Academic journal article Journal of Criminal Law and Criminology

Whiskey and the Wires: The Inadvisable Application of the Wire Fraud Statute to Alcohol Smuggling and Foreign Tax Evasion

Academic journal article Journal of Criminal Law and Criminology

Whiskey and the Wires: The Inadvisable Application of the Wire Fraud Statute to Alcohol Smuggling and Foreign Tax Evasion

Article excerpt

I. INTRODUCTION

In Pasquantino v. United States, (1) the Supreme Court held that a scheme to defraud a foreign government of tax revenue violates the wire fraud statute. (2) The Court further held that the common law revenue rule does not preclude prosecutions for wire fraud violations arising from such a scheme. (3) In reaching these conclusions, the Court affirmed the convictions of three men who had been prosecuted under the wire fraud statute (4) for a scheme to evade Canadian excise taxes by smuggling alcohol into Canada from the United States. (5) The Supreme Court's decision is correct to the extent that it asserts that the wire fraud statute does not derogate from any well-established revenue rule principle barring prosecution for a scheme to evade foreign taxes. (6) However, the Court's ruling is, ultimately, erroneous because a scheme to evade foreign taxes does not properly fall within the scope of the wire fraud statute.

This Note examines several reasons why wire fraud prosecutions arising from a scheme to evade foreign taxes are not barred by the common law revenue rule. First, the rule only prohibits domestic courts from direct enforcement of a foreign sovereign's tax judgments or unadjudicated tax claims. Within American revenue rule jurisprudence, no well-established principle bars prosecution for domestic criminal conduct when it may also result in the indirect enforcement of foreign revenue laws. (7) Second, the traditional rationales underlying the revenue rule--national sovereignty, separation of powers, and judicial competency--do not suggest that wire fraud prosecutions for a scheme to evade foreign taxes should be barred. (8) Finally, the revenue rule is discretionary in nature and does not sweep so broadly as to establish an absolute prohibition upon prosecutions involving any degree of recognition of foreign revenue laws. (9)

This Note also argues that the Supreme Court's decision is wrong because it misinterprets the boundaries of the wire fraud statute and, in turn, gives it extraterritorial effect not clearly intended by Congress. At first glance, a scheme to evade foreign taxes appears to meet the statute's literal terms. (10) Yet, the statute's literal terms cannot be evaluated in a vacuum. Therefore, these terms must be assessed within a broader frame of reference that includes the statute's legislative history, principles of statutory construction, and related congressional enactments. (11) The legislative history weighs against the Court's ruling since the statute was drafted with a focus on domestic schemes, and concomitant domestic injuries resulting from misuse of United States wires. (12) Moreover, the decision runs afoul of the Court's long-held presumption that Congress ordinarily intends for its statutes to have only domestic, and not extraterritorial, application. (13) Prison sentences and restitution awards resulting from wire fraud convictions for smuggling schemes are calculated based on the combined impact of the domestic and extraterritorial conduct. (14) Absent a clearer directive from Congress, the Court's decision grants an unwarranted extension of the reach of federal criminal law to prosecute and punish strongly intertwined domestic and foreign conduct.

II. BACKGROUND

A. THE FEDERAL WIRE FRAUD STATUTE

The Federal Communications Commission championed the adoption of a federal wire fraud statute out of concern that "the rapid growth of interstate communication facilities ... had given rise to a variety of fraudulent activities ... which were not within the range of existing law." (15) Enacted in 1952, the federal wire fraud statute reads as follows:

 
   Whoever, having devised or intending to devise any scheme or 
   artifice to defraud, or for obtaining money or property by 
   means of false or fraudulent pretenses, representations, or 
   promises, transmits or causes to be transmitted by means of wire, 
   radio, or television communication in interstate or foreign 
   commerce, any writings, signs, signals, pictures, or sounds for 
   the purpose of executing such scheme or artifice, shall be 
   fined under this title or imprisoned not more than 20 years, or 
   both. … 
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