 2F1.1 (2000).”[140]
A Fourth Circuit Court of Appeals panel reversed the convictions in September 2002, relying on the “long-standing common law doctrine providing that courts of one sovereign will not enforce final tax judgments or unadjudicated tax claims of other sovereigns[.]”[141] In support of its decision, the panel commended the decision of the First Circuit in United States v. Boots, in which a conviction of wire fraud based on failure to pay foreign taxes was barred by the revenue rule.[142] The court further stated that the Second Circuit issued a “flawed” decision in the case of United States v. Trapilo, where the court found that the revenue rule did not bar such a conviction.[143] The Fourth Circuit reheard the case en banc,[144] and concluded with a decision that overturned the panel’s adjudication and reinstated defendants’ convictions.[145] The Fourth Circuit refused to presume that when Congress enacted the Wire Fraud Statute, it meant to never allow convictions whereby such convictions required the recognition of a foreign tax law.[146] Without being able to make such a finding, the court stated that it was bound by the “plain language of the wire fraud statute[,]” and thus defendants’ convictions were supported.[147]
B. The Fourth Circuit Court’s Ruling
In Pasquantino II, the case to which the United States Supreme Court granted certiorari, the Fourth Circuit Court, sitting en banc, held that the common law revenue rule does not bar convictions under the Mail and Wire Fraud Statutes.[148]
On appeal, the defendants argued that their convictions under the Wire Fraud Statute should be vacated for violation of the revenue rule.[149] The court began its analysis of the application of the revenue rule by attempting to ascertain the scope and history of the revenue rule.[150] The court stated that “[u]nder relevant Supreme Court precedent, the only circumstance under which we may hold that this conduct is beyond the reach of the wire fraud statute is if, at the time Congress enacted the Wire Fraud Statute in July 1952, well established common law provided that the courts of one sovereign were prohibited from recognizing the existence of the revenue laws of a foreign sovereign.”[151] The court further stated the various articulations of the revenue rule.[152] The court looked primarily at the Restatement (Third) of Foreign Relations Law of the United States (1987), articulating that the Restatement has often been relied upon by the courts in determining the application of the revenue rule.[153] Specifically, the Restatement restates the revenue rule as “Courts in the United States are not required to recognize or to enforce judgment for the collection of taxes, fines, or other penalties rendered by the courts of other states.”[154] The court also cited Attorney General of Canada v. R.J. Reynolds Tobacco Holdings, Inc.,[155] in support of this interpretation, quoting “‘a longstanding common law doctrine providing that courts of one sovereign will not enforce final tax judgments or unadjudicated tax claims of other sovereigns.’”[156] Finally, the court cited Her Majesty the Queen ex rel. B.C. v. Gilbertson,[157] stating that this was the first federal case to invoke the revenue rule, a case which “described the common law revenue rule as an exception to the general rule in that judgments from a foreign country are recognized by the courts of this country when the general principals of comity are satisfied.”[158]
Defendants argued in their brief to the Fourth Circuit that the revenue rule’s proper interpretation must be one of a mandatory rule, rather than a discretionary rule as the Restatement would have it;[159] however, the court dismissed this argument as being unsupported by proper authority, as defendant’s support was taken from alleged dicta.[160] The court determined that the common law revenue rule, regardless of its application, is a broad, permissive interpretation, allowing United States courts to choose when to enforce foreign revenue laws.[161] It is also important to note, as the dissent does, that at some point in its reasoning, the Fourth Circuit narrowed its interpretation of the scope of the revenue rule to the term “enforcement” and did not include the term “recognition.”[162]
The Fourth Circuit additionally addressed whether the common law revenue rule is applicable to the Mail and Wire Fraud Statutes, even if it is assumed that the revenue rule is narrow in scope and requires courts not to recognize or enforce foreign revenue laws.[163] The court found that the Mail and Wire Fraud Statutes do not seek to enforce the revenue laws of another sovereign, but rather to prevent the misuse of our mail and wire systems.[164] “Thus, the fact that the property at issue in the [d]efendants’ wire fraud scheme belonged to foreign governments by virtue of these governments’ respective revenue laws is merely incidental to prosecution under the federal wire fraud statute.”[165] Further, the defendants argued that to allow courts to address validity issues of a foreign sovereign’s revenue laws interferes with foreign policy, an area of law reserved for the executive and legislative branches, and thus raises separation of powers issues.[166] The court dismissed defendants’ separation of powers concerns with very little reasoning: “to the extent matters of foreign policy were implicated by prosecution of the [d]efendants on the wire fraud charges in this case, such matters were passed upon by the only two branches of our federal government charged by our Constitution with the power to make foreign policy decisions.”[167] The court reasoned that because Congress enacted the statute, and because federal prosecutors under the authority of the executive branch initiated the charge under the statute, the constitutional limitations of foreign policy were met.[168]
The Fourth Circuit distinctly separated the issue of the applicability of the revenue rule from the factual determination that unpaid potential tax revenue constituted “property” for purposes of the wire fraud conviction.[169] After determining that the revenue rule was inapplicable due to its historical sc |
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