U.S. Appellate Court Overturns Canadian Excise Tax Conviction Due to Revenue Rule

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Wednesday, January 1, 2003
Bruce Zagaris
On September 30, 2002, the United States Court of Appeals for the Fourth Circuit overturned a conviction of five persons on six counts of wire fraud in violation of 18 U.S.C. ยง343 on the basis that a scheme to defraud a foreign government of duties and taxes is not cognizable under wire fraud statute, thereby making it the second appellate court to deny the use of U.S. statutes to enforce foreign tax laws. In a 2-1 decision, the majority opinion written by Circuit Judge Gregory focused on the threshold question: whether a scheme to evade the taxes of another country can be prosecuted as wire fraud by the U.S. Government. Defendants were indicated in the U.S. and Canada for failure to file excise taxes and possession of unlawfully imported spirits. Judge Gregory explained that when the victim in a wire fraud is a foreign government, the court must determine whether Canada was deprived of property (tax revenues). The determination analysis of whether Canada?s tax laws were in fact broken, or were intended to be broken. Judge Gregory observed that observed that U.S. courts in these cases must pass on defendants? challenges to foreign tax laws and any claims not have violated or intended to violate them. Such inquires are beyond the court?s capabilities.