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OPINION ON REHEARING EN BANC
PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
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UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.No. 01-4463
DAVID B. PASQUANTINO,
Defendant-Appellant.
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UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.No. 01-4464
CARL J. PASQUANTINO,
Defendant-Appellant.
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UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.No. 01-4465
ARTHUR HILTS, a/k/a Butch,
Defendant-Appellant.
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Appeals from the United States District Court for the District of Maryland, at Baltimore. J. Frederick Motz, District Judge. (CR-00-202-JFM)
Argued: April 2, 2003
Decided: July 18, 2003
Before WILKINS, Chief Judge, WIDENER, WILKINSON, NIEMEYER, WILLIAMS, MICHAEL, TRAXLER, KING, GREGORY, and SHEDD, Circuit Judges, and HAMILTON, Senior Circuit Judge.
____________________________________________________________
Affirmed by published opinion. Senior Judge Hamilton wrote the
opinion, in which Chief Judge Wilkins and Judges Widener, Wilkin-
son, Niemeyer, Williams, Traxler, King, and Shedd joined. Judge
Gregory wrote a dissenting opinion, in which Judge Michael joined.
____________________________________________________________
COUNSEL
ARGUED: Bruce Robert Bryan, Syracuse, New York; Jensen Eger-
ton Barber, JENSEN E. BARBER & ASSOCIATES, Washington,
D.C.; Isaac Joe, Jr., Baltimore, Maryland, for Appellants. Gregory
Welsh, First Assistant United States Attorney, Baltimore, Maryland,
for Appellee. ON BRIEF: Michael J. McCarthy, Bowie, Maryland,
for Appellant Carl Pasquantino. Thomas M. DiBiagio, United States
Attorney, Baltimore, Maryland, for Appellee.
____________________________________________________________
OPINION
HAMILTON, Senior Circuit Judge:
David Pasquantino, Carl Pasquantino, and Arthur Hilts (collec-
tively the Defendants) were convicted of using interstate wires for the
purpose of executing a scheme to defraud Canada and the Province
of Ontario of excise duties and tax revenues relating to the importa-
tion and sale of liquor. According to the Defendants, their convictions
and sentences cannot stand because, inter alia, application of the
common law revenue rule precludes prosecution under the federal
wire fraud statute, 18 U.S.C. § 1343, for use of interstate wires for the
purpose of executing a scheme to defraud a foreign sovereign of its
property rights in accrued tax revenue. Sitting en banc, we reject this
argument and hold that the common law revenue rule does not pre-
2
clude prosecution under the wire fraud statute for use of interstate
wires for the purpose of executing a scheme to defraud a foreign sov-
ereign of its property rights in accrued tax revenue. We also reject the
Defendants' other arguments in challenge of their convictions and
Hilts' challenge to his sentence. Accordingly, we affirm.
I.
Viewed in the light most favorable to the government, the evidence
at trial revealed a substantial liquor smuggling operation beginning in
1996 and continuing through May 2000. No doubt this smuggling
operation was spawned to supply a black market for liquor in Canada
that had been created when, some years ago, Canada increased the sin
taxes on liquor to such a level that Canadian taxes significantly
exceeded comparable United States taxes.
Brothers David and Carl Pasquantino, residents of Niagara Falls,
New York, devised and headed the smuggling operation, which con-
stituted a scheme to defraud Canada and the Province of Ontario of
excise duties and tax revenues relating to the importation and sale of
liquor in Canada. The scheme to defraud generally operated as fol-
lows: (1) while in New York, Carl or David Pasquantino would place
a large order for low-end liquor by telephone with a discount liquor
store in Maryland; (2) a driver such as Arthur Hilts used a rented
truck to pick up the liquor from the discount liquor store in Maryland
and transport it to New York for storage; and (3) a driver smuggled
a lesser quantity of the liquor across the Canadian border in the trunk
of a vehicle.
After agents from the United States Bureau of Alcohol, Tobacco,
and Firearms (ATF agents) discovered that eight discount retail liquor
stores in Maryland had purchased unusually large quantities of low-
end liquor from wholesalers, a criminal investigation ensued. Two of
the store owners cooperated proactively with ATF agents by record-
ing telephone conversations and advising the agents of calls and visits
by the Defendants.1 Moreover, ATF agents obtained numerous tele-
____________________________________________________________
1 In exchange for their cooperation, the store owners were not prose-
cuted for violations of United States Department of Treasury Regulations
which required that they record and report bulk sales of alcohol.
3
phone, truck rental, and motel records, all of which evidenced the
scheme. Border crossings were monitored electronically, tracking
license plates of vehicles entering Canada. Several vehicles that were
registered to drivers involved in the scheme failed to stop for a second
inspection when requested. ATF agents and Royal Canadian Mounted
Police also conducted surveillance of David and Carl Pasquantino and
their associates loading liquor in Maryland and unloading it in Canada
after it was smuggled through Canadian customs. Marked bottles of
liquor were recovered in Canada.
Subsequently, the Defendants were indicted, along with four other
individuals, on six counts of wire fraud and aiding and abetting wire
fraud, in violation of 18 U.S.C. §§ 2 and 1343.2 The Defendants filed
a pretrial motion to dismiss the indictment on the ground that the
common law revenue rule barred their prosecution under the federal
wire fraud statute. Alternatively, the Defendants grounded their dis-
missal motion on the basis that accrued tax revenue does not consti-
tute property under the federal wire fraud statute. Following the
district court's denial of the motion, the case proceeded to trial before
a jury.
At trial, the eight Maryland liquor store owners testified for the
government regarding their dealings with the Pasquantinos. Three
identified Hilts as one of the drivers who picked up large orders of
liquor for the Pasquantinos. In addition to the store owners, two men
who had been involved in the scheme testified that they transported
liquor for David and Carl Pasquantino from the United States into
Canada, and that the Pasquantinos paid them cash for each run. Cana-
____________________________________________________________
2 At the time of the offenses charged in the indictment, the wire fraud
statute provided, in relevant part:
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 . . . com-
munication 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 impris-
oned not more than five years, or both.
18 U.S.C. § 1343 (2000).
4
dian Customs Intelligence Officer Gina Jonah (Officer Jonah) testi-
fied that there is a Canadian federal excise tax and general sales tax,
as well as a Liquor Control Board of Ontario tax and a provincial
sales tax on liquor imported from the United States into Canada. Offi-
cer Jonah, a seventeen-year veteran employee of Canadian Customs,
explained that the equivalent of approximately one-hundred American
dollars would be due and owing on a case of liquor that was pur-
chased in the United States for fifty-six American dollars and
imported into Canada. She stated that generally the amount of Cana-
dian tax due is twice the purchase price of the case of liquor in the
United States.
David and Carl Pasquantino were convicted on all six counts of the
indictment and sentenced to fifty-seven months' imprisonment on
each count, to be served concurrently. Before the case was submitted
to the jury, the district court dismissed all but Count I against Arthur
Hilts. Hilts was convicted on that count and sentenced to twenty-one
months' imprisonment. This timely appeal followed.
The Defendants' convictions were subsequently vacated by a two-
to-one panel decision. United States v. Pasquantino, 305 F.3d 291
(4th Cir. 2002), vacated and reh'g en banc granted, (4th Cir. 2003).
Upon the government's suggestion, a majority of full-time, active cir-
cuit judges voted to rehear the case en banc.
II.
The Defendants' primary argument is that the district court erred
in denying their motion to dismiss because the common law revenue
rule precludes their prosecution on federal wire fraud charges. The
Defendants' argument presents an issue of first impression in the
Fourth Circuit. To be clear, the issue is whether application of the
common law revenue rule puts beyond the reach of the federal wire
fraud statute, 18 U.S.C. § 1343, the use of interstate wires for the pur-
pose of executing a scheme to defraud a foreign sovereign of its prop-
erty rights in accrued tax revenue.
We begin our analysis of this issue by recognizing that its resolu-
tion depends in large measure upon determining the proper formula-
tion of the common law revenue rule in American jurisprudence.
5
Assuming arguendo that a government's right to accrued tax revenue
constitutes property for purposes of the wire fraud statute (an issue we
address in Part III of this opinion), the wire fraud statute, on its face,
criminalizes the Defendants' conduct of engaging in a scheme to
defraud Canada and the Province of Ontario of tax revenue. Under
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. Astoria Fed. Sav. & Loan
Ass'n v. Solimino, 501 U.S. 104, 108 (1991) ("where a common-law
principle is well established . . . the courts may take it as given that
Congress has legislated with an expectation that the principle will
apply except when a statutory purpose to the contrary is evident")
(internal quotation marks and citations omitted). Without the exis-
tence of such well-established common law, our setting aside of the
Defendants' convictions and sentences as posited by the Defendants
would be ultra vires. Id. ("Courts do not, of course, have free rein to
impose [common law] rules of preclusion, as a matter of policy, when
the interpretation of a statute is at hand.").
A logical starting point in determining the proper formulation of
the common law revenue rule in American jurisprudence is the
Restatement (Third) of Foreign Relations Law of the United States
(1987) (hereinafter "the Restatement"), which courts often rely upon
as an authoritative exposition of the foreign relations law of the
United States. See, e.g., C & L Enters. Inc. v. Citizen Band Potawa-
tomi Indian Tribe of OK, 532 U.S. 411, 421 n.3 (2001); Hartford Fire
Ins. Co. v. California, 509 U.S. 764, 796 (1993); United States v.
Boots, 80 F.3d 580, 587 (1st Cir. 1996); Palma v. Verdeyen, 676 F.2d
100, 106 n.5 (4th Cir. 1982). Section 483 of the Restatement provides
the following formulation of the common law revenue rule: "Courts
in the United States are not required to recognize or to enforce judg-
ments for the collection of taxes, fines, or penalties rendered by the
courts of other states." The Restatement § 483.
The formulation of the common law revenue rule found in most
case law is nearly identical to that of the Restatement. For example,
in Attorney General of Canada v. R.J. Reynolds Tobacco Holdings,
6
Inc., 268 F.3d 103 (2d Cir. 2001), cert. denied, 123 S. Ct. 513 (2002),
the Second Circuit described the common law revenue rule as "a
longstanding common law doctrine providing that courts of one sov-
ereign will not enforce final tax judgments or unadjudicated tax
claims of other sovereigns." Id. at 109. Similarly, the First Circuit, in
Boots, stated that the common law revenue rule "holds that courts
generally will not enforce foreign tax judgments . . . ." Boots, 80 F.3d
at 587 (citing the Restatement § 483 as authority). The Ninth Circuit,
in Her Majesty the Queen ex rel. B.C. v. Gilbertson, 597 F.2d 1161
(9th Cir. 1979), the first federal case ever to invoke the common law
revenue rule in the international context, described the common law
revenue rule as an exception to the general rule that judgments from
a foreign country are recognized by the courts of this country when
the general principles of comity are satisfied. Id. at 1163. And
although the Supreme Court has never passed upon the precise scope
of the common law revenue rule, in 1964, it noted that many courts
in the United States have adhered to the principle that "a court need
not give effect to the penal or revenue laws of foreign countries."
Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 413 (1964).
Some rationales commonly given for the formulation of the com-
mon law revenue rule as found in the Restatement and the case law
in accord are: (1) the reluctance of courts to subject foreign public law
to potentially embarrassing judicial scrutiny, see, e.g., Her Majesty
the Queen ex rel. B.C., 597 F.2d at 1164-65; (2) the courts of one
nation have no obligation to further the governmental interests of a
foreign nation, see, e.g., Sabbatino, 376 U.S. at 448 (White, J., dis-
senting on other grounds); and (3) the noninterference by the judicial
branch in matters of foreign policy which fall within the exclusive
province of the executive and legislative branches of our federal gov-
ernment, see, e.g., Attorney Gen. of Canada, 268 F.3d at 114.
The Defendants discount the Restatement's formulation of the
common law revenue rule and that of the case law in accord as too
narrow and merely evincing the typical application of the rule. The
actual rule, they claim, is much broader and provides that no nation,
under any circumstances, shall ever recognize the tax laws of a for-
eign sovereign. The Defendants then argue that because their convic-
tions on the wire fraud charges in this case would necessarily require
an American court to recognize certain revenue laws of Canada and
7
the Province of Ontario, the common law revenue rule precludes their
prosecution. Thus, as applied in the present case, the Defendants view
the common law revenue rule as an absolute prohibition on American
courts from recognizing a revenue law of a foreign sovereign in any
context.
The Defendants cite the separation of powers rationale and the
avoid embarrassment rationale as the two rationales for their version
of the common law revenue rule. Additionally, they posit that applica-
tion (of their version) of the common law revenue rule to vacate their
wire fraud convictions and sentences serves both of these rationales.
In support of their broad formulation of the common law revenue
rule, the Defendants rely on dicta in two eighteenth-century, British
contract cases written by Lord Mansfield. The first case is Holman v.
Johnson, 98 Eng. Rep. 1120 (K.B. 1775). The subject of the contract
in Holman was the sale of tea in France, which tea the parties knew
was to be smuggled into England to avoid English customs duties.
The French seller sued the English buyer in England to recover the
purchase price. Id. The English buyer argued in defense that the con-
tract was void for an illegal purpose. Id.
Lord Mansfield first determined the conflict of laws issue in that
case as follows:
There can be no doubt, but that every action tried here
must be tried by the law of England; but the law of England
says, that in a variety of circumstances, with regard to con-
tracts legally made abroad, the laws of the country where
the cause of action arose shall govern. There are a great
many cases which every country says shall be determined
by the laws of foreign countries where they arise. But I do
not see how the principles on which that doctrine obtains are
applicable to the present case. For no country ever takes
notice of the revenue laws of another.
Id. at 1121 (emphasis added). Lord Mansfield then discussed whether
the French seller had engaged in an illegal act:
8
This is an action brought merely for goods sold and deliv-
ered at Dunkirk[, France]. Where then, or in what respect is
the plaintiff guilty of any crime? Is there any law of England
transgressed by a person making a complete sale of a parcel
of goods at Dunkirk, and giving credit for them? The con-
tract is complete, and nothing is left to be done.
Id. Clearly, Lord Mansfield's statement concerning whether a country
would recognize the revenue laws of a foreign sovereign was not
made in the context of his decision on the merits of the case, but on
the choice of law issue. Indeed, in the words of one legal commenta-
tor, such statement "was not directed to the merits of the case; it was
not necessary to decide the case, and was therefore dictum." William
J. Kovatch, Jr., Recognizing Foreign Tax Judgments: An argument for
the revocation of the revenue rule, 22 Hous. J. Int'l L. 265, 276
(2000). See Her Majesty the Queen ex rel. B.C., 597 F.2d at 1164
(characterizing as dictum Lord Mansfield's statement in Holman
regarding whether a country would recognize the revenue laws of a
foreign sovereign).
The second case upon which the Defendants rely is Planche v.
Fletcher, 99 Eng. Rep. 164 (1779). The plaintiff in Planche obtained
insurance for cargo aboard a ship in England ultimately bound for
France. Id. Following destruction of the cargo, the plaintiff sued the
insurance company for payment and won. Id.
On appeal, the insurance company challenged the verdict on the
ground that the plaintiff had fraudulently obtained the insurance pol-
icy by declaring a false shipping route in order to avoid paying higher
French duties on goods imported from England as compared to goods
imported from Belgium. Lord Mansfield held that no fraud existed
because "[w]hat had been practiced in this case was proved to be
constant course of trade, and notoriously so to every body." Id. at 165.
After eschewing the existence of any fraud on the part of the plaintiff,
Lord Mansfield added in dictum: "But, at any rate, this was no fraud
in this country. One nation does not take notice of the revenue laws
of another." Id.See Her Majesty the Queen ex rel. B.C., 597 F.2d at
1164 (characterizing as dictum Lord Mansfield's statement in Planche
regarding whether a country would recognize the revenue laws of a
foreign sovereign).
9
The Defendants have two significant problems with relying on
Holman and Planche as authority for defining the common law reve-
nue rule as a prohibition on the courts of one nation from recognizing
the revenue laws of a foreign sovereign in any context. The first sig-
nificant problem is that the statements they rely upon in the two cases
are pure and simple dicta, and, therefore, cannot serve as a source of
binding authority in American jurisprudence. See, e.g., Alexander v.
Sandoval, 532 U.S. 275, 282 (2001) ("[T]his Court is bound by hold-
ings, not language."); Kokkonen v. Guardian Life Ins. Co., 511 U.S.
375, 379 (1994) ("It is to the holdings of our cases, rather than their
dicta, that we must attend . . . ."); United States v. Dixon, 509 U.S.
688, 706 (1993) (quoting United States Nat. Bank of Or. v. Indepen-
dent Ins. Agents of Am., Inc., 508 U.S. 439, 463, n.11 (1993), on "`the
need to distinguish an opinion's holding from its dicta'"). The second
significant problem is that the two rationales that the Defendants cite
in support of their expansive version of the common law revenue rule
are not even traceable to Holman and Planche. Rather, the statements
by Lord Mansfield in those cases upon which the Defendants rely
have as their sole rationale the protection of British trade from the
oppressiveness of high foreign customs duties. See Attorney Gen. of
Canada, 268 F.3d at 110; William S. Dodge, Breaking the Public
Law Taboo, 43 Harv. Int'l L. J. 161, 170 (2002).
In short, Holman and Planche are inadequate authority for the
proposition that, at the time Congress enacted the wire fraud statute
in 1952, it was well-established at common law that the courts of one
nation could never recognize the revenue laws of a foreign sovereign.
Indeed, all persuasive authority supports the position that the Restate-
ment's formulation of the common law revenue rule and that of the
case law in accord reflects the formulation of the common law reve-
nue rule in existence at the time that Congress enacted the wire fraud
statute in 1952. Critically, such formulation speaks in permissive not
mandatory terms and pertains to the nonenforcement of foreign tax
judgments as opposed to the nonrecognition of foreign revenue laws.3
____________________________________________________________
3 The dissent relies on this sentence to charge that rather than applying
the Restatement's formulation of the common law revenue rule as stated,
we have "narrow[ed] its application only to those rare instances in which
a court is compelled to actually enforce the judgment of a foreign court."
10
Under these circumstances, we cannot presume that when Congress
enacted the wire fraud statute in 1952, it did so with the intent that
any prosecution thereunder could not involve recognition or obser-
vance of the revenue laws of a foreign sovereign. Astoria Fed. Sav.
& Loan Ass'n, 501 U.S. at 108. Without such a presumption, we have
no basis upon which to ignore the plain language of the wire fraud
statute, which language (assuming arguendo that a sovereign's right
to tax revenue constitutes property for purposes of the wire fraud stat-
ute) squarely encompasses the Defendants' conduct.
The Defendants make a related alternative argument that even
application of the Restatement version of the common law revenue
rule requires that we vacate their convictions and sentences under the
wire fraud statute, asserting that our affirmance of their convictions
and sentences would be the functional equivalent of enforcing the rev-
enue laws of Canada and the Province of Ontario.
We candidly acknowledge that the Defendants' argument is not
without support. In Boots, the defendants had been convicted of wire
fraud for their participation in a scheme, using interstate wires, to
defraud Canada and the Province of Nova Scotia of excise duties and
tax revenues due on imported tobacco. Boots, 80 F.3d at 583. The
First Circuit vacated the convictions in large measure on the basis that
"upholding defendants' section 1343 conviction [s] would amount
functionally to penal enforcement of Canadian customs and tax laws"
in violation of the common law revenue rule. Id. at 587. The First Cir-
cuit reached this conclusion on the basis that conviction of the defen-
dants effectively required it and the district court to pass upon the
____________________________________________________________
Post at 24. The dissent completely misreads the sentence, which
expressly recognizes that the Restatement's formulation of the common
law revenue rule "speaks in permissive not mandatory terms." Further-
more, the dissent's charge misses the critical distinction between the
nonenforcement (or nonrecognition) of foreign tax judgments, as is
addressed in the Restatement's formulation of the common law revenue
rule, with the nonenforcement (or nonrecognition) of foreign revenue
laws, which is not at all addressed in that formulation. The distinction is
critical because prosecution of the Defendants depended neither upon the
enforcement nor recognition of a foreign tax judgment.
11
validity and operation of a foreign sovereign's revenue laws, thus
implicating the important concerns underlying the common law reve-
nue rule.4 Id. According to the First Circuit, national policy judgments
of the legislative and executive branches in the area of foreign policy
could be undermined, and the revenue laws of a foreign sovereign
subjected to intrusive scrutiny, were federal courts to uphold prosecu-
tions of wire fraud schemes aimed at violating the revenue laws of a
foreign sovereign. Id. at 587-88.
We reject the Defendants' argument that affirmance of their con-
victions and sentences for wire fraud would be the functional equiva-
lent of enforcing the revenue laws of Canada and the Province of
Ontario, and thus in violation of the common law revenue rule. In
making this argument, the Defendants, and the First Circuit in Boots
for that matter, miss the critical point that prosecution for violation of
the federal wire fraud statute, even when the subject of the wire fraud
scheme involved is certain tax revenue due a foreign sovereign, does
nothing civilly or criminally to enforce any tax judgments or claims
that the foreign sovereign has or may later obtain against the defen-
dant. Neither does such prosecution enforce the revenue laws of the
foreign sovereign involved. Rather, such prosecution seeks only to
enforce the federal wire fraud statute for the singular goal of vindicat-
ing our government's substantial interest in preventing our nation's
interstate wire communication systems from being used in furtherance
of criminal fraudulent enterprises. Thus, the fact that the property at
issue in the Defendants' wire fraud scheme belonged to foreign gov-
ernments by virtue of those governments' respective revenue laws is
merely incidental to prosecution under the federal wire fraud statute.
Moreover, affirming the Defendants' wire fraud convictions and
sentences in this case presents no separation of powers problems, the
only rationale of the common law revenue rule with jurisdictional
underpinnings. Congress enacted the wire fraud statute and the United
States Attorney, acting on behalf of the United States as directed by
the Executive Branch, made the decision to seek the Defendants'
indictment thereunder. Thus, to the extent matters of foreign policy
____________________________________________________________
4 Notably, the Boots court relied upon the Restatement as authority for
defining the common law revenue rule as follows:"[C]ourts generally
will not enforce foreign tax judgments . . . . Boots, 80 F.3d at 587.
12
were implicated by prosecution of the Defendants 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. Chicago & S. Air Lines,
Inc. v. Waterman S.S. Corp., 333 U.S. 103, 111 (1948) (declaring that
decisions as to foreign policy "are wholly confided by our Constitu-
tion to the political departments of the government, Executive and
Legislative"). However, we have no doubt that a significant separa-
tion of powers problem would arise were we to play diplomat from
the bench by relying on a novel expansion of the common law reve-
nue rule, no doubt a policy laden rule, to set aside the Defendants'
wire fraud convictions and sentences.
We find strong support for our rejection of the Defendants' argu-
ments involving the common law revenue rule in United States v.
Trapilo, 130 F.3d 547 (2d Cir. 1997). In that case, the Second Circuit
considered whether a scheme (essentially identical to the one before
us) to defraud Canada of tax revenue is cognizable under the federal
wire fraud statute, 18 U.S.C. § 1343. Trapilo, 130 F.3d at 548. The
Second Circuit held that "[t]he statute neither expressly, nor
impliedly, precludes the prosecution of a scheme to defraud a foreign
government of tax revenue, and the common law revenue rule, inap-
plicable to the instant case, provides no justification for departing
from the plain meaning of the statute." Id. at 551.
In sum, we hold the district court did not err in denying the Defen-
dants' motion to dismiss the indictment, which motion the Defendants
premised upon their argument that the common law revenue rule pre-
cludes their prosecution for wire fraud.
III.
The Defendants next argue that under the Supreme Court's deci-
sion in Cleveland v. United States, 531 U.S. 12 (2000), a govern-
ment's right to collect accrued tax revenue is not a property right for
purposes of the wire fraud statute. In this regard, the Defendants rely
on the following language from Cleveland: "It does not suffice, we
clarify, that the object of the fraud may become property in the recipi-
ent's hands; for purposes of the mail fraud statute, the thing obtained
13
must be property in the hands of the victim." Cleveland, 531 U.S. at
15.
The Defendants' reliance on this language in Cleveland is com-
pletely misplaced. The defendant in Cleveland was prosecuted under
the mail fraud statute (sister of the wire fraud statute), 18 U.S.C.
§ 1341, for making false statements in applying to the Louisiana State
Police for a license to operate video poker machines.5 The Supreme
Court held that permits or licenses of this order do not qualify as
"property" for purposes of the mail fraud statute. Id. at 16, 26-27. The
Court reached this holding on the bases that the property at issue had
to be property that was valuable in the hands of the victim, not just
valuable in the hands of the defendant, and that an unissued video
poker license did not constitute property that was valuable in the
hands of the State of Louisiana.6 Id. at 22-27.
In contrast to the facts in Cleveland, because a government has a
property right in tax revenues when they accrue, see Manning v. See-
ley Tube & Box Co., 338 U.S. 561, 566 (1950), the tax revenues owed
Canada and the Province of Ontario by reason of the Defendants'
conduct in the present case constitute property for purposes of the
wire fraud statute. United States v. Brewer, 528 F.2d 492, 495 (4th
Cir. 1975) (holding that plain language of the mail fraud statute "con-
demns any scheme to defraud in which the mails are employed,
including the evasion of sales and use taxes") (emphasis added).
Indeed, the Court in Cleveland conspicuously pointed out that the
government in that case had "nowhere allege[d] that Cleveland
defrauded the State of any money to which the State was entitled by
law." Cleveland, 531 U.S. at 22. In sum, we hold that Canada and the
Province of Ontario's right to accrued tax revenue constitutes a suffi-
cient property right for wire fraud purposes, unaffected by the Court's
decision in Cleveland.
____________________________________________________________
5 Because the mail and wire fraud statutes share the same language in
relevant part, we apply the same analysis to both offenses. Carpenter v.
United States, 484 U.S. 19, 25 n.6 (1987).
6 Indeed, a great deal of the Court's opinion is devoted to a discussion
of why an unissued video poker license is of no monetary value to the
State of Louisiana. Cleveland, 531 U.S. at 20-25.
14
IV.
The Defendants make several challenges to the sufficiency of the
evidence in support of their convictions. We review the sufficiency
of the evidence to support a conviction by determining whether there
is substantial evidence in the record, when viewed in the light most
favorable to the government, to support the conviction. United States
v. Burgos, 94 F.3d 849, 860 (4th Cir. 1996) (en banc). In determining
whether the evidence in the record is substantial, we examine whether
there "is evidence that a reasonable finder of fact could accept as ade-
quate and sufficient to support a conclusion of a defendant's guilt
beyond a reasonable doubt." Id. at 862. We are also mindful that our
reversal of a conviction on grounds of insufficient evidence is "`con-
fined to cases where the prosecution's failure is clear.'" United States
v. Jones, 735 F.2d 785, 791 (4th Cir. 1984) (quoting Burks v. United
States, 437 U.S. 1, 17 (1978)).
Wire fraud is established through the existence of a scheme to
defraud and the use of interstate wires in furtherance of that scheme.
United States v. Bollin, 264 F.3d 391, 407 (4th Cir. 2001), cert.
denied, 534 U.S. 935 (2001) and 535 U.S. 989 (2002). The scheme
or artifice to defraud can be in the form of an assertion of a material
falsehood with the intent to deceive or active concealment of a mate-
rial fact with the intent to deceive. United States v. Colton, 231 F.3d
890, 899-901 (4th Cir. 2000). A fact is material if it has a natural ten-
dency to influence or is capable of influencing the intended victim.
Neder v. United States, 527 U.S. 1, 22, 24 (1999). Cf. United States
v. Gaudin, 515 U.S. 506, 509 (1995); Kungys v. United States, 485
U.S. 759, 770 (1988).
A. Materiality.
The Defendants contend that, assuming arguendo they had
engaged in a scheme to defraud Canada and the Province of Ontario
of excise duties and tax revenues by virtue of a liquor smuggling
operation, the evidence was insufficient to establish that such scheme
depended upon a material falsehood or active concealment of a mate-
rial fact. We disagree. Reasonable inferences from the evidence at
trial establish that the Defendants' scheme depended in large measure
upon their purposeful routine failure to declare their possession of
15
imported liquor when asked to declare any "goods that [they had]
entering Canada" by a Canadian Customs Officer in the Primary
Inspection Line at the United States/Canadian border. (J.A. 179). We
have no doubt that such failure to declare was capable of influencing
Canadian Customs Officers to allow vehicles containing concealed
liquor to proceed on into Canada without further inspection by Cana-
dian Customs Officials for the purpose of identifying goods subject
to excise duties and taxes. Accordingly, we hold the evidence was
sufficient to establish their active concealment of a material fact with
intent to deceive. Cf. Brewer, 528 F.2d at 496 (defendant's scheme to
sell cigarettes into another state through the mail without registering
with tax officials in that state, as required by the Jenkins Act, in order
that purchasers in that state could avoid paying sales taxes on the cig-
arettes constitutes mail fraud).
B. Existence of Tax Laws.
Next, the Defendants contest the sufficiency of the evidence to
establish that liquor imported into Canada and the Province of Ontario
is subject to excise duties and other taxes. The Defendants argue that
without such evidence the government failed to show that the wire
fraud scheme charged in this case sought to deprive Canada or the
Province of Ontario of any property interest. In a similar vein, the
Defendants also argue that the evidence was insufficient to prove that
they personally owed Canada or the Province of Ontario any taxes in
connection with the liquor that they are alleged to have smuggled.
We reject these arguments. First, we hold that the evidence was
sufficient to prove beyond a reasonable doubt that liquor imported
into Canada and the Province of Ontario was subject to excise duties
and other applicable taxes at the time of the Defendants' conduct as
charged in this case. The evidence is in the form of trial testimony by
Officer Jonah. Based upon her seventeen years of employment experi-
ence with Canadian Customs, Officer Jonah testified that she was
familiar with the rules and regulations that pertain to the importation
of alcoholic beverages into Canada. Then, in answer to government
counsel's request that she describe for the court and the jury what, if
any, taxes or duties are due and owing on alcohol that is imported
from the United States into Canada, Officer Jonah testified as follows:
16
Alcohol is taxed very high in Canada. There is an excise
tax, that is a federal tax, that is applied, depending on the
value of it, the U.S. purchase price. There is a general sales
tax that is also a federal tax. There is a Liquor Control
Board of Ontario tax. And there also is a provincial sales
tax.
(J.A. 177). Officer Jonah further testified that, in preparation for her
testimony, she calculated that the Canadian and Province of Ontario
taxes that would be due and owing on a case of imported alcohol that
was purchased in the United States for fifty-six American dollars
would be approximately one hundred American dollars, which con-
verts to approximately 157 Canadian dollars.
Even though Officer Jonah did not specifically state that the taxes
of which she was speaking were in force at the time of the Defen-
dants' conduct as charged in this case, the context of her entire testi-
mony permitted the jury to draw this reasonable inference. For
example, Officer Jonah was assigned to investigate the Defendants on
suspicion of liquor smuggling based upon their conduct as charged in
this case. In sum, we have no reservations that the evidence at trial
was sufficient to prove beyond a reasonable doubt that liquor
imported into Canada and the Province of Ontario was subject to
excise duties and other applicable taxes at the time of the Defendants'
conduct as charged in this case.
Second, the Defendants' challenge to the sufficiency of the evi-
dence establishing that they personally owed Canada or the Province
of Ontario any taxes in connection with the liquor that they are
alleged to have smuggled completely misses the mark. Proof that the
Defendants personally owed such taxes is not required under the wire
fraud statute as long as there was proof that they participated in a
fraudulent scheme to enable someone to avoid such taxes. Cf. Brewer,
528 F.2d at 496 (where defendant knowingly devised mail fraud
scheme to enable Florida residents to obtain cigarettes without declar-
ing them for taxation, it was no defense to mail fraud prosecution that
defendant herself owed no tax). The testimony of Officer Jonah that
we just discussed serves as such proof in this case. Indeed, from the
testimony of Officer Jonah and the overall context in which it was
given in relation to the joint United States and Canadian investigation
17
which led to this prosecution, it was a reasonable inference that the
Canadian taxes were due by the importer upon importation of liquor
into Canada. The jury found and at trial the Defendants never chal-
lenged the proposition that such taxes were due by the importer.
Nonetheless, as we recognized in Brewer, the defendant could not
avoid prosecution under the federal mail fraud statute on the ground
that she herself owed no taxes on the cigarettes she smuggled into
Florida from North Carolina. Id. The quintessential element is that the
scheme in the present case involved defrauding the Canadian authori-
ties of revenue taxes on imported liquor regardless of what party had
responsibility for the payment of those taxes. The precise time when
the taxes are owed and whom they are due from are not elements of
the offense. What is required is proof that such taxes were due and
the conduct involved a scheme to defraud the Canadian authorities of
the taxes.
C. Hilts' Participation.
Finally, we address Hilts' specific challenge to the sufficiency of
the evidence to support his conviction on Count I. Count I charged the
substantive crime of wire fraud, 18 U.S.C. § 1343, and the adjunct
crime of aiding and abetting wire fraud, 18 U.S.C. § 2.7 Pursuant to
____________________________________________________________
7 As a housekeeping matter, we note that although the written judgment
for Hilts specifies that he was convicted of Count I of the indictment, it
does not specify the statutory section for aiding and abetting, nor does
it describe the nature of the offense with respect to Count I as aiding and
abetting. Rather, it only specifies the statutory section for wire fraud and
describes the nature of the offense with respect to Count I as "WIRE
FRAUD." (J.A. 351). Given that Count I of the indictment charged Hilts
with aiding and abetting wire fraud along with the substantive offense of
wire fraud, the district court instructed the jury on aiding and abetting
with respect to Count I, Hilts' counsel discussed the aiding and abetting
aspect of Count I in his closing argument before the jury, and the jury
returned an unequivocal oral verdict finding Hilts guilty of Count I, we
have no doubt that the failure of the written judgment to specifically
reflect the aiding and abetting aspect of Count I was a clerical error.
However, such detail need not concern us further in this appeal. The
written judgment's explicit reference to Count I of the indictment suffi-
ciently incorporates 18 U.S.C. § 2 for our purposes. See United States v.
18
18 U.S.C. § 2, one who aids or abets the commission of an offense
"is punishable as a principal." We have held that "[a] defendant is
guilty of aiding and abetting if he has knowingly associated himself
with and participated in the criminal venture." United States v. Bur-
gos, 94 F.3d 849, 873 (4th Cir. 1996) (en banc) (internal quotation
marks omitted). Significantly, in order "to be convicted of aiding and
abetting, participation in every stage of an illegal venture is not
required, only participation at some stage accompanied by knowledge
of the result and intent to bring about the result." Id. (internal quota-
tion marks and alteration marks omitted). Of particular relevance
here, to be convicted of aiding and abetting a wire fraud offense, it
is not necessary for the defendant to be directly or personally
involved in the wire communication as long as the wire communica-
tion was reasonably foreseeable to the defendant in the execution of
the alleged scheme to defraud in which the defendant is accused of
participating. United States v. Griffith, 17 F.3d 865, 874 (6th Cir.
1994).
The specific interstate communication charged as the basis for
Count I was a telephone call from David Pasquantino in Niagara
Falls, New York, to Valley Wine and Spirits in Hagerstown, Mary-
land, on March 9, 1999. David's brother Carl was also charged as a
participant in the wire fraud scheme set forth in Count I. According
to the indictment, the wire fraud scheme to defraud Canada and the
Province of Ontario of excise duties and other taxes as charged in
Count I began in or about March 1997 and lasted until the date of
indictment, April 13, 2000.
____________________________________________________________
Allen, 675 F.2d 1373, 1385 (9th Cir. 1980) (although Count III of indict-
ment charged defendant with aiding and abetting while written judgment
of Count III only specifically cited the substantive offense, the written
judgment's provision that the defendant was convicted of Count III "as
charged in Count 3 of the indictment," was sufficient to incorporate 18
U.S.C. § 2). We do point out, however, that pursuant to Federal Rule of
Criminal Procedure 36, the district court has the authority to correct the
mistake. Fed. R. Crim. P. 36 ("After giving any notice it considers appro-
priate, the court may at any time correct a clerical error in a judgment
. . . arising from oversight or omission).
19
Hilts primarily challenges the sufficiency of the evidence to estab-
lish that he knowingly and willfully participated in the wire fraud
scheme charged in Count I with knowledge of its fraudulent nature.
He claims that his conduct in picking up the large loads of liquor from
the various discount liquor stores in Maryland was completely inno-
cent, and points out that there is no evidence that he ever picked up
any liquor from Valley Wine and Spirits nor any evidence linking him
to the telephone call charged as the basis for Count I.
The government's theory at trial was that Hilts participated in the
wire fraud scheme charged in Count I as a pick up and delivery driver
with knowledge that the liquor he was handling would ultimately be
smuggled into Canada without paying Canada or the Province of
Ontario the applicable taxes. We hold the evidence in the record is
sufficient to sustain Hilts' conviction on Count I. Viewed in the light
most favorable to the government, the evidence in the record shows
that, between February 27, 1997 and April 22, 1998, Hilts rented a
Ryder truck in Niagara Falls, New York, from the same business
(Gaines Sunoco), on average every two weeks; traveled in the truck
between 738 and 978 miles (usually around 815 miles); and returned
the truck the very next day. Hilts resumed almost the identical pattern
of behavior in November 1998 and continued it until April 28, 1999,
when, after detecting that he was under surveillance by ATF agents
from the time he had left BJ's liquor store in Maryland until he had
arrived in upstate New York, Hilts abandoned the Ryder truck that he
had rented the day before on the side of the road. At the time that
Hilts abandoned the truck, it contained 222 cases of liquor. Prior to
abandoning the truck, Hilts successfully made several evasive driving
maneuvers in order to escape the surveillance.
The record also shows that during these same time periods, Hilts
used the rented trucks to pick up large bulk orders of liquor from two
different Maryland liquor stores (neither of them Valley Wine and
Spirits) for Carl Pasquantino.8 The record also shows that from Sep-
____________________________________________________________
8 One of the store owners (i.e., the owner of BJ's Liquors) testified that
Hilts always picked up the large bulk sale orders placed by Carl Pasquan-
tino in a Ryder rental truck and that the first several times Hilts arrived
at his store, Hilts already had cases of the same type of liquor on the
truck.
20
tember 23, 1998 to April 9, 1999, a vehicle registered to Hilts made
thirty-nine trips from Niagara Falls, New York across the Rainbow
Bridge into the Canadian Province of Ontario. However, such trips
ceased completely after Hilts abandoned the Ryder rental truck on
April 28, 1999.
Viewing the evidence just recited in the light most favorable to the
government, we hold that a reasonable finder of fact could accept
such evidence as adequate and sufficient to support a conclusion
beyond a reasonable doubt that Hilts knowingly participated at vari-
ous stages in the wire fraud scheme charged in Count I with knowl-
edge that the liquor he was transporting would ultimately be
smuggled into Canada without paying Canada or the Province of
Ontario the applicable taxes due on such liquor. The fact that Hilts
abandoned the liquor laden rental truck after detecting surveillance by
ATF agents during a liquor run from Maryland to New York is strong
evidence of his criminal intent. The same goes for his evasive driving
maneuvers and the fact that his own vehicle did not cross the Rain-
bow Bridge after April 28, 1999. Furthermore, the mere fact that Hilts
did not personally make the telephone call that is specifically alleged
in Count I is of no import. The evidence supports a reasonable infer-
ence that the March 9, 1999 telephone call by David Pasquantino to
Valley Wine & Spirits was reasonably foreseeable to Hilts in the exe-
cution of the fraudulent scheme alleged in Count I. Griffith, 17 F.3d
at 874.
V.
Finally, we address Hilts' challenge to his twenty-one month sen-
tence. Hilts contends that the district court clearly erred in calculating
his fraud loss for purposes of determining his proper offense level
under USSG § 2F1.1, the fraud guideline. His contention is without
merit.
USSG § 2F1.1(a) provides a base offense level of six. USSG
§ 2F1.1(b)(1) provides for incremental increases to that base offense
level based upon the amount of "Loss," "[i]f the loss exceeded
$2,000." District courts are permitted to use the intended loss to the
victim of the fraudulent scheme at issue as the basis for determining
"Loss" under USSG § 2F1.1(b)(1), "even if this exceeds the amount
21
of loss actually possible, or likely to occur, as a result of the defen-
dant's conduct." United States v. Miller, 316 F.3d 495, 502 (4th Cir.
2003).
Of relevance to Hilts' sentencing challenge, under the heading "Of-
fense Conduct," his Presentence Report (PSR) states that the govern-
ment provided "this Probation Officer" with the following version of
evidence and facts provided at trial:
Testimony at trial established that defendant picked up
liquor at Liquor Locker, JRJ Liquors, and BJ's Liquors until
April 28, 1999. The cases from Liquor Locker will not be
considered. Adding the cases from JRJ Liquors with those
from BJ's through April 28, 1999, totals 12,974 cases.
Applying a factor of 90% results in 11,676 cases. The loss
for guideline purposes is thus $1,167,600.
(S.J.A., Vol. II, 9). The same section of the PSR also states that Hilts
was taking the position that the evidence at trial could not support any
amount of fraud loss. The PSR listed "+11 or 0" as the number of
offense levels by which to increase Hilts' base offense level in con-
nection with USSG § 2F1.1(b)(1)(L).
At sentencing, after hearing argument from Hilts' attorney, the dis-
trict court stated:
I need not hear from [the government] on the amount of
loss. I am persuaded from the evidence in trial that the
amount of loss attributed by the government set forth in the
Presentence Report is correct. And so far as the argument
that Mr. Hilts contemplated that this would only stay within
the United States, that was a fair argument. It was consid-
ered by the jury, which found beyond a reasonable doubt
that it wasn't so. So accordingly, on the amount of loss, I
need not hear from the government.
(Transcript of Hilts' Sentencing Hearing at 10-11). The district court
ultimately adopted all of the proposed findings of the PSR with one
exception not relevant here.
22
We may overturn the district court's $1,167,000 fraud loss finding
with respect to Hilts only if we determine that it is clearly erroneous.
United States v. Bolden, 325 F.3d 471, 495-96 (4th Cir. 2003). Hilts
attacks the district court's fraud loss finding chiefly on the basis that
the record contains no evidence that he actually transported or
assisted others in importing the liquor that he had picked up in Mary-
land into Canada. We reject this argument. Proof that Hilts actually
transported or assisted others in importing the liquor that he picked
up in Maryland into Canada is not required, while it is reasonably
inferred from the number of times a vehicle registered to Hilts crossed
into Canada and then ceased such activity immediately after Hilts
abandoned the liquor laden rental truck. Rather, all that is required to
support the district court's fraud loss finding is sufficient evidence
from which to make a reasonable inference that Hilts intended that
such liquor would eventually be smuggled into Canada in order to
avoid paying Canada and the Province of Ontario the applicable
excise duties and other taxes. The evidence that we discussed in sup-
port of Hilts' conviction on Count I, when viewed collectively, consti-
tutes such evidence. In sum, we affirm Hilts' sentence.
VI.
In conclusion, we affirm the Defendants' convictions and Hilts' sen-
tence.9
AFFIRMED
GREGORY, Circuit Judge, dissenting:
I.
Pursuant to the common-law revenue rule, I find that the activities
at issue in this case are not cognizable under the federal wire-fraud
statute, 18 U.S.C. § 1343. Accordingly, I respectfully dissent.
____________________________________________________________
9 We have reviewed the Defendants' remaining assignments of error
and find them to be without merit.
23
II.
A.
The majority claims to rely on the Restatement's formulation of the
revenue rule, which states, "Courts in the United States are not
required to recognize or enforce judgments for the collection of taxes
. . . rendered by the courts of other states." Ante, at 6 (citing Restate-
ment (Third) of the Law of Foreign Relations § 483) (emphasis
added). Rather than applying this rule as stated, however, the majority
narrows its application only to those rare instances in which a court
is compelled to actually enforce the judgment of a foreign court, find-
ing that the rule only "pertains to the nonenforcement of foreign tax
judgments . . . ." Ante, at 10 (emphasis added). In so holding, the
majority reads the words "to recognize" completely out of the
Restatement section on which it purportedly relies. With its con-
strained application of the revenue rule, the majority has created new
law that does not find support in the Restatement, Supreme Court pre-
cedent, nor in any of the rulings from our sister circuits.
In Banco Nacional de Cuba v. Sabbatino, the Supreme Court sug-
gested that the revenue rule would reach beyond actual enforcement
of foreign tax judgments, and extend to any case in which a court
would be compelled to "give effect to the . . . revenue laws of foreign
countries or sister states." 376 U.S. 412, 413 (1964) (citing Moore v.
Mitchell, 20 F.2d 600 (2d Cir. 1929)) (emphasis added). Predating
Banco Nacional de Cuba, the Court in Milwaukee County v. M.E.
White Company, although not ultimately deciding the case on revenue
rule grounds, specifically recognized that:
[i]t has often been said, and in a few cases held, that statutes
imposing taxes [as opposed to judgments enforcing those
statutes] are not entitled to full faith and credit . . . because
the courts of one state should not be called upon to scruti-
nize the relations of a foreign state with its own citizens,
such as are involved in its revenue laws, and thus commit
the state of the forum to positions which might be seriously
embarrassing to itself or its neighbors.
296 U.S. 268, 274-75 (1935) (internal footnotes omitted). In sum,
long before Congress' passage of the wire fraud statute at issue in the
24
present case, "the United States Supreme Court acknowledged the
broad scope of the revenue rule." Attorney Gen. of Canada v. R. J.
Reynolds Tobacco Holdings, Inc., 268 F.3d 103, 126 (2d Cir. 2001)
(citing Milwaukee Co., 296 U.S. at 275).
Additionally, the First Circuit, in United States v. Boots, held that
the revenue rule is implicated when a United States court is called
upon to "effectively pass[ ] on the validity and operation of the reve-
nue laws of a foreign country." 80 F.3d 580, 587 (1st Cir. 1996). In
Boots, the defendants took part in a scheme to transport tobacco from
a Native American reservation in upstate New York into New Bruns-
wick, Canada, without paying taxes and excise duties on the tobacco.
To bypass customs checkpoints, the tobacco was transported surrepti-
tiously into Canada through another reservation in Maine. The defen-
dants were charged with and found guilty of conspiracy to commit
wire fraud, in violation of 18 U.S.C. §§ 371 and 1343. The First Cir-
cuit reversed the convictions, basing its decision primarily on the rev-
enue rule. Id. at 583-84. The Court explained, "Although this case
does not require us to enforce a foreign tax judgment as such, uphold-
ing defendants' section 1343 conviction would amount functionally to
penal enforcement of Canadian customs and tax laws." Id. at 587.
With this decision, the First Circuit recognized that the revenue rule
applies not only when a foreign law is being enforced, but also when,
as the Restatement suggests, an American court is compelled to "rec-
ognize" the validity of that foreign law. The Boots court continued:
The scheme to defraud at issue - proof of which is essen-
tial to conviction - had as its sole object the violation of
Canadian revenue laws. To convict therefore, the district
court and this court must determine whether a violation of
Canadian tax laws was intended and, to the extent imple-
mented, occurred. In so ruling, our courts would have to
pass on defendants' challenges to such laws and any claims
not to have violated or intended to violate them.
Id. at 587.
Although it declined to exercise its discretion and dismiss the
indictment before it, the Second Circuit, in United States v. Trapilo,
130 F.3d 547 (2d Cir. 1997), applied the same formulation of the rev-
25
enue rule as did the Boots court. The Trapilo court found that because
"there is no obligation to pass on the validity of Canadian revenue
law, . . . the common law revenue rule is not properly implicated."
Trapilo, 130 F.3d at 552-553. That is, the court recognized the con-
verse - had it been required to pass on the validity of a foreign tax
law, the revenue rule would have been implicated. This would be true,
the court implicitly conceded, even if it had not been required to
enforce a judgment based on an application of that law.1
This statement of the rule was reaffirmed by the Second Circuit in
Attorney General of Canada v. R. J. Reynolds Tobacco Holdings,
Inc., where the court held, "[U]nder the revenue rule, United States
courts avoid the application of a foreign sovereign's tax laws" in
order to "avoid entanglement with questions about the underlying
validity of a foreign sovereign's laws." 268 F.3d at 126. While
acknowledging that "the precise scope of the rule" remains an unan-
swered question of federal law, id. at 109, the court nevertheless
determined that "sound policy considerations, including international
comity, the proper exercise of sovereign powers, institutional compe-
tence and separation of powers, and recognition of the U.S.-Canada
tax treaty relationship, support the continuing viability and applica-
tion of the revenue rule to this case," id. at 126.
The First and Second Circuit's recitations of the revenue rule,
along with the Supreme Court's understanding of the doctrine, are
buttressed by the rule's common law history. At least since the eigh-
teenth century, courts have appreciated the broad scope of the rule,
____________________________________________________________
1 As explained in Part II.B., infra, although the Trapilo court correctly
summarized the common-law revenue rule, the court erred in its applica-
tion of the rule. In fact, the court's ruling in Trapilo, which reversed the
district judge's decision to dismiss the indictment against the defendants,
was called into doubt by the Second Circuit's subsequent decision in
United States v. Pierce, 224 F.3d 158 (2d Cir. 2000), where the court
reversed the convictions of two of the Trapilo defendants. The Trapilo
ruling was further limited by the Second Circuit's opinion in Attorney
General of Canada, where the court found "the Boots reasoning persua-
sive" in the context of a civil action, and that, as a result, the circuit's
earlier reasoning in Trapilo was "not controlling here." 268 F.3d at 123-
24.
26
which provides that "[o]ne nation does not take notice of the revenue
laws of another." Planche v. Fletcher, 99 Eng. Rep. 164, 165 (1779).
Even more forcefully, in the case of Holman v. Johnson, Lord Mans-
field recited what he regarded as a firmly established principle, that
"no country ever takes notice of the revenue laws of another." 98 Eng.
Rep. 1120, 1121 (K.B. 1775) (emphasis added). The majority disre-
gards this history, explaining that Lord Mansfield's comments are
dicta, and that, accordingly, they "cannot serve as a source of binding
authority in American jurisprudence." Ante, at 10. The majority's
argument, however, is unpersuasive, since I cite English common
law, not as binding authority, but as persuasive evidence that courts
have long since recognized that the revenue rule applies both to the
nonenforcement of foreign tax judgments as well as to the nonre-
congition of foreign revenue laws.
Notwithstanding this well-established precedent, both from the
English and American courts, the majority crafts an exceedingly nar-
row view of the revenue rule, limiting its application only to those
cases in which a United States court is compelled to actually enforce
the collection of a foreign tax judgment, and prohibiting its use in any
case requiring a United States Court to pass on the validity of, or give
effect to, a foreign revenue law. Because this revision creates a circuit
split on an issue where such a division is unwarranted, I dissent from
the majority's formulation of the revenue rule.
B.
As is evident from the above discussion, the revenue rule is a dis-
cretionary doctrine, one that is guided by "constitutional and pruden-
tial considerations. . . ." Boots, 80 F.3d at 587. See also Attorney Gen.
of Canada, 268 F.3d at 113 ("We do not suggest that the revenue rule
always bars United States courts from furthering the tax policies of
foreign sovereigns."); Trapilo, 130 F.3d at 550 (recognizing that "our
courts will normally not enforce foreign tax judgments") (emphasis
added); Boots, 80 F.3d at 587 (noting that "our courts have tradition-
ally been reluctant to enforce foreign revenue laws") (emphasis
added); European Comty. v. R. J. R. Nabisco, Inc., 150 F. Supp. 2d
456, 476 (E.D.N.Y. 2001) ("The revenue rule is discretionary rather
than jurisdictional."); Restatement (Third) of the Law of Foreign
Relations, § 483 (noting that courts are "not required" to apply the
27
rule). As such, we need not apply the doctrine in every criminal pros-
ecution simply because the prosecution may be colored by some
aspect of a foreign revenue rule. In the present case, however, the tra-
ditional rationales underlying the rule forcefully support its applica-
tion.
The rationale of the revenue rule, the First Circuit explained:
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 execu-
tive branches of government.
Boots, 80 F.3d at 587. Similarly, the Second Circuit recently noted
that revenue laws "mirror the moral and social sensibilities of a soci-
ety. Sales taxes, for example, may enforce political and moral judg-
ments about certain products. Import and export taxes may reflect a
country's ideological leanings and the political goals of its commer-
cial relationships with other nations." Attorney Gen. of Canada, 268
F.3d at 111. Consistent with the well-articulated explanations from
the First and Second Circuits, I believe the revenue rule bars wire
fraud prosecutions that are premised upon schemes to violate foreign
tax laws because "[n]o court ought to undertake an inquiry which it
cannot prosecute without determining whether those [foreign reve-
nue] laws are consonant with its own notions of what is proper."
Moore v. Mitchell, 30 F.2d 600, 604 (2d Cir. 1929) (Hand, J., concur-
ring). That such an intrusive inquiry is required here cannot be
denied, as we must determine the validity and application of Canada's
tax laws.
The United States, arguing that interpretation of foreign laws is
unnecessary, relies on the Second Circuit's decision in Trapilo, where
the court explained that the wire fraud statute proscribed the "use of
the telecommunications systems of the United States in furtherance of
a scheme whereby one intends to defraud another of property. Noth-
ing more is required. The identity and location of the victim, and the
success of the scheme, are irrelevant." 130 F.3d at 552 (emphasis in
28
original). Based on this observation, the Trapilo court concluded that
the revenue rule would be inapplicable to the government's wire fraud
prosecution because "[a]t the heart of th [e] indictment [was] the mis-
use of the wires in furtherance of a scheme to defraud the Canadian
government of tax revenue, not the validity of a foreign sovereign's
revenue laws." Id. at 552.
The flaw in the Trapilo court's reasoning is transparent. The court
recognized the need for evidence of a scheme to defraud another of
property, but then erred by simply assuming that the property - Can-
ada's right to tax revenues - existed. Id. at 552. The tax revenues
would have existed, of course, only if the liquor at issue in Trapilo
had been subject to the relevant revenue laws. That is, the existence
of property necessarily depended upon the court's analysis of Cana-
da's tax laws. The Trapilo court, as a matter of logic, actually did
inquire into the validity of a foreign sovereign's tax laws, without
even realizing that it had done so.
This failing in the Trapilo court's reasoning was recognized by the
Second Circuit in United States v. Pierce, 224 F.3d 158 (2000), where
the court stated:
We did not say or suggest in Trapilo, however, that it did
not matter whether Canada in fact taxed or levied a duty on
liquor sales or imports, or that a guilty mind without some-
thing about which to feel guilty was a crime. And while we
assumed in Trapilo that the government would be able to
prove what the indictment alleged, we must on this appeal
determine whether the government in fact did so at trial.
Id. at 167. The Pierce court then reversed the convictions before it,
based on the insufficiency of the evidence, explaining:
A scheme to deceive, however dishonest the methods
employed, is not a scheme to defraud in the absence of a
property right for the scheme to interfere with. . . . The
Pierces are not accused of scheming to defraud the Canadian
government of its property, but of its right to obtain prop-
erty, its right to be paid money. To prove the existence of
29
a scheme to defraud the Canadian government[,] the prose-
cution had to prove the existence of such a right.
Id. at 165 (emphasis in original).
Usually, both the identity of the victim and the success of the
scheme are irrelevant to a wire fraud prosecution. See Trapilo, 130
F.3d at 552. When the victim is a foreign sovereign, however, these
factors take on a new importance. In the present case, to determine
whether there was a scheme to defraud another of property, this court
would have to conclude that Canada's and Ontario's "right to be paid
money" had materialized. Pierce, 224 F.3d at 165. That is, we would
have to find that the defendants had succeeded in their scheme, at
least in so far as to actually transport liquor across the Canadian-
American border. Stated differently, had the defendants been captured
before a single bottle of alcohol crossed into Canada, they could not
have been prosecuted under the wire fraud statute because the requi-
site property would never have come into existence. See id. No for-
eign taxes would be owed.
It is inescapable that in passing on whether defendants intended to
violate Canadian law and deprive Canada of its right to taxes and
duties owing on actually imported liquor, "our courts would have to
pass on defendants' challenges to such laws and any claims not to
have violated or intended to violate them." Boots, 80 F.3d at 587. The
United States, in count one of the underlying indictment, charged, "At
all times relevant to the Indictment, the governments of Canada and
the Province of Ontario levied excise duties and taxes on the importa-
tion and sale of liquor." By alleging the existence of foreign revenue
laws, the government effectively conceded that the applicability of
Canadian law was central to its case.
The government reasserted the importance of these foreign excises
during sentencing. In proposing sentences for the district court to con-
sider, the prosecution turned not to the United States Sentencing
Guidelines as one might expect, but rather to Canadian revenue law.
The government concluded that "Canadian customs duties and excise
taxes on a typical case of liquor [totaled] approximately $100 Ameri-
can." Based on its understanding of foreign law, the government then
attempted to calculate the amount of tax revenue that would have
30
been paid to foreign sovereigns had the liquor been lawfully imported
into Canada. In figuring the tax losses for which David and Carl Pasq-
uantino could be held responsible, the prosecution suggested the fig-
ure of $3,589,200.00. In making the same calculation in Arthur Hilts'
case, the government arrived at the figure of $1,167,600.00.
The government's - and the court's - reliance on Canadian reve-
nue law at sentencing is particularly revealing. The base offense level
for a violation of 18 U.S.C. § 1343, is 6. For defendants with a crimi-
nal history category of I, the guideline range for a violation of the fed-
eral wire fraud statute is 0-6 months. The sentences received by the
defendants, however, were substantially more severe. For each count
of conviction, Carl and David Pasquantino were sentenced to 57
months of imprisonment, to be served concurrently, and Arthur Hilts
was sentenced to a term of 21 months for his conviction on count one
of the indictment. The court arrived at these longer terms of imprison-
ment by increasing the defendants' offense levels based on the
amount of loss to the victim, which in this case was the lost tax reve-
nue to the Canadian and Ontario governments. The Pasquantinos'
offense levels were increased by 13 and Arthur Hilts' offense level
was increased by 11.2 Because the bulk of the defendants' sentences
were related, not to the American crime of wire fraud, but to the
Canadian crime of tax evasion, I conclude that this case was primarily
about enforcing Canadian law.
The court's reliance on the government's amount-of-loss computa-
tions is deeply troubling for another reason as well-the calculations
were not based on any specific knowledge of what the tax liability
would have been for the defendants. Instead, the court relied wholly
on the testimony of Gina Marie Jonah, an intelligence officer with
Canadian Customs. Officer Jonah, who was not offered as an expert
witness, testified as to the approximate amount of tax that is generally
owed on liquor imported into Canada. She commented, "Alcohol is
taxed very high in Canada," but she did not reference any provisions
____________________________________________________________
2 In addition to the 13 and 11-level adjustments mentioned above, each
of the defendants received an upward adjustment of 2 levels for a crime
that involved more than minimal planning. The Pasquantinos received an
additional 4-level increase for their organizing role in the offense. Arthur
Hilts received a 3-level decrease for his minimal role in the offense.
31
of Canadian law in making this observation. Rather, based on her
experience in working at the border, she surmised that on a case of
alcohol worth $56 American, Canadian taxes would probably equal
$100 American.
The district court never determined whether Officer Jonah's calcu-
lations were accurate as a matter of Canadian law. Notwithstanding
this uncertainty, the court relied on these calculations to determine the
defendants' offense levels under the Sentencing Guidelines. Of
course, had it engaged in a more detailed application of foreign tax
law, the court could have clarified the ambiguity regarding the
amount of loss to the Canadian government. Yet that inquiry would
have required precisely the kind of analysis that the common-law rev-
enue rule seeks to avoid.
III.
Lastly, it must be noted that applying the revenue rule in this case
would not mean that any of the defendants would go unpunished; they
have all been indicted in Canada for two breaches of Canadian crimi-
nal law: (1) failure to file excise taxes; and (2) possession of unlaw-
fully imported spirits. The Executive should determine whether to
extradite the defendants to Canada to face these charges. The Cana-
dian courts could then decide the issue that is at the core of both the
American and Canadian prosecutions: whether, and to what extent,
the defendants have defrauded the governments of Canada and
Ontario out of tax revenues owed pursuant to their own, sovereign,
excise laws.
Judge Michael joins in this dissent.
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