Opinion ID: 196657
Heading Depth: 2
Heading Rank: 1

Heading: Wire Fraud: Scheme to Defraud Canada of Duties and Taxes

Text: 14 The indictment charged a wire fraud violation in the conspiracy count and four independent counts upon the theory that defendants intended to defraud Canada and the Province of Nova Scotia of tobacco duties and taxes, using or causing the wires to be used interstate in furtherance of this scheme. The relevant telephone communications took place between Pierro and Police Chief Moore on May 25, May 31, June 7, and July 24, 1992. 8 The government's evidence supports a reasonable inference that the calls were made between Maine and New York, where Moore and Pierro resided. 15 Defendants argue that the district court erred in denying their motion to dismiss based on the government's alleged failure to show a proper scheme to defraud as section 1343 requires. 9 Defendants insist, inter alia, that (1) they made no affirmative misrepresentation to Canadian customs authorities relative to their tobacco trading activities; and (2) their scheme had as its object no protected property interest within the wire fraud statute. 16 We turn first to defendants' insistence that the absence of any affirmative misrepresentation--such as a false customs declaration--rendered their smuggling activities non-fraudulent for wire fraud purposes. The government responds that scheming to bypass Canadian customs authorities and not to declare the tobacco was a sufficient form of deceit to meet the requirements of section 1343. 10 Cf. United States v. Brewer, 528 F.2d 492, 496 (4th Cir.1975) (scheme to sell cigarettes into another state without registering with tax officials there, as required by Jenkins Act, is mail fraud); see also McEvoy Travel Bureau, Inc. v. Heritage Travel, Inc., 904 F.2d 786, 791 (1st Cir.), cert. denied, 498 U.S. 992, 111 S.Ct. 536, 112 L.Ed.2d 546 (1990) (the scope of fraud under these [federal fraud] statutes is broader than common law fraud, and ... no misrepresentation of fact is required). 17 We see no need, however, to decide whether a smuggling scheme structured like the instant one, if practiced upon, say, federal or other authorities within the United States, would be a fraudulent scheme within section 1343. Even assuming it would be, we face the separate problem that the object of the scheme here was exclusively to defraud a foreign government, rather than our own, of customs and tax revenues imposed under foreign law. We believe this added factor pushes defendants' scheme beyond the parameters of the frauds cognizable under section 1343. 18 The prosecution, relying on cases upholding wire and mail fraud convictions for schemes to evade domestic taxes, argues that customs and tax revenues, even though owed solely to a foreign governmental body under laws of the latter's making, constitute money and property for purposes of the wire and mail fraud statutes. 11 See, e.g., United States v. Dale, 991 F.2d 819, 849 (D.C.Cir.) (federal tax revenues), cert. denied, --- U.S. ----, 114 S.Ct. 286, 126 L.Ed.2d 236 and --- U.S. ----, 114 S.Ct. 650, 126 L.Ed.2d 607 (1993); United States v. Helmsley, 941 F.2d 71, 93-95 (2d Cir.1991) (state income taxes), cert. denied, 502 U.S. 1091, 112 S.Ct. 1162, 117 L.Ed.2d 409 (1992); United States v. Bucey, 876 F.2d 1297, 1309-1310 (7th Cir.) (federal income taxes), cert. denied, 493 U.S. 1004, 110 S.Ct. 565, 107 L.Ed.2d 560 (1989); see also Otto G. Obermaier & Robert G. Morvillo, White Collar Crime § 9.02 at 9-30 n. 64 (1994) (federal and state tax cases). 19 But none of the prosecution's cited wire fraud cases have involved a scheme to deprive a foreign government of its own taxes and similar exactions. 12 The prosecution urges that section 1343 should apply, because it does not describe any particular type of victim of a scheme to defraud. It punishes use of the wires in interstate or foreign commerce in furtherance of any scheme or artifice to defraud. If domestic tax fraud falls under section 1343, why not foreign revenue frauds as well, it is contended. Federal wire prosecutions have been based on frauds against private foreign businesses and individuals. See, e.g., United States v. Lewis, 67 F.3d 225 (9th Cir.1995) (reversing wire fraud conviction for a scheme to defraud a foreign bank where the jury instruction did not charge a property interest as the target of the scheme); United States v. Van Cauwenberghe, 827 F.2d 424 (9th Cir.1987) (affirming wire fraud conviction involving scheme to defraud a Belgian investment broker and corporation), cert. denied, 484 U.S. 1042, 108 S.Ct. 773, 98 L.Ed.2d 859 (1988). 20 However, 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. At issue is not only whether money or property, as such, is being targeted, but more importantly here, the extent to which constitutional and prudential considerations factor into our analysis. Foreign customs and tax frauds are intertwined with enforcement of a foreign sovereign's own laws and policies to raise and collect such revenues--laws with which this country may or may not be in sympathy and over which, in any event, we have no authority. In recognition of this, our courts have traditionally been reluctant to enforce foreign revenue laws. The revenue rule--a firmly embedded principle of common law, traced to an opinion by Lord Mansfield, Holman v. Johnson, 98 Eng.Rep. 1120 (K.B.1775)--holds that courts generally will not enforce foreign tax judgments, just as they will not enforce foreign criminal judgments, although they will enforce foreign non-tax civil judgments unless due process, jurisdictional, or fundamental public policy considerations interfere. See Restatement (Third) of Foreign Relations § 483 & n. 1 (1987); see also Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 448, 84 S.Ct. 923, 950-951, 11 L.Ed.2d 804 (1964) (White, J., dissenting) ([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.) (footnote omitted); Her Majesty the Queen in Right of the Province of British Columbia v. Gilbertson, 597 F.2d 1161, 1164-1165 (9th Cir.1979). 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. 21 Although this case does not require us to enforce a foreign tax judgment as such, upholding defendants' section 1343 conviction would amount functionally to penal enforcement of Canadian customs and tax laws. The scheme to defraud at issue--proof of which is essential 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 implemented, 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. Where a domestic court is effectively passing on the validity and operation of the revenue laws of a foreign country, the important concerns underlying the revenue rule are implicated. Of particular concern is the principle of noninterference by the federal courts in the legislative and executive branches' exercise of their foreign policymaking powers. National policy judgments made pursuant to that authority could be undermined if federal courts were to give general effect to wire fraud prosecutions for schemes of this type aimed at violating the revenue laws of any country. It is noteworthy that the federal statute criminalizing the smuggling of goods into foreign countries punishes such activities only if the foreign government has a reciprocal law. See 18 U.S.C. § 546. A decision to uphold the present convictions would have the effect of licensing prosecutions against persons who use the wires to engage in smuggling schemes against foreign governments irrespective of whether a particular government had the reciprocal arrangement called for in section 546. 22 In the case of Canada, to be sure, we cannot say that this specific legislative judgment would be undermined by affirming the instant wire fraud conviction. 13 We do not condone defendants' smuggling activities, nor do we question Canada's revenue laws or the desirability of cooperation in respect to our mutual border. But application of the wire fraud statute to a scheme of this type does not, and cannot, turn upon our attitude towards Canada alone. The revenue rule has not risen or fallen over the centuries based on country-by-country judicial assessments of the potential for a foreign relations conflict. Courts are neither equipped nor constitutionally empowered to make such assessments. Prosecutors, who operate within the executive branch, might of course be expected not to pursue wire fraud prosecutions based on smuggling schemes aimed at blatantly hostile countries, but whether conduct is criminal cannot be a determination left solely to prosecutorial discretion. Rather, the longstanding rule instructs the courts to leave this area alone, so that the legislative and executive branches may exercise their authority and bargaining power to deal with such issues, and also so that a foreign government's revenue laws are not subjected to intrusive scrutiny by the courts of this country. 23 It is true that the existence of a more specific penal statute, such as the current anti-smuggling statute, 18 U.S.C. § 546, would not be deemed impliedly to preempt the general federal anti-fraud statutes if effect could comfortably be given to both. See, e.g., United States v. Brien, 617 F.2d 299, 310 (1st Cir.) (holding that Commodities Futures Trading Act does not preempt or impliedly repeal wire or mail fraud statutes and citing related cases), cert. denied, 446 U.S. 919, 100 S.Ct. 1854, 64 L.Ed.2d 273 (1980); Brewer, 528 F.2d at 498 ([Defendant's] use of the mails to escape regulation added a different element and a new dimension to her failure to comply with the [Jenkins] Act.). Effect, however, cannot be given to section 1343 in these conditions without threatening the reciprocity provision in section 546, and offending generally the salutary principles underlying the revenue rule. If Congress, notwithstanding these inherent tensions, had meant to authorize the courts to enforce this kind of application of the wire fraud statute, we think it must speak more clearly than it has. McNally, 483 U.S. at 360, 107 S.Ct. at 2882. Our conclusion is further supported by the rule of lenity, which holds that the harsher of two possible readings of a criminal statute will be enforced only when Congress has spoken clearly. See id. at 359-360, 107 S.Ct. at 2881-2882; Fasulo v. United States, 272 U.S. 620, 629, 47 S.Ct. 200, 202, 71 L.Ed. 443 (1926) ([B]efore one can be punished [for mail fraud], it must be shown that his case is plainly within the statute.). We, therefore, hold that foreign tax and customs frauds, such as the instant one, are not schemes to defraud within the meaning of section 1343, and that defendants' substantive convictions of wire fraud under section 1343, based on the scheme to defraud Canada and Nova Scotia of duties and taxes, must be reversed. 24 Our holding that it was legal error to apply the wire fraud statute to defendants' Canadian smuggling scheme requires us to set aside the conspiracy conviction under 18 U.S.C. § 371 as well. Jurors are not generally equipped to determine whether a particular theory of conviction submitted to them is contrary to law, though they are generally able to analyze evidence and recognize a theory that is factually inadequate. Griffin v. United States, 502 U.S. 46, 59, 112 S.Ct. 466, 474, 116 L.Ed.2d 371 (1991); United States v. Nieves-Burgos, 62 F.3d 431 (1st Cir.1995) (Griffin distinguishes cases, like [Turner v. United States, 396 U.S. 398, 90 S.Ct. 642, 24 L.Ed.2d 610 (1970) ], which concern convictions that may have rested on a basis that was not supported by the evidence, from those concerning convictions possibly resting on an invalid ground as a result of an error of law [such as in Yates v. United States, 354 U.S. 298, 77 S.Ct. 1064, 1 L.Ed.2d 1356 (1957) ]). The district court instructed the jury that it could convict under section 371 if the government proved beyond a reasonable doubt that defendants conspired to commit at least one of the three offenses charged as objects of the conspiracy. Because it is impossible to tell which ground the jury based the conspiracy conviction upon, the conviction cannot stand. See Yates, 354 U.S. at 312, 77 S.Ct. at 1073. 25 The government contends that even if the wire fraud count falls, the conspiracy conviction should be affirmed based on at least one of the two other objects alleged. Since the jury found substantive violations of those statutes, the argument goes, we should infer that it unanimously found beyond a reasonable doubt that the conspiratorial agreement extended, with respect to all defendants, to at least one legally sufficient object. This contention might be persuasive where a district court does not give a one-is-enough charge, or a special verdict form is required of the jury, such that the reviewing court is not speculating on what the jury did or did not decide. Here, however, it is at least possible that the jury did not ask itself whether the conspiratorial agreement extended to the two valid objects (interstate travel with intent to commit bribery, and a scheme to defraud another of honest services) with respect to all defendants, instead focusing on the overall conspiratorial agreement to transport tobacco into Canada without paying taxes and duties. Cf. United States v. Carman, 577 F.2d 556, 567-568 (9th Cir.1978) (If the jury, when considering the conspiracy count, focused only on the crime embodied in the subsequently overturned substantive crime conviction the conspiracy conviction also should be overturned.... Criminal sanctions cannot rest on what an appellate court thinks the jury would have done had the issues put to it been framed differently.); see also United States v. Palazzolo, 71 F.3d 1233 (6th Cir.1995) (where defendants were convicted of substantive offenses that were also objects of a conspiracy, and district court gave erroneous instruction on one offense, court reversed conspiracy conviction because the verdict lends itself at least to the possibility that the jury found the defendants guilty only of conspiring to violate the legally inadequate count); United States v. Musacchia, 955 F.2d 3 (2d Cir.1991). Further, the two legally sufficient objects of the conspiracy were not so intricately intertwined with the invalid wire fraud count that we can necessarily say that the conspiracy conviction had a legally correct basis. Cf. United States v. Huebner, 48 F.3d 376 (9th Cir.) (Under the facts in this case, it would not have been possible for the jury to have found a conspiracy to aid and abet attempted [tax] evasion without also finding a conspiracy to defraud the United States by obstructing [tax] collection.... [T]here could be no danger that the jurors based their conspiracy verdict on finding that the object was to aid and abet attempted evasion without also finding that the object was to defraud the United States by obstructing collection.), cert. denied, --- U.S. ----, 116 S.Ct. 71, 133 L.Ed.2d 31 (1994). The conspiracy conviction is vacated and that count is remanded for further proceedings not inconsistent with this opinion, which may, in the prosecution's discretion, include a new trial on a properly narrowed indictment. See Yates, 354 U.S. at 327-328, 77 S.Ct. at 1081-1082; Palazzolo, 71 F.3d at 1238; United States v. Ochs, 842 F.2d 515, 529 (1st Cir.1988). 26